20020415Gale Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF IDAHO POWER COMPANY FOR AN )CASE NO.IPC-E-02-02ENERGYCOSTFINANCINGORDERAND)AUTHORITY TO INSTITUTE AN ENERGY )COST BOND CHARGE .)
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
JOHN R .GALE
1 Q.Please state your name and business address.
2 A.My name is John R.Gale and my business
3 address is 1221 West Idaho Street,Boise,Idaho.
4 Q.By whom are you employed and in what
5 capacity?
6 A.I am employed by Idaho Power Company as Vice
7 President of Regulatory Affairs.
8 Q.What is the purpose of your testimony in this
9 proceeding?
10 A.I will describe Idaho Power Company's
11 positions and proposals as they relate to a specific PCA
12 rate adjustment for the 2002/2003 PCA rate period,the
13 securitization of a portion of outstanding PCA costs,
14 carrying costs of PCA,implementation of rates,residential
15 rate design,and demand-side management initiatives.
16 Q.what exhibits are you sponsoring?
17 A.I am sponsoring the following exhibits:
18 Exhibit No.6 FERC Compliance Letter
19 Exhibit No.7 Idaho PCA Real-Time Pricing
20 Adjustments
21 Exhibit No.8 Schedule 57,Energy Cost Bond
22 charge.
23 Adiustment to PCA
24 Q.Mr.Said outlines the PCA components for this
25 year in his testimony.Did you direct Mr.Said to make an
GALE,DI 1
Idaho Power Company
1 adjustment to the booked true-up component within the PCA
2 calculation?
3 A.Yes.I have directed Mr.Said to decrease
4 the booked PCA true-up component result for the 2002/2003
5 PCA by $4,306,635.82.This adjustment is the Idaho
6 jurisdictional result of repricing the real-time
7 transactions from July 2001 through March 2002.
8 Q.How were these real-time transactions
9 originally priced?
10 A.After July 1,2001,the transactions were
11 priced in accordance with the methodology detailed in Idaho
12 Power's compliance filing with the Federal Energy Regulatory
13 Commission ("FERC")on May 14,2001.A copy of Idaho
14 Power's filing letter appears as Exhibit No.6 and the
15 complete filing is contained in my workpapers that have been
16 submitted to Staff and other intervenors.Under the FERC
17 compliance method,Idaho Power received IDACORP Energy's
18 ("IE")highest purchase price in any hour for energy
19 transfers to IE and paid IE's lowest sales price in any hour
20 for energy transfers from IE.The intent of this method was
21 to have Idaho Power obtain energy at the lowest price at
22 which IE was selling and to sell energy at the highest price
23 at which IE was buying.
24 Q.If this is true,then why propose to reprice
25 the real-time transactions?
GALE,DI 2
Idaho Power Company
1 A.Although calculated according to the method
2 previously described,the results indicate that Idaho Power
3 is disadvantaged under the mechanism.The problem occurs
4 because the compliance method at times includes only
5 transactions unrelated to the Northwest markets,because
6 there is no weighting by volume,and because there are more
7 hours without real-time transactions in them than when both
8 purchases and sales are used.
9 Q.When did the company become aware of this
10 transfer price problem?
11 A.It came to management's attention in late
12 March 2002 as Idaho Power prepared for the pending PCA case
13 and its accompanying audit by the Commission Staff.
14 Q.Has the company attempted to change the real-
15 time transfer price methodology through filings at the FERC?
16 A.Yes.Our original FERC filing used a
17 weighted average of all relevant IE transactions (both
18 purchases and sales)to set the real-time transfer price.
19 The company's original FERC request was identical to the
20 real-time transfer pricing method initially approved by the
21 Idaho and Oregon Commissions.The pricing mechanism
22 recommended provides market proxy for what Idaho Power would
23 have paid or received from a non-affiliate.The real-time
24 transfer price was not approved by the FERC as filed,and
25 the company subsequently made the FERC compliance filing
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Idaho Power Company
1 (Docket No.ERO1-1329-001)with the methodology currently in
2 place.
3 After the compliance filing was made,Idaho
4 Power again requested that the FERC accept a revised
5 weighted average approach for the real-time transfer price
6 (Docket No.ERO2-768-000).
7 In this second request for acceptance of the
8 weighted average approach,Idaho Power explained the
9 benefits of the weighted average pricing.These benefits
10 include first,an assurance that market anomalies in other
11 regions do not impact prices to Idaho Power because of the
12 use of transactions only within a relevant regional market;
13 second,Idaho Power has the benefit of all available
14 relevant market information by using of both sales and
15 purchases,and third,weighting by volume eliminates the
16 ability of IE to fix prices to Idaho Power by use of small
17 volume transactions.With the weighted average approach,
18 both Idaho Power and IE receive the same market driven
19 prices.The FERC on March 13,2002 submitted a letter order
20 to counsel for Idaho Power Company indicating that the
21 company's filing had not provided sufficient evidence that
22 the revised weighted average pricing methodology was
23 acceptable as a market index.
24 Q.what method was used to reprice the real-time
25 transactions from July 2001 until March 2002?
GALE,DI 4
Idaho Power Company
1 A.The weighted average of all IE transactions
2 (both purchases and sales)with an intertie point within
3 Idaho Power's control area.This was the original real-time
4 transfer price method filed with all three commissions -
5 Idaho,Oregon,and the FERC.The company continues to
6 believe that this method is an appropriate proxy for the
7 market for real-time transactions.
8 Q.What is the result of the repricing?
9 A.The net result is a $5.5 million cost
10 reduction on a system basis and a corresponding $4,306,636
11 cost reduction to the Idaho jurisdiction after sharing and
12 an interest component have been applied.A table showing
13 the calculation of the adjustment is Exhibit No.7 entitled
14 Idaho PCA Real time Pricing Adjustments.
15 Q.what does the company plan to do about this
16 situation?
17 A.It is essential that Idaho Power
18 expeditiously implement a single transfer pricing
19 methodology for real-time transactions that is fair to our
20 customers,the company,and IE.The weighted average
21 pricing methodology proposed in Docket No.ERO2-768-000
22 meets those criteria.What is unknown at this point is
23 whether the FERC simply needs more information from Idaho
24 Power to convince them that the methodology proposed by the
25 company is sufficiently "reliable and verifiable"or if they
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Idaho Power Company
1 are unwilling to accept any market price index that is not
2 proposed and published by a third party such as the Dow
3 Jones Mid-C Index they originally accepted for the day-ahead
4 transfer pricing.The March 13,2002 letter order Idaho
5 Power received denying the company's request did not provide
6 much guidance.The company intends to meet with the FERC
7 Staff one more time to see if it can obtain a firm
8 commitment from them one way or the other.Without such
9 commitment,it may be prudent for Idaho Power and the
10 commission to re-assess the continued viability of the
11 company's relationship with IDACORP Energy.
12 Securitization
13 Q.What do you mean by the term
14 "securitization"?
15 A.Securitization is the issuance of bonds under
16 a special Idaho statutory process to finance specific costs
17 -in this instance previously incurred expenses currently
18 being deferred in the company's PCA accounts.
19 Q.Have utilities used this type of
20 securitization in the past to finance specific unique costs?
21 A.Yes.Puget Sound Energy and Portland General
22 Electric issued bonds to finance their DSM programs.Also
23 California,Montana,Michigan,Texas,New Jersey,
24 Pennsylvania,Vermont,and New Hampshire utilities have used
25 bonds to finance utility stranded costs or reduce rates
GALE,DI 6
Idaho Power Company
1 under special statutory provisions as part of their
2 restructuring plans.
3 Q.Has the Idaho State Legislature enabled
4 utility companies to use this process to finance high
5 wholesale energy costs during unusual circumstances?
6 A.Yes,the Idaho State Legislature enacted
7 Title 61,Chapter 15 in its 2001 legislative session.This
8 legislation allows Idaho public utilities to issue bonds to
9 finance extraordinarily high PCA costs.
10 Q.what were the circumstances surrounding the
11 passage of this legislation?
12 A.At the time the Idaho legislation was
13 enacted,the western United States in general and Idaho in
14 particular was embroiled in an energy crisis stemming from
15 high wholesale energy market prices and a drought in the
16 northwest.Most electric utilities,including Idaho Power,
17 were impacted severely.The intent of the legislation was
18 to provide utilities and the Idaho Public Utilities
19 Commission a tool to use as a financing option for unusually
20 high PCA costs.
21 Q.why does Idaho Power maintain that the time
22 is ripe to utilize the securitization financing tool?
23 A.The western energy crisis has passed due to a
24 variety of supply and demand factors.After months of
25 taking a public position to the contrary,the FERC initiated
3ALE,DI 7
Idaho Power Company
1 wholesale price mitigation in the West in June 2001.
2 Additional supply was brought on to meet the energy crisis
3 including the company's Evander Andrews Plant outside
4 Mountain Home,Idaho.Demand for energy dropped for a
5 number of reasons -response to price increases,recession,
6 load reduction programs,and increased consumer
7 conservation.As a result,wholesale prices have returned
8 to pre-crisis levels.Hydroelectric generating conditions
9 have improved dramatically following last year's drought
10 conditions even though they are still below historical
11 normal levels.
12 The company has planned to meet its expected
13 deficiencies through the next PCA cycle and,as a result of
14 the crisis,has implemented improved risk management
15 techniques.Idaho Power,as well as the West,has learned
16 from the energy crisis and is in much better shape today to
17 manage the next energy situation.
18 At this time,there is only one year of
19 extraordinary high costs remaining to be recovered through
20 rates.Spreading the recovery of a portion of these costs
21 over a number of years offers an opportunity to reduce rates
22 immediately and finance those costs at favorable interest
23 rates.
24 Q.What is Idaho Power's securitization plan?
GALE,DI 8
Idaho Power Company
1 A.The company proposes to finance approximately
2 $172 million through a bond issuance.Idaho Power's retail
3 customers would pay the bonds back over a planned three-year
4 period through an itemized charge on their bill.By statute
5 the charge would be based on energy consumed -a charge per
6 kilowatt-hour.The charge would be reflected in Schedule
7 57,Energy Cost Bond Charge,which is Exhibit No.8.The
8 $172 million represents three primary components:(1)$147
9 million of Idaho Power's PCA costs associated with voluntary
10 load reductions for irrigation customers and for Astaris
11 LLC,(2)$18 million of the remaining uncollected expenses
12 associated with the October 1,2001 PCA rate increase,and
13 (3)up to $7 million in estimated overhead costs of putting
14 the financing together.
15 Q.why did the company decide to securitize the
16 program costs?
17 A.The program costs are unique,provided for
18 specifically by Commission orders,easily audited and
19 verified,and already the subject of a Commission
20 proceeding.These costs are atypical of the company's usual
21 means of providing resources to meet loads.It is highly
22 unlikely that these programs will be offered again in the
23 foreseeable future.The programs were implemented as the
24 result of specific proceedings resulting in specific
25 Commission orders.Commission Order No.28699 approved the
GALE,DI 9
Idaho Power Company
1 irrigation load reduction program and Commission Order No.
2 28695 approved the Voluntary Load Reduction Agreement with
3 Astaris.Also,the costs of both programs are currently the
4 subject matter of an existing docket,Case No.IPC-E-01-34,
5 which seeks a determination on the specific amount of cost
6 recovery for these programs.Finally,the Staff had already
7 audited the bulk of these transactions at the time Idaho
8 Power submitted its application to the Commission in this
9 instant proceeding,thus facilitating an expedited process.
10 Q.Why include the residual piece of the
11 October 1,2001 rate increase?
12 A.Including the remaining costs will further
13 levelize rates,particularly for the irrigation customer
14 class and the summer residential load.Also,these costs
15 have already been approved for recovery by the Commission in
16 order No.28852.They do not need additional validation or
17 audit before being included in the amount to be securitized.
18 Q.What are the financing costs?
19 A.They are the costs of putting the bond
20 issuance together.They include assorted fees required to
21 issue the bonds such as underwriting,special outside legal
22 counsel,registration,rating agency,and other
23 administrative costs.Idaho Power has initially estimated
24 these costs to be no more than $7 million.At this time the
25 current total estimate for these costs is expected to be
GALE,DI 10
Idaho Power Company
1 closer to $5.3 million.Of this,an additional $1.7 million
2 can be avoided should the Commission decide to direct the
3 company to self-fund the capital required to establish the
4 special purpose entity discussed later.
5 Q.What is the expected interest rate for the
6 proposed bonds?
7 A.At this time,the company anticipates the
8 bonds will carry a 4.5%interest rate -the best bond rate
9 that can be obtained.
10 Q.can Idaho Power issue bonds for this interest
11 rate?
12 A.No,it is only as a result of the legislation
13 that allows securitization,and thus a favorable interest
14 rate.
15 Q.Is there a prescribed public interest
16 standard to guide the Commission in its deliberations
17 concerning the issuance of energy cost recovery bonds?
18 A.Yes.The legal standard is set forth in
19 Title 61,chapter 15,Idaho Code §61-1503 (1).This
20 standard is discussed in Idaho Power Company's Legal
21 Principles Applicable to Energy Cost Bonding/Securitization
22 that have been filed as part of this proceeding.
23 Q.In the event the Commission determines that
24 it is in the public interest to authorize the issuance of
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Idaho Power Company
1 energy cost recovery bonds,could you briefly describe the
2 process for issuing the bonds?
3 A.Once the Commission order has been issued
4 authorizing the approval of the sale of bonds,a special
5 purpose financing entity ("SPE")is created.The SPE then
6 acquires the energy cost property,which in this case is the
7 $147 million of voluntary load reduction programs and the
8 estimated remaining amounts to be collected on the
9 October 1,2001 PCA in the sum of $18 million.The SPE then
10 issues bonds,and Idaho Power Company then "sells"the
11 energy cost property to the SPE.An energy cost bond
12 recovery charge is then instituted to repay the SPE.The
13 exact structure of the proposed securitization is set forth
14 in Exhibit No.9,the proposed order,specifically pages 19
15 through 21.
16 Q.what did the company consider when evaluating
17 the amount to be securitized?
18 A.The company considered several things
19 including:(1)an amount sufficient enough to warrant
20 issuing bonds from an economic perspective,(2)the desired
21 rate recovery period,and (3)the ease of Commission audit
22 and validation.
23 Q.why did the company consider a minimum amount
24 to be securitized?
GALE,DI 12
Idaho Power Company
1 A.The amount to securitize is primarily an
2 economic consideration.Many of the overheads involved in
3 issuing bonds are fixed and so as the total amount to
4 securitize increases,the overhead is spread over more
5 dollars thus reducing the impact of the overall financing
6 rate (fees plus interest).
7 Q.Why is the company proposing a three-year
8 rate to pay back the bonds?
9 A.The company desires to limit the exposure to
10 the possibility of having another unusually high PCA
11 increase occur before this one is paid off and believes this
12 is a desire of the Commission as well.The Statute provides
13 for even a longer period of time to recover the securitized
14 amount through rates.Obviously a longer plan,such as five
15 years,would provide for an even greater first year rate
16 reduction.
17 Q.Why is the ease of audit and expense
18 validation a consideration in determining the amount to be
19 securitized?
20 A.The timing of an energy-related bond issuance
21 is quite compressed.Idaho Power sought to include expenses
22 that could be quickly audited,verified,and authorized for
23 cost recovery by the Commission.
24 Q.What is the approximate annual percentage
25 rate (or net effective rate)for financing the deferred
GALE,DI 13
Idaho Power Company
1 costs when both the overhead fees and interest are
2 considered under the company's proposal?
3 A.The annual percentage rate would range from
4 5.9%to 7.3%depending on what the ultimate financing fees
5 are.
6 Q.For comparison purposes,what is the
7 company's overall rate of return from its last general rate
8 case in Idaho?
9 A.The overall rate of return granted in IPC-E-
10 94-5 was 9.2%.This represents the composite cost structure
11 (debt,equity,and preferred stock)the company relies on to
12 finance its capital items.
13 Q.How might the authorization of securitization
14 impact this year's PCA?
15 A.If the issuance of bonds is approved,the
16 deferred expense account balance would decrease by
17 146,864,392.This would change the true-up portion of this
18 year's PCA rate from 1.6903 to 0.5785 cents per kilowatt-
19 hour.The 0.5785 cents per kilowatt-hour is calculated by
20 dividing the adjusted deferred expense account balance of
21 $76,422,335 by the 2000 normalized Idaho jurisdictional firm
22 sales 13,209,552 MWHs.The effective rate would be the
23 combination of the updated true-up portion of the PCA of
24 0.5785 cents per kilowatt-hour and the projected power cost
25 portion of the PCA of 0.2156 cents per kilowatt-hour,and
GALE,DI 14
Idaho Power Company
1 the estimated securitization rate of 0.5600 cents per
2 kilowatt-hour,totaling an effective rate adder of 1.3541
3 cents per kilowatt-hour above base rates.This amount would
4 be 0.3700 cents per kilowatt-hour less then the existing PCA
5 rate of 1.7241 cents per kilowatt-hour which include both
6 the increase approved in April of 2001 and the increase
7 approved in October of 2001.
8 Carrying Costs of PCA
9 Q.what has the Commission authorized as the
10 carrying charge on the true-up deferral balance?
11 A.The Commission has authorized an interest
12 rate equal to the amount provided on customer deposits -
13 currently 4%--as the carrying charge on the true-up
14 balance.The Commission has not made a determination on the
15 appropriate carrying charge if balances are ordered to be
16 carried for longer time periods.
17 Q.Does Idaho Power have any recommendations
18 regarding the carrying costs applied to the PCA on a going
19 forward basis?
20 A.Yes.First,I recommend changing the
21 interest rate applied to the deferral balances to the
22 company's overall rate of return of 9.2%on a prospective
23 basis beginning June 1,2002.The change is important
24 because the deferral balances are much greater than ever
25 anticipated (and thus the interest needs to be more
GALE,DI 15
Idaho Power Company
1 reflective of true carrying costs),the symmetry of outcomes
2 originally envisioned by the PCA has been disrupted by the
3 energy crisis,and the company's overall rate of return
4 provides a more appropriate cost of financing to compare
5 against other methods -specifically the company's
6 securitization proposal this year.
7 Q.Would your interest rate change continue to
8 apply to both positive and negative PCA deferral balances?
9 A.Yes.
10 Q.How would your proposal impact the 2002/2003
11 PCA recovery alternatives?
12 A.It would have a neutral impact to either a
13 full one-year recovery or the company's securitization plan.
14 since at this time,no one knows how next year's actuals
15 will compare to the forecast,the higher interest could
16 impact rates in either direction.However,the change in
17 the interest rate would impact any alternative that would
18 require Idaho Power to continue to finance deferred PCA
19 expenses for more than the upcoming year.Absent a
20 realistic carrying charge on deferred balances,a PCA
21 decision could be made based upon mathematics,but not
22 economics.
23 Q.Do you support the interest rate change for
24 the long-term?
25 A.Yes.I recommend that the interest rate be
GALE,DI 16
Idaho Power Company
1 set at the company's Idaho overall rate of return and that
2 the interest rate change with each new Commission
3 determination where capital costs and the overall rate of
4 return are reviewed.
5 Q.Is there any additional PCA result related to
6 interest that you would like to call to the Commission's
7 attention?
8 A.Yes.As I stated before,the original PCA
9 anticipated symmetry of outcomes both in the forecasted
10 amounts and in the true-ups.Also,the true-up amounts were
11 not anticipated to grow to the level they did during the
12 energy crisis.Under these assumptions,stopping the
13 accrual of interest on the deferral balances once new PCA
14 rates were implemented each spring was not a major
15 consequence.However,when balances reach one hundred
16 million dollars or more,the impact of carrying those
17 balances (at any legitimate interest rate)is material.For
18 example,the interest on the $47.7 million in case Nos.IPC-
19 E-01-07 and IPC-E-01-11 for seven months at 4%interest
20 amounted to $1,191,628.
21 Accordingly,although the company does not
22 have a methodological fix for this issue,Idaho Power asks
23 the commission to value these carrying costs in the recovery
24 alternatives it considers.Even at 4%interest a one-year
25 PCA recovery of $252 million will cost $5.5 million to carry
GALE,DI 17
Idaho Power Company
1 the debt and keeping today's rate levels constant at $217
2 million would cost $4.7 million.The current PCA
3 methodology does not recognize these costs although they are
4 a very real cost to the company.
5 Q.Are there any other financial implications of
6 the company financing the deferrals itself?
7 A.Besides inadequate interest on continued
8 deferrals,and cessation of interest on deferrals placed
9 into rates,Idaho Power's financial ratios are worse under a
10 company-financing model than under the bond proposal because
11 the rating agencies exclude bond financings in their ratio
12 analyses.These ratios can and do impact the company's
13 overall financing costs.Finally,and obviously,the
14 company's cash flow situation is greatly improved under the
15 bond proposal.
16 Implementation of New Rates
17 Q.What are the considerations involved in
18 implementing the new PCA rate coincidently with a bond
19 charge?
20 A.Absent a Commission-ordered departure from
21 past procedures,the PCA implementation date is May 16.The
22 bonds cannot actually be sold until a securitization
23 commission order for this proceeding becomes final.Given
24 the schedule for this proceeding,it is impossible to have a
25 final order before May 16,but it is a distinct possibility
GALE,DI 18
Idaho Power Company
1 that the initial order will be issued.The overlap period
2 dated from May 16 appears to be about 16 days if everything
3 proceeds normally.
4 Q.Do you believe it is important to have a
5 simultaneous PCA and bond rate change?
6 A.Yes.All parties should seek to have one net
7 adjustment this spring rather than two differently timed
8 rate adjustments going in opposite directions.
9 Q.what is the company's proposal for handling
10 this situation?
11 A.Ideally,the current PCA would remain in
12 place until both the bond charge and the new PCA rate could
13 be implemented together on or about June 1,2002.This
14 approach raises two issues that can be addressed,-over-
15 collection under the current PCA and the impact on the
16 irrigation class.Should the implementation date be
17 extended to June 1,2002,there would be 16 days of over-
18 collection that can easily be identified and applied to next
19 year's true-up.Based upon the company's request,the
20 amount over-collected between May 16,2002 and June 1,2002
21 would be very small.The issue related to the irrigation
22 class concerns the fact that irrigation loads are seasonal
23 and that they will be disproportionally impacted by the
24 extra days at the higher rate.On the other hand,under the
25 company's plan,the irrigators will avoid most of their
GALE,DI 19
Idaho Power Company
1 costs related to the October 1,2001 rate change because
2 those amounts are proposed to be securitized.Considering
3 the short time period that rates would need to be extended
4 and the offsetting rate impact to irrigators by securitizing
5 the October 1,2001 amount,Idaho Power supports a June 1
6 combined rate implementation.
7 Q.If the Commission does not desire to move the
8 May 16 date to June 1,is there another approach that can
9 address all the requirements of the PCA and the bond
10 issuance?
11 A.Yes.Based upon the Commission's initial
12 order in the two instant dockets,the company can file
13 tariffs that would implement rates on May 16,2002,that
14 would be reflective of the combined new PCA charge and the
15 bond charge.The purpose would be to change rates to the
16 new levels on May 16 even though the bond charge would not
17 be known precisely until the bonds were actually priced and
18 sold after a final Commission order.Once the bonds have
19 been issued,the company would submit new tariffs including
20 the final PCA charge,Schedule 55,and the final energy cost
21 bond charge,Schedule 57.Because the SPE cannot be funded
22 until the bonds have been sold,there will be a short timing
23 mismatch in the PCA that can be accounted for in next year's
24 true-up.
GALE,DI 20
Idaho Power Company
1 Residential Rate Design
2 Q.Does Idaho Power recommend the current
3 residential three-tiered rate structure be eliminated?
4 A.Yes.
5 Q.What does Idaho Power recommend be
6 implemented in place of the three-tiered rate structure?
7 A.Idaho Power recommends that a flat rate for
8 all kilowatt-hours of energy consumption be implemented for
9 residential customers on May 16 coincident with the
10 implementation of new PCA rates.
11 Q.Why is Idaho Power making this
12 recommendation?
13 A.Energy is a commodity,which is bought and
14 sold in the marketplace much like other commodities.Idaho
15 Power purchases hundreds of thousands of kilowatt-hours in
16 the marketplace each year.Purchases are made to meet the
17 load requirements of our customers on a system basis.
18 Specific purchases to meet the load requirements of
19 individual customer groups are not made and,therefore,it
20 is impossible to identify costs as being caused by certain
21 customers.For example,Idaho Power does not transact
22 specific purchases to meet the load requirements of only
23 residential space heat customers or the load requirements of
24 only industrial food processors.Rather,purchases are made
25 to supply the energy needs for the system as a whole.While
GALE,DI 21
Idaho Power Company
1 the price paid for each purchase will vary depending on when
2 and where the purchase is made,the price paid for the
3 energy included in the purchase will be the same for each
4 kilowatt-hour regardless of what end-use will ultimately
5 consume the energy.That is,the price Idaho Power pays for
6 energy does not depend on whether the energy ultimately is
7 consumed by industrial,irrigation,commercial,electric
8 space heat,or small residential customers.In order for
9 the PCA component of customers'rates to be reflective of
10 the cost of the energy commodity,and the nature in which
11 the commodity is purchased,the PCA should be uniform for
12 all customers and all customer classes.
13 Q.Are there differences between the various
14 customer classes that should be taken into account when
15 setting the PCA component?
16 A.while load factors and line losses vary
17 between customers and customer classes,the costs associated
18 with these differences are factored into the base energy
19 and,where applicable,demand charges.The PCA is intended
20 to recover,or refund,the variable component of power
21 supply expenses.To provide a clear price signal on this
22 variable component of energy,the PCA should be established
23 as a flat,uniform charge.
24 Q.Has the company's pricing of energy in its
25 service schedules historically reflected a flat commodity
GALE,DI 22
Idaho Power Company
1 price?
2 A.Yes.With the exception of last year's
3 residential rate,the company's energy rates for all of its
4 service schedules have been flat,since the early 1980s,
5 meaning the price for all kilowatt-hours consumed by
6 customers within the class is the same.
7 Q.Why has the company continued to support a
8 flat energy rate for all kilowatt-hours of consumption?
9 A.As I have already stated,energy is a
10 commodity.As such,the energy charge should reflect only
11 energy related costs.It has been,and continues to be,a
12 company goal to establish charges that are reflective of the
13 true cost of providing service.To the extent that the
14 energy charge is designed to recover only energy related
15 costs,there is no cost basis for establishing variable
16 energy prices based solely on quantity of consumption within
17 customer classes.
18 Q.Is the PCA proceeding the appropriate time to
19 make major rate design changes?
20 A.No.The PCA was designed to be a flow-
21 through rate mechanism that could be processed under an
22 expedited time frame.Major rate design changes should be
23 performed in the context of a general rate case or a
24 separate proceeding like was done for Schedule 19 service in
25 Case No.IPC-E-92-7.
GALE,DI 23
Idaho Power Company
1 Q.Has the PCA mechanism historically reflected
2 a uniform,flat commodity price?
3 A.Yes.When the PCA was initially approved
4 through Commission Order No.24806,an equal cents per
5 kilowatt-hour.charge for all customer classes was adopted as
6 a 'cost-based,logical,and equitable method of allocating
7 power supply costs"(Order No.24806,p.19)to customers.
8 A flat,uniform PCA rate was approved by the Commission each
9 year since the PCA was adopted in 1993,until the Commission
10 ordered the implementation of a tiered PCA rate for
11 residential customers with the 2001 PCA.
12 Q.Are there other reasons why Idaho Power is
13 recommending a flat PCA charge be implemented?
14 A.Yes.In addition to the company's belief
15 that the PCA should reflect the commodity price associated
16 with variable power supply expense,Idaho Power is
17 recommending a flat PCA charge for residential customers be
18 implemented for a number of other reasons.First,Idaho
19 Power believes that the current three-tiered rate structure
20 unfairly penalizes customers who utilize electric energy for
21 space heating and air conditioning and provides an incorrect
22 price signal for customers who use less than 800 kilowatt-
23 hours per billing cycle.Second,the three-tiered rate
24 structure exacerbates the existing residential intra-class
25 subsidy.And third,the three-tiered rate structure results
GALE,DI 24
Idaho Power Company
1 in our customers'perception that meter reading intervals
2 longer than 30 days are unfair.
3 Q.How does the three-tiered rate structure
4 unfairly penalize residential customers who utilize electric
5 energy for space hearing?
6 A.Commission order No.28722,which directed
7 the three-tiered rate structure for residential customers to
8 be implemented,indicated that the tiered structure was
9 intended to give a stronger conservation signal to those
10 customers who utilize electric space heat.Although some
11 customers with electric space heat may have the ability to
12 conserve some energy without endangering their health by
13 lowering their thermostats,they do not necessarily have
14 more ability to conserve electricity than do other customers
15 who use other fuel sources for space heating.Idaho Power
16 strongly believes that the three-tiered rates place an onus
17 on customers with electric space heat that is
18 disproportionate to the customers'ability to conserve.In
19 essence,the three-tiered rate structure simply causes
20 customers with electric space heat,many of whom do not have
21 an alternative form of space heating available,to pay
22 significantly higher bills while customers with other forms
23 of space heat receive an artificially low price signal.
GALE,DI 25
Idaho Power Company
1 Q.How does the three-tiered rate structure
2 provide an artificially low price signal to customers who
3 use less than 800 kilowatt-hours?
4 A.The three-tiered rate structure implies that
5 the energy consumed by high-use customers is more valuable
6 than the energy consumed by low-use customers and,
7 therefore,provides more emphasis on energy conservation by
8 high-use customers than by low-use customers.However,
9 since energy is a commodity,Idaho Power believes that all
10 customers should receive the same price signal to conserve
11 energy.A flat energy rate for all kilowatt-hours of
12 consumption provides a truer cost-based price signal than do
13 the tiered rates and effectively conveys to all customers
14 that each kilowatt-hour of energy that is conserved has
15 value without placing the onus for conservation on electric
16 space heat customers or other customers with usage greater
17 than 800 kilowatt-hours.
18 Q.Please explain why there is a subsidy within
19 the residential class.
20 A.Although the $2.51 customer charge for
21 residential service recovers a small portion of the fixed
22 costs associated with providing service,under the company's
23 current rate design,the majority of the fixed costs are
24 recovered through the energy rate.Since the energy rate is
25 the means for recovery of the majority of the fixed costs
GALE,DI 26
Idaho Power Company
1 associated with providing service,customers who consume
2 little energy contribute less towards the recovery of fixed
3 costs than the actual fixed costs required to provide them
4 service.Conversely,customers with high energy consumption
5 contribute more towards the recovery of fixed costs than the
6 actual fixed costs required to provide them service.
7 Q.How does the three-tier rate structure
8 exacerbate the existing subsidy?
9 A.The three-tiered rate structure was created
10 by apportioning a larger amount of the PCA-related costs to
11 each of the three tiers.As such,proportionally more power
12 supply-related costs are recovered from kilowatt-hours as
13 usage is billed in the second and third tiers.Thus,
14 customers with high-energy consumption contribute more
15 towards the recovery of PCA-related costs on a per kilowatt-
16 hour basis than do customers with low energy consumption.
17 Q.Please explain how this intra-class subsidy
18 can be removed.
19 A.The fixed cost related intra-class subsidy
20 can be removed by establishing a customer charge that fully
21 recovers the fixed costs associated with providing service.
22 Once a "full cost"customer charge is established,the
23 energy charge recovers only energy related costs.
24 Consequently,the full cost to provide service is recovered
25 from each customer regardless of the amount of energy
GALE,DI 27
Idaho Power Company
1 consumed.The PCA-related intra-class subsidy can be
2 removed by establishing a flat energy rate for all kilowatt-
3 hours consumed.
4 Q.How does the three-tiered rate structure
5 impact Idaho Power's operations?
6 A.Idaho Power establishes its meter reading
7 schedules to maximize efficiency and minimize costs while
8 attempting to read meters as close to every 30 days as is
9 possible taking into account weekends and holidays.In
10 setting the meter reading schedules,it is necessary at
11 times to establish billing cycles with as many as 31,32,
12 or,occasionally,33 days.With a flat energy rate,
13 customers are not affected by the number of days in their
14 billing cycle as each kilowatt-hour of energy consumed is
15 charged the same.However,with tiered rates,the number of
16 days in a billing cycle can impact the customers'bills if
17 usage is greater than 800 kWh or greater than 2000 kWh.
18 Customers have expressed their dissatisfaction with the
19 effect the company's standard practice concerning meter
20 reading intervals has on their bills when combined with
21 tiered rates.As our service territory experiences growth,
22 Idaho Power periodically needs to make changes to its meter
23 reading routes to balance the number of meters read each day
24 and thus maximize personnel time.When routes are revised,
25 the first billing cycle is typically either somewhat shorter
GALE,DI 28
Idaho Power Company
1 or somewhat longer than the standard cycle in order to
2 assimilate the regrouped meter reading routes into the
3 company's billing sequence.Because of the impact the
4 tiered-rates have on customers'bills when the billing cycle
5 is longer than 30 days,Idaho Power has postponed revamping
6 our meter reading routes to minimize the negative impact to
7 our customers.However,the result has been a decrease in
8 the efficient utilization of the company's personnel.The
9 three-tier rate structure also creates a customer perception
10 problem when meter readings are estimated because estimated
11 kilowatt-hours may have a billing impact under the tiered
12 approach that would not occur under flat rates.
13 Q.If the commission decides to return to a flat
14 rate design for residential customers,will there be
15 customers who are disadvantaged by the change from tiered
16 rates?
17 A.Yes.The customers who will be disadvantaged
18 will be the same customers who were advantaged by last
19 year's rate design change.On the opposite end,those
20 customers who suffered the most under the tiered rate system
21 will get the most relief.The effect,however,will be
22 dampened to all customers under a rate moderation plan such
23 as the company's bond proposal.
GALE,DI 29
Idaho Power Company
1 DSM Initiatives
2 Q.What is the company's position on Demand-Side
3 Management ("DSM")funding?
4 A.Stable and predictable conservation DSM
5 funding can help preserve continuity in the support and
6 promotion of energy efficiency programs.Idaho Power has
7 maintained that if the Commission desires to implement long-
8 term DSM programming then a sustaining funding mechanism
9 must be approved prior to the effective deployment of a DSM
10 program.In compliance with commission order No.28722,
11 Idaho Power proposed that its Energy Efficiency Program
12 filed July 31,2001 be funded through an Energy Efficiency
13 Rider should the Commission decide that utility-sponsored
14 DSM efforts are good public policy.
15 As filed,the Energy Efficiency Program
16 promotes the efficient use of electrical energy by providing
17 Idaho Power customers with access to information,products
18 and financing to assist them in making energy efficient
19 decisions and investments.The Program is consistent with
20 Idaho Power's conservation philosophy;that is to provide
21 meaningful levels of conservation programming while avoiding
22 rate impact concerns by customers.
23 The company also supports the Energy
24 Efficiency Rider concept because it allows for the
25 implementation of proven efficiency measures without adding
GALE,DI 30
Idaho Power Company
1 to Idaho Power's already significant DSM deferred balance of
2 approximately $27 million for past DSM programs.The
3 deferring of expenses associated with DSM programming is not
4 sustaining,has proven to be unsatisfactory in practice,and
5 compounds the ultimate cost to customers.
6 Accordingly,should the Commission desire
7 further funding of conservation programs,a tariff rider
8 that provides for the recovery of energy efficiency program
9 expenses on an ongoing basis is the appropriate mechanism.
10 Q.Has the company pursued any DSM programming
11 since its initial compliance filing?
12 A.In response to the company's compliance
13 filing,the Commission postponed consideration of the Energy
14 Efficiency Rider and the Energy Efficiency Program issued in
15 order No.28894.The order directed Idaho Power to
16 implement limited demand-side management programs for the
17 2001-2002 winter heating season as well as organize the
18 Idaho Power Energy Efficiency Advisory Group.The company
19 provided compact fluorescent lights to residential
20 customers,distributed informational packets to targeted
21 customers,expanded the availability of the "Home Energy
22 Audit"program,enhanced it's funding to the Low Income
23 weatherization program,created a charter for the Energy
24 Advisory Group,identified and invited participants,and
25 convened the first meeting of the Energy Efficiency Advisory
GALE,DI 31
Idaho Power Company
1 Group for April 30,2002.These activities were undertaken
2 in addition to Idaho Power's ongoing participation in the
3 Northwest Energy Efficiency Alliance ("NEEA")and the Low
4 Income Weatherization Assistance ("LIWA").In 2001,Idaho
5 Power spent over $2 million in energy efficiency related
6 activities.
7 Q.How much funding for DSM programming does
8 Idaho Power currently collect from its customers as part of
9 commission approved rates?
10 A.All funding for DSM activity has been
11 stripped from the company's revenue requirement in prior
12 commission proceedings except for NEEA and LIWA commitments.
13 In 1997,Commission Order No.27660 stated that the amount
14 of DSM expense to be embedded in the company's rates be set
15 at $212,534.The supplemental monetary outlays that the
16 company has made to support additional efficiency activities
17 have been expensed directly without a corresponding rate
18 adjustment.The NEEA activities are funded with revenue
19 sharing amount the company set aside with Commission
20 approval.
21 Q.What is the status of Idaho Power's Energy
22 Efficiency Program application?
23 A.The Commission has indicated its intent to
24 revisit funding of Idaho Power's Energy Efficiency Program
25 in the company's PCA application for the May 16,2002
GALE,DI 32
Idaho Power Company
1 through May 15,2003 period.Idaho Power awaits an orderly
2 determination by the Commission that should resolve the two
3 critical issues regarding the appropriate funding for
4 conservation measures via the Energy Efficiency Rider and
5 the creation of successful and effective DSM programo under
6 the Energy Efficiency Program.
7 Q.Does this complete your testimony?
8 A.Yes
GALE,DI 33
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
Case No.IPC-E-02-2/3
Idaho Power Company
Schedule 57
Energy Cost Bond Charge
Exhibit No.8
J.Gale
IDAHO POWER COMPANY
l.P.U.C.NO.26,TARIFF NO.101 ORIGINAL SHEET NO.57-1
SCHEDULE 57
ENERGY COST BOND CHARGE
APPLICABILITY
This schedule is applicable to the electric energy billed to all retail Customers throughout theCompany's service area within the State of Idaho,including the first block portion of the FMC/Astarisspecialcontract,the energy billed to other retail Customers taking service under special contract,and,onandafterJuly21,2002,the energy billed to the existing and future retail Customers located within thePrairieServiceArea.
This schedule sets out the rates,terms and conditions under which an Energy Cost Bond ChargeshallbebilledandcollectedbytheCompany,a successor Servicer,or any third party that may assumetheresponsibilityforbillingorcollectingsuchchargeonbehalfoftheowneroftheEnergyCostPropertypursuanttothetermsoftheFinancingOrderandtheServicingAgreement.
DEFINITIONS
For the purposes of this schedule the following terms shall have the following meanings:
Enerav Cost Bond Charae is a non-bypassable charge,expressed in cents per kWh,applied toeachCustomer's billed energy on a monthly basis.The monthly Energy Cost Bond Charge will beseparatelystatedontheCustomer's regular bill.
Enerav Cost Property is the property created by the Financing Order pursuant to Title 61,IdahoCode,Chapter 15.
Eneray Cost Recovery Bonds are the debt securities issued by the Special Purpose Entity pursuanttoTitle61,Idaho Code,Chapter 15 and the Financing Order,together with any additional such securitiesissuedpursuanttoTitle61,Idaho Code,Chapter 15 and any subsequent energy cost financing ordersissuedpursuanttoTitle61,Idaho Code,Chapter 15.
Financinq Order is the energy cost financing order issued by the Commission pursuant to Title 61.Idaho Code,Chapter 15,Order No.
Servicer is the entity responsible for,among other things,billing and collecting the Energy CostBondCharge.
Servicinq Aareement is the agreement,dated ,2002,between the Company,asServicer,and the Special Purpose Entity,as from time to time in effect.
Special Purpose Entity is the owner of Energy Cost Property,on behalf of which the Energy CostBondChargeiscollected.
DETERMINATIONOF ENERGY COST BOND CHARGE
The Energy Cost Bond Charge shall be adjusted no less frequently than annually in order to ensurethatexpectedEnergyCostBondChargecollectionsaresufficienttopay,on a timely basis,the principal ofandinterestonallEnergyCostRecoveryBondsandallotherenergycostamountsapprovedintheFinancingOrder.The Energy Cost Bond Charge for a period is determined by dividing (a)the amountnecessarytopay,on a timely basis,the principal of and interest on the Energy Cost Recovery Bonds and
Exhibit No.8IDAHOIssuedbylDAHOCaseNo.IPC-E-02-2Issued-John R.Gale,Vice Presiden J.Gale,IPCo-DirEffective-1221 West Idaho Page 1 of 2
IDAHO POWER COMPANY
l.P.U.C.NO.26,TARIFF NO.101 ORIGINAL SHEET NO.57-2
SCHEDULE 57
ENERGY COST BOND CHARGE
(Continued)
DETERMINATION OF ENERGY COST BOND CHARGE(Continued)
all other approved projected energy cost amounts for the period (giving effect to lags between billingandcollectionandallowingforuncollectibles)by (b)the projected kilowatt-hours of retail energy to bebilledfortheperiod.
ENERGY COST BOND CHARGE
The Energy Cost Bond Charge is ¢per kWh for each billed kWh.
PAYMENT
The billing and payment of the Energy Cost Bond Charge shall be on terms identical to the billingandpaymentprovisionsoftheservicescheduleorspecialcontractunderwhichtheCustomeristakingservice.
EXPIRATION
This schedule shall remain in effect until the Energy Cost Bond Charge collections have been madeandremittedtotheSpecialPurposeEntityinanamountsufficienttosatisfyallobligationsoftheSpecialPurposeEntityinregardtopayingtheprincipalofandinterestontheEnergyCostBondstogetherwithallotherenergycostamountswhoserecoverythroughtheEnergyCostBondChargeisauthorizedintheFinancingOrder,as provided in Title 61,Idaho Code,Chapter 15.This schedule is irrevocable and non-bypassable for the full term during which it applies.
Exhibit No.8
Case No.IPC-E-02-2/3
J.Gale,IPCo-Dir
Page 2 of 2
IDAHO Issued by IDAHO POWER COMPANYIssued-John R.Gale,Vice President,Regulatory AffairsEffective-1221 West Idaho Street,Boise,idaho
BEFORE THEIDAHOPUBLICUTILITIESCOMMISSION
Case No.IPC-E-02-2/3
Idaho Power Company
Idaho PCA
Real Time Adjustments
Exhibit No.7
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BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
Case No.IPC-E-02-2/3
Idaho Power Company
FERC Compliance Letter
Exhibit No.6
J.Gale
STEPTOE &JOI-L SON LLP
shconna ec2oË-9s
ATTORNEYS AT LAW Telephone [phone]
Facsimile 3 429.3902
www.steptst.com
Gary A.Morgans
202.429.6234
gmorganslisteptoe.com
May 14.2001
David P.Boergers,Secretarv
Federal Energy Regulatory Commission
888 First Street,N.E.
Washington,D.C.20426
Re:ldaho Power Company and IDACORP Energy Solutions.LP
Docket No.ER01-1329-001
Dear Mr.Boergers:
Enclosed for filing are an original and five copies of ldaho Power Company's
(ldaho Power)and IDACORP Energy Solutions,LP's (IES)(jointly,Applicants)
Compliance Filing in the above-captioned proceeding.The filing is being submitted incompliancewiththeCommission's April 27,2001 order in this proceeding.Idaho Power
Co.and lDACORP Energy Solutions,LP,95 FERC ¶61,147 (2001).
As directed by the Commission,Attachments A and B to this letter modify theAgreementforElectricitySupplyManagementServicesBetweenIdahoPowerCompany
and IDACORP Energy Solutions,LP (Service Agreement)to comply with Order No.
614.The only change to the Service Agreement that is reflected in Attachments A and B
is the addition of the designations required by Order No.614.Attachment A designates
the Service Agreement as Service Agreement Number 48 under ldaho Power's FERC
Electric Tariff,First Revised Volume No.6,and Attachment B designates the ServiceAgreementasServiceAgreementNumber1underIES'FERC Electric Tariff,Original
Volume No.1.
For real-time (hourly)transactions between Idaho Power and IES,the
Commission's order required the use of the prices required in GPUAdvancedResources,
8 l FERC ¶61,335 (1997)and Detroit Edison Co.,80 FERC ¶61,348 (1997).In Detroit
Edison,the Commission stated that if Detroit Edison sold power to its marketing affiliate
at a rate below the market rate,Detroit Edison's captive customers would be harmed.Forthisreason,the Commission required Detroit Edison to sell power to its marketingaffiliateatapricethatisnolowerthanthepriceDetroitEdisonchargesnon-affiliates.In
GPUAdvancedResources,the Commission indicated that if GPU purchased power from
its marketing affiliate at a rate above the market rate,GPU's captive customers would be
harmed.The Commission required GPU's marketing affiliate to sell power to GPU at the
Exhibit No.6
Case No.IPC-E-02-2/3WASHINGTONPHOENixJ.Gale,IPCo-DirPage1of3
David P.Boergers,Secr<
Federal Energv RegulatoryCommission
May 14.2001
Page 2
lowest price for energv sold to GPU by non-affiliates.In each case,the benchmarkpricefortheinter-affiliate sales is the price between the franchised utility and non-affiliates.
Applicants have included in this filing revised Service Agreements that provide
that in the event ldaho Power sells power to a non-affiliate for an hourly transaction,itwillnotsellpowertoIESforthathouratapricebelowthepricechargedtothenon-affiliate(s),and that in the event idaho Power purchases power from a non-affiliate for anhourlytransaction,it will not purchase power from IES for that hour at a price above thepricepaidtothenon-affiliate(s).These revised Service Agreements are included asAttachmentsC(ldaho Power)and D (IES)to this filing.Attachment E to this filing is ared-lined copy of the page to the Service Agreement that would be revised byAttachmentsCandD.
As Applicantsexplained in their Application,IES will provide wholesalemarketingservicestoldahoPower.and IES rather than Idaho Power will be entering intoreal-time transactions in the wholesale market (IES will serve as a non-exclusive brokerfortransactionswithadurationthatexceedoneday).As a result,Applicants do notanticipatethattherewillbetransactionsbetweenidahoPowerandnon-affiliates thatwouldserveasthebenchmarkrequiredunderDetroitEdisonandGPUAdvancedResources.Applicantshave submitted Attachments C and D,discussed above,to complywiththeCommission's rule that a compliance filing is limited to those changes orderedbytheCommission,Southern Company Services,Inc.,63 FERC ¶61,217 (1993).However,in view of the fact that Applicantsanticipate that real-time transactions withnon-affiliates will be entered into by IES rather than by Idaho Power,Applicants aresubmittinganalternativeversionoftheServiceAgreementthatusesIES'purchases toandsalesfromnon-affiliates as the benchmark for real-time transactions between IES andIdahoPower.This is consistent with the proposal that ldaho Power and IES filed onFebruary26,2001 (which based the market price on the weighted average of the real-time prices at which IES bought and sold power to non-affiliates,see Application at 20),except that it uses the lowest/highestpricing regime ordered by the Commission insteadoftheaveragepricemethodproposedbyldahoPowerandIES.These revised ServiceAgreementsareincludedasAttachmentsF(ldaho Power)and G (IES)to this filing.Attachment H to this filing is a red-lined copy of the page to the Service Agreement thatwouldberevisedbyAttachmentsFandG.
The rate schedule changes included in this filing are without prejudice to IdahoPower's right to submit a new Section 205 filing changingthis provision,as discussed bytheCommissiononpage2ofitsorder.
Exhibit No.6
Case No.IPC-E-02-2/3
J.Gale,IPCo-Dir
Page 2 of 3
David P.Boergers,Secre'
Federal Energy Regulatory Commission
May 14.2001
Page 3
Attachment l to this letter is a paper copy of a Notice of Filing suitable for
publicationin the Federal Register.We are also enclosing an electronic copy of this
filing.
Please do not hesitate to contact the undersignedif there any questions about thisfiling.
Respectfullysubmitted,
Viet H.Ngo
Steptoe &Johnson LLP
1330 Connecticut Avenue,N.W.
Washington,D.C.20036
Barton L.Kline
Idaho Power Company
1221 West ldaho Street
Boise,ldaho 85702
Attorneysfor ldaho Power Company and
1DACORP Energy Solutions,LP
Exhibit No.6
Case No.IPC-E-02-2/3
J.Gale,IPCo-Dir
Page 3 of 3