20020422Holm Direct.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATIONOF )IDAHO POWER COMPANYFOR AN ENERGY )CASE NO.IPC-E-02-2COSTFINANCINGORDERANDAUTHORITY)TO INSTITUTEAN ENERGY COST BOND )CHARGE.
)
IN THE MATTER OF THE APPLICATIONOF )IDAHO POWER COMPANYFOR AUTHORITY )CASE NO.IPC-E-02-3TOIMPLEMENTAPOWERCOST)ADJUSTMENT(PCA)RATE FOR ELECTRIC )SERVICE FROM MAY 16,2002 THROUGH )MAY 15,2003.)
DIRECT TESTIMONY OF ALDEN HOLM
IDAHO PUBLIC UTILITIES COMMISSION
APRIL 22,2002
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Alden Holm.My business address is
4 472 West Washington Street,Boise,Idaho.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission (Commission)as a senior auditor in the
8 accounting section.
9 Q.What is your educational and professional
10 background?
11 A.I graduated from Boise State University in 1994
12 with a B.B.A.degree in Accounting.In 1998,I completed
13 a Masters Degree in Public Administration from Boise
14 State University.I have attended the annual regulatory
15 studies program sponsored by the National Association of
16 Regulatory Utilities Commissioners (NARUC)at Michigan
17 State University.Prior to joining the Commission Staff
18 in 2000,I worked for two years as an accountant at the
19 Boise Metro Chamber of Commerce and two years as an
20 accountant at Rocky Mountain Audio Visual,Inc.
21 Q.What is the purpose of your testimony in this
22 proceeding?
23 A.The purpose of my testimony is to describe
24 purchased power costs,surplus sales and new accounts in
25 the Power Cost Adjustment (PCA)mechanism.I will give
CASE NOS.IPC-E-02-2 HOLM,A (Di)1IPC-E-02-3 STAFF4/22/02
1 my analysis of the Company's securitization proposal and
2 describe my recommended changes to the PCA carrying costs
3 proposed by Idaho Power Company (Idaho Power;Company).
4 Q.Please provide a summary of your
5 recommendations in this case.
6 A.I recommend that Idaho Power be allowed to
7 recover the majority of the costs included in its
8 I IPC-E-02-3 Application.I have made four adjustments to
9 the amount Idaho Power requested.The first adjustment
10 is to remove the reduced revenues associated with the
11 Irrigation Load Reduction Program.Second,I removed
12 part of the expenses associated with the mobile diesel
13 generators.Third,I removed a portion of the Gas Fuel
14 Expenses for unused transportation expense.Finally,I
15 removed a capital expense from the Gas Fuel Expense
16 account.
17 I recommend that the Company not be allowed to
18 securitize the requested $172 million.I believe the
19 risks and expenses incurred by customers by securitizing
20 outweigh the benefits to the Company.I also recommend
21 that the Company not be allowed to change the interest
22 calculation for the normal PCA period.Instead,I
23 recommend that the Company be allowed to recover
24 reasonable interest costs on amounts that are deferred
25 for more than one year.
CASE NOS.IPC-E-02-2 HOLM,A Q]i)2IPC-E-02-3 STAFF4/22/02
1 Purchased Power and Surplus Sales
2 Q.Did you audit the Company's PCA filing?
3 A.Yes.I performed an extensive review of
4 purchased power expenses,surplus sales,and other actual
5 expenses and credits in addition to a review of all the
6 new accounts in the PCA this year.
I
7 Q.What did you find in regards to the purchased
8 power expenses and surplus sales?
9 A.With the exception of the real-time
10 transactions,I found that the sales and purchases had
11 been properly recorded according to Commission-authorized
12 methods.
13 Q.How were the power transactions priced?
14 A.There are typically three kinds of power
15 products that the Company bought or sold.They are term,
I16dayahead,and real-time.Each of these is priced in a
17 different manner.
18 Q.Please describe the manner that the term
19 purchases are priced and provide the audit results of the
20 term transactions.
21 A.The term transactions are transactions that
22 involve purchases or sales of more than one month's worth
23 of power.Idaho Power sells surplus power when available
24 or purchases needed power from various parties as
25 determined by the Risk Management Committee.The
CASE NOS.IPC-E-02-2 HOLM,A (Di)3IPC-E-02-3 STAFF4/22/02
1 transactions are priced at the actual purchase or sale
2 price,and are not bought or sold to or through IDACORP
3 Energy.
4 During the PCA year,the Company entered into
5 several long-term transactions.Most of the transactions
6 were purchases.All the long-term purchases or sales
7 were authorized by the Risk Management Committee and
8 carried out in a timely manner.The Company did enter
9 into a few sell transactions longer than one month but
10 not longer than three months.
11 One transaction of note took place last year.
12 During November 2001,the Company took action to replace
13 some transactions that were in place with Enron when it
14 became apparent that Enron was no longer an appropriate
15 trading partner.The Risk Management Committee
I
16 |authorized the replacement transactions,and they were
17 ·accomplished with little expense.These replacement
18 transactions removed the potential risk to Idaho Power
19 inherent in the Enron transactions.
20 Q.Please describe the day ahead transactions,the
21 manner that they are priced and the results of your audit
22 of those transactions.
23 A.The day ahead transactions are purchases and
24 sales that are for the next day's use.They are
25 purchased entirely from the Company's affiliate,IDACORP
CASE NOS.IPC-E-02-2 HOLM,A CDi)4IPC-E-02-3 STAFF4/22/02
1 Energy.The purchases and sales are priced at the Mid-C
2 index price for the day the energy is delivered with
3 additions or subtractions for the price of transmission.
4 The Commission previously approved and now requires this
5 pricing mechanism,and the Company carried it out
6 appropriately.In reviewing the day ahead purchases and
7 sales,I discovered no irregularities that required
8 Commission action.
9 Q.Please describe the real-time purchases and
10 sales,the manner that the real-time transactions are
11 priced and the results of your audit.
12 A.The real-time transactions are purchases or
13 sales carried out the day and hour the energy is needed
14 or becomes surplus.All real-time energy is purchased
15 from or sold to the Company's affiliate,IDACORP Energy.
16 During the PCA year,the Company changed the way the
17 transactions were priced.From March 2001 through June
18 2001,the real-time transactions were priced at the
19 weighted average price of all real-time transactions on
20 the Idaho Power system.This method was approved by the
21 Commission,but currently is being reviewed by the
22 Federal Energy Regulatory Commission (FERC).
23 In July 2001,the FERC contacted the Company
24 and required a change in the way these transactions were
25 priced.The FERC proposed that real-time sales to Idaho
CASE NOS.IPC-E-02-2 HOLM,A (Di)5IPC-E-02-3 STAFF4/22/02
1 Power be priced at IDACORP Energy's highest purchase
2 price in each hour and that the real-time purchases be
3 priced at the lowest sales price in each hour.At a
4 first glance,this pricing mechanism seems to provide a
,
5 reasonable method to price the energy.However,as
6 outlined in the Company's testimony,it has proved to be
7 inappropriate.
8 As required by the FERC,the Company changed
9 the way the transactions were priced.However,Idaho
10 Power is working with the FERC to establish a more
11 appropriate pricing mechanism.
12 Q.Do you agree that the adjustment made by the
13 Company for real-time transactions is appropriate?
14 A.The adjustment for real-time transactions
15 provides customers the benefit of pricing based on
16 regional markets,which Idaho Power believes to be a more
17 appropriate pricing methodology than that required by the
18 FERC.I have reviewed the adjustment and agree it is
19 needed to reflect a more equitable transfer pricing
20 methodology for both the Company and its customers.The
21 adjustment results in $4,306,635.82 being credited to the
22 customers after jurisdictional sharing and interest.
23 Q.Do you have a recommendation for real-time
24 pricing?
25 A.I believe that real-time pricing should be
CASE NOS.IPC-E-02-2 HOLM,A (Di)6IPC-E-02-3 STAFF4/22/02
i based on regional markets that reflect the cost of power
2 bought and sold in this area.The Company should
3 continue to work with the FERC to develop a more
4 reasonable transfer pricing methodology.In addition to
5 the method proposed by the Company,Staff would support
I6theFERCmethodifitincludedonlytransactionsinthe
7 Northwest and used the Mid-C Index when there are no
8 other relevant transactions in a particular hour.Once a
9 method is established with the FERC,it should be filed
10 with the Commission and evaluated by Staff.
11 Q.Did the Company follow the operational reports
12 and recommendations of the Risk Management Committee?
13 A.I reviewed the Risk Management Committee
14 meeting minutes to make sure the Company was operating in
15 the best interest of the ratepayers.During the PCA
16 year,the Company instituted a Risk Management Committee
17 for Idaho Power that was separate from the committee for
18 IDACORP.
19 At each regularly scheduled meeting,an
20 operational plan was presented to the committee.This
21 plan was prepared by Company personnel to show price
22 forecasts,energy deficiencies and surpluses,and other
23 factors that affect the Company's ability to operate.I
24 reviewed these operating plans and found that they were
25 reasonably based on the best information available at the
CASE NOS.IPC-E-02-2 HOLM,A (Di)7IPC-E-02-3 STAFF4/22/02
1 time.The Risk Management Committee used the information
2 to take appropriate action.I found that the meetings
3 and actions were well documented and that the Company
4 followed up appropriately.
5 New Accounts in the PCA this Year
6 Q.What new accounts were included in the PCA this
7 year?
8 A.There were several new accounts in the PCA this
9 year.They included expenses relating to the Irrigation
10 Load Reduction Program and associated Reduced Revenues,
11 the Astaris Load Reduction Program,Mobile Generation
12 Costs,Gas Fuel Expenses relating to the Danskin facility
13 in Mountain Home,Mobile Home Metering shortfalls,
14 Intervenor funding from a variety of cases and a credit
15 associated with the IDACORP Energy contract.
16 Q.Would you describe each new account and make a
17 recommendation regarding the reasonableness of the
18 expenses?
19 A.Certainly.I will describe each account,give
20 the Commission order number that addressed the issue,and
21 make recommendations for recovery of the proposed
22 expenses and credits.
23 Irrigation Load Reduction Program -These
24 expenses relate to the Commission-approved program to pay
25 irrigators to reduce their consumption of energy.In
CASE NOS.IPC-E-02-2 HOLM,A (Di)8IPC-E-02-3 STAFF4/22/02
1 Order No.28992,the Commission authorized the Company to
2 recover direct costs associated with the program.The
3 Company has identified,and I have verified
4 $73,941,839.42 of direct program costs.These costs
5 consist entirely of payments to irrigators in exchange
6 for reductions in irrigation loads.I found this amount
7 to be included in the PCA account appropriately.
8 Reduced Revenues -These revenues were
9 calculated by the Company to provide it with revenue it
10 claimed was lost when irrigators participated in the
11 Irrigation Load Reduction Program.As per the
12 Commission's Order No.28992,in Case No.IPC-E-01-34,
13 the recovery of reduced revenues was denied.Therefore,
14 I have removed the $15,146,639.32 associated with the
15 reduced revenues requested by the Company.See Staff
16 witness Hessing's Exhibit No.104,line 14,for the
17 monthly amounts.
18 Astaris Load Reduction Program -The Astaris
19 Load Reduction Program involved payments to Astaris for
20 reductions in the firm energy used by that company.In
21 Order No.28992,the Commission authorized the inclusion
22 of costs incurred by the program.I have reviewed the
23 expenditures associated with the Astaris Load Reduction
24 Program and found that the Company has correctly included
25 expenses totaling $96,842,644.86 in the PCA account.
CASE NOS.IPC-E-02-2 HOLM,A GDi)9IPC-E-02-3 STAFF4/22/02
l These amounts are subject to change pending an order
2 resolving issues related to the Astaris Load Reduction
3 Program rate reduction in Case No.IPC-E-01-43.
4 Mobile Generation Expenses -These expenses
5 are the result of the 25 diesel-powered generation units
6 that were leased during the months of May through October
7 2001.In May 2001,the Company filed an Application in
8 Case No.IPC-E-01-14 with the Commission seeking an
9 accounting order to authorize the recovery of expenses
10 associated with these generators.While the Commission
11 allowed the Company to flow the expenses through the PCA
12 accounts in Order No.28837,it did not guarantee that
13 any specific amount would be recovered by Idaho Power.
14 During that case,the Commission Staff made a
15 recommendation that a portion of those expenses should
16 not be recovered.Staff's position has not changed and I
17 recommend that the associated power supply costs be
18 reduced by $3,832,663.Staff's comments in Case No.
19 IPC-E-01-14 are attached as Exhibit No.101 to provide a
20 detailed analysis of the expenses and an explanation of
21 the adjustment to the mobile generators expense proposed
22 by Staff.The adjusted amounts are also shown in Staff
23 witness Hessing's Exhibit No.104,line 17.
24 Gas Fuel Expenses -These fuel expenses are the
25 result of the Danskin single-cycle natural gas fired
CASE NOS.IPC-E-02-2 HOLM,A (Di)10IPC-E-02-3 STAFF4/22/02
1 plant in Mountain Home,Idaho.In Case No.IPC-E-01-12,
2 the Company filed an Application requesting a Certificate
3 of Public Convenience and Necessity to include the
4 proposed plant in base rates.In addition,the Company
5 requested that the Commission allow the Company to
6 include the costs of the plant's fuel,gas transportation
7 and storage for recovery through the existing Purchase
8 Cost Adjustment (PCA)mechanism.In Order No.28773,the
9 Commission allowed Idaho Power to account for and recover
10 expenses associated with fuel and transportation in the
11 PCA mechanism.
12 I have reviewed the purchases of gas and
13 transportation and found that the Company has an
14 agreement with IGI Resources to supply it with fuel and
15 transportation to run the plant.The fuel is currently
16 purchased at a monthly index price and the Company is not
17 required to pay for the fuel if it is not needed.On the
18 other hand,the Company is required to pay for firm
19 transportation for the fuel whether or not it is used.
20 The agreement provides that IGI Resources will attempt to
21 market the unused transportation,but so far the Company
22 has received only two credits totaling $54,433.72.Staff
23 will continue to work with Idaho Power and IGI Resources
24 to insure that customers receive all potential benefits
25 from the unused portion of the Company's firm
CASE NOS.IPC-E-02-2 HOLM,A (Di)11IPC-E-02-3 STAFF4/22/02
1 transportation purchases.
2 For the 2001-2002 PCA period,the Company
3 included $3,337,553.12 in the PCA account for Danskin
4 fuel expenses.I have made two adjustments to the amount
5 requested by the company.First,the Company contracted
6 for firm transportation on April 11,2001 with the
7 intention of finishing the plant in July 2001.However,
8 due to various delays,the plant did not operate until
9 September 25,2001.Customers never had the opportunity
10 to benefit from the transportation expense incurred by
11 the Company during the months of July,August and most of
12 September.Because it was not used or useful during this
13 time period,I removed the $682,272.40 from the Company's
14 PCA request.
15 The second adjustment relates to $419,054 that
16 the Company paid to Williams Gas Pipeline West
17 (Williams).This amount was characterized as a "Facility
18 Cost of Service Charge".In essence,Williams built a
19 4,200 foot pipeline from its mainline to the Company's
20 facility,a meter station and control equipment that
21 Idaho Power will use at it's Danskin facility.The
22 facility charge recorded by Idaho Power in the PCA
23 account will pay for these items over the next 30 years.
24 Since this is a capital cost and not an annual gas
25 delivery cost,I believe that it should be considered in
CASE NOS.IPC-E-02-2 HOLM,A (Di)12IPC-E-02-3 STAFF4/22/02
1 a rate case and not be recovered in the PCA filing.
2 Consequently,I removed the $419,054 from the Company's
3 request.Both adjustments are shown in Exhibit No.104
4 on line 21.
5 From September 25,2001 through March
6 2002,the Danskin plant produced 27,789 MWHs of energy.
7 The average variable fuel cost was $26.44 per MWH.
8 Mobile Home Metering Shortfalls -These
9 expenses result from modification of the three-tier rate
10 as it applies to master-metered mobile home parks.After
11 the last PCA rate change,the Commission became aware of
12 an inequity created by applying the tiered rates to
13 master-metered mobile home and RV parks.To address this
14 inequity,Commission Order No.28753 authorized a
15 temporary subclass of Schedule 1 called "Schedule 3"so
16 that master-metered customers could be billed at a flat
17 rate.In addition to the new tariff,the Commission
18 allowed Idaho Power to include and pass on to customers
19 through the PCA account any revenue shortfall created by
20 the new tariff.The Company has calculated the amount to
21 be $106,528.87.I have reviewed the calculations and
22 found that they appear to be reasonable.
23 Intervenor Funding -In Case No.IPC-E-01-03,
24 the Idaho Irrigation Pumpers Association (IIPA)filed for
25 intervenor funding.The Commission granted $14,201.75 in
CASE NOS.IPC-E-02-2 HOLM,A (Di)13IPC-E-02-3 STAFF4/22/02
1 funding to the IIPA and required the Company to flow the
2 amounts through the PCA account with recovery from the
3 irrigation class.
4 In Case No.IPC-E-01-06,the Idaho Irrigation
5 Pumpers Association (IIPA)received $5,932.54 of
6 intervenor funding per Order No.28770.The Commission
7 also allowed Idaho Power to recover that amount in the
8 Company's next PCA filing and required the Company to
9 flow the amount through to the irrigation class.
10 In the Case Nos.IPC-E-Ol-7 and IPC-E-01-11,
11 the Land and Water Fund of the Rockies,Mary McGowen,
12 Idaho Rivers United and Idaho Rural Council (Intervenors)
13 petitioned the Commission for intervenor funding in the
14 amount of $9,661.84.Idaho Power did not object to the
15 intervenor funding,but it did seek authority to include
16 the amounts of any award as an expense in the PCA
17 mechanism.In Order No.28756,the Commission granted
18 the total amount requested and allowed the amount to be
19 flowed through the PCA mechanism to all customer classes.
20 I reviewed the amounts included in the PCA
21 accounts and found that the $29,796.03 allowed above has
22 been properly included.
23 IDACORP Energy Credit -In Case No.
24 IPC-E-00-13,Idaho Power filed an Application with the
25 Commission requesting approval of an electricity supply
CASE NOS.IPC-E-02-2 HOLM,A (Di)14IPC-E-02-3 STAFF4/22/02
1 and management services agreement between Idaho Power and
2 an affiliate,IDACORP Energy (IE).This agreement
3 provided a mechanism to allow the Company to purchase
4 wholesale energy at published index prices from IE.One
5 benefit of the agreement was that a credit would flow
6 back to Idaho Power customers for the difference between
7 the contract charges and the amount reflected in the last
8 rate case.That amount was rounded to $2,000,000
9 annually.The payments were to commence on the date that
10 all commissions (Idaho,Oregon and the FERC)approved the
11 contract between Idaho Power and IDACORP Energy.
12 The Idaho Commission approved the stipulation
13 on December 19,2000 in Order No.28596.By July 2001,
14 all three commissions had approved the contract and Idaho
15 Power began booking PCA entries for the required credits.
16 For the PCA period of 2001-2002,Idaho Power booked
17 $1,500,000 for July 2001 through March 2002.These
18 credits were accounted for properly and should be
19 included in the PCA accounts to benefit all Idaho
20 customers.
21 Securitization and Interest Costs
22 Q.How does the Company's securitization proposal
23 differ from the traditional PCA cost recovery?
24 A.First,the Company receives all of the $172
25 million of securitized power supply costs immediately.
CASE NOS.IPC-E-02-2 HOLM,A (Di)15IPC-E-02-3 STAFF4/22/02
1 Under the traditional PCA mechanism,Idaho Power must
2 wait to recover the deferred amounts over twelve months.
3 This shifts responsibility for carrying charges on the
4 deferred amounts during recovery from the company to
5 customers.Rather than rates that reflect recovery of
6 power supply costs as required under the existing PCA
7 mechanism,the Company's proposal results in rates that
8 reflect both power supply cost recovery and carrying
9 charges during the three-year recovery period.
10 Idaho Power states that financial analysts on
11 Wall Street would like the Company to have the amounts
12 securitized to guarantee recovery and improve cash flow
13 quickly.The company believes that it could have a
14 positive impact on its ability to borrow.I believe that
15 the Commission can structure the recovery of deferred
16 costs to provide the recovery assurances these analysts
17 want by guaranteeing a fixed recovery period even if it
18 is greater than one year.
19 Q.Please describe the additional expenses to
20 customers associated with the securitization of deferred
21 costs.
22 A.There are some significant expenses associated
23 with the securitization of deferred power costs.
24 Expenses are incurred before the bonds are ever issued.
25 Idaho Power must pay to set up a Special Purpose Entity
CASE NOS.IPC-E-02-2 HOLM,A (Di)16IPC-E-02-3 STAFF4/22/02
1 (SPE)that will administer the bonds and proceeds.This
2 requires legal fees,accounting fees,and capital
3 funding.Then the Company must pay brokers,analysts and
4 others to administer the bonds.Finally,there are
5 interest amounts that are added to the outstanding
6 financed amounts.The Company estimates that the initial
7 fees to borrow $172 million dollars are up to $7 million
8 dollars.The ongoing servicing fees and trustee expenses
9 total approximately $1.5 million dollars and the interest
10 expense will be about $12 million dollars over three
11 years if the Company can finance the bonds at 4%.If the
12 interest rate is higher,the costs will be higher.
13 Q.Is there another risk to customers of
14 securitization?
15 A.Yes.Another risk in addition to the expenses
16 associated with securitization is that additional
17 deferred expenses may have to be recovered in future
18 cases.These costs may have to be recovered at the same
19 time customers are paying off the power supply bond.
20 This would add one cost recovery on top of another to
21 create a pancaking effect.It is difficult to predict
22 what the total rate may be.
23 Q.Is there a fairness issue associated with
24 securitization?
25 A.Yes.The longer the power supply cost recovery
CASE NOS.IPC-E-02-2 HOLM,A (Di)17IPC-E-02-3 STAFF4/22/02
1 is delayed,the greater the risk that the customers who
2 caused the deferred costs will avoid payment of an
3 equitable share.
4 Q.Did you review other securitization options
5 besides the one proposed by the Company?
6 A.Yes.I analyzed the costs of securitizing
7 amounts smaller than the amount proposed by the Company.
8 In the case of the lower amounts,it did not prove
9 economical to securitize because the fixed costs that
10 have to be spread over fewer dollars reduce the benefit
11 that securitization may have provided.
12 Q.Do you recommend securitization be accepted in
13 this case?
14 A.No.I do not support securitization in this
15 case.I believe the costs and risks to customers for
16 securitization outweigh the benefits to customers.
17 However,if the Commission decides to allow Idaho Power
18 to securitize a portion of the deferred expenses,it is
19 important that Staff be allowed to review the true up of
20 the recovery and expenses every year to verify that the
21 customers are paying the bond charges appropriately and
22 the Company is not overcollecting.
23 Q.Does Staff have alternatives to propose
24 regarding the recovery of PCA expenses?
25 A.Yes.Mr.Hessing has proposed three
CASE NOS.IPC-E-02-2 HOLM,A (Di)18IPC-E-02-3 STAFF4/22/02
1 alternatives for recovery of the PCA expenses.His
2 recommendation involves deferring a portion of the PCA
3 expenses for one year to allow a decrease while avoiding
4 some of the costs and risks associated with
5 securitization.Those alternatives are described in the
6 testimony of Staff witness Keith Hessing.
7 Carrying Costs of the PCA
8 Q.Do you accept the Company's proposal to change
9 the interest rate on deferred costs to the authorized
10 rate of return on a going forward basis?
11 A.No,I do not.I believe the Company and
12 Commission have taken steps to reduce the amounts in the
13 deferral account going forward.For example,in case No.
14 IPC-E-01-16,the Company and Staff are working with
15 interested parties to develop risk management guidelines
16 that should limit significant deferrals and market
17 exposure.The parties have discussed permitting the
18 Company to come to the Commission earlier in the PCA year
19 to review significant high cost transactions.The
20 Company is also considering changing its planning
21 practices from median water to a 70%of critical water
22 level.All of these steps should limit the size of
23 deferrals going forward.
24 Q.What interest rate do you recommend?
25 A.I do not recommend that the structure of the
CASE NOS.IPC-E-02-2 HOLM,A (Di)19IPC-E-02-3 STAFF4/22/02
1 PCA mechanism be modified to allow interest accrual on
2 amounts that are in rates.I recommend that the carrying
3 charges continue to be based on the customer deposit rate
4 that is set annually,currently at 4%.
5 Q.Has the Commission allowed another company to
6 change the interest rate on deferred amounts in recent
7 years?
8 A.No.In Case No.AVU-G-00-4,Avista applied to
9 change the interest rate calculation on its deferred
10 balances.The Commission did not change the rate and,in
11 fact,reiterated that the customer deposit rate was to be
12 used even though the deferrals were large and the
13 customer deposit rate did not cover the costs of
14 borrowing.In some years the allowed customer deposit
15 rate may be higher than the short-term debt rate and the
16 Company may recover more than its actual cost.When the
17 Commission allows utilities to recover interest on
18 deferrals,the customer deposit rate is the rate that is
19 generally used to calculate that interest.
20 Q.Should the Company be allowed to earn interest
21 on an amount held in the deferred account for a time
22 period longer than the traditional PCA recovery period?
23 A.If the normal PCA procedure of passing through
24 increases over a period of one year is not used,I agree
25 that the Company should be allowed to set aside the
CASE NOS.IPC-E-02-2 HOLM,A (Di)20IPC-E-02-3 STAFF4/22/02
1 amount deferred in excess of one year and earn interest
2 on that amount.The rate should be equal to the larger
3 of its short-term debt rate or the customer deposit rate.
4 This will allow the Company to recover its reasonable
5 carrying costs during the additional deferral period.
6 Once the deferred amounts are placed into rates,no
7 additional carrying charges would accrue.Even using a
8 hypothetical rate of 7%,Mr.Hessing's analysis shows
9 that Idaho Power customers will save $14.6 million over
10 the Company's securitization proposal by paying off the
11 deferrals according to his recommended schedule.
12 Currently,Idaho Power's short-term debt rate is lower
13 than the 4%customer deposit rate,but it varies monthly.
14 Q.Does this conclude your direct testimony in
15 this proceeding?
16 A.Yes,it does.
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CASE NOS.IPC-E-02-2 HOLM,A (Di)21IPC-E-02-3 STAFF4/22/02
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22ND DAY OF APRIL 2002,SERVED THE FOREGOING DIRECT TESTIMONY OF ALDEN HOLM,IN CASENOS.IPC-E-02-02/IPC-E-02-03,BY MAILING A COPY THEREOF,POSTAGEPREPAID,TO THE FOLLOWING:
LARRY D RIPLEY JOHN R GALE VICE PRESIDENTSENIORATTORNEYREGULATORYAFFAIRSIDAHOPOWERCOMPANYIDAHOPOWERCOMPANYPOBOX70POBOX70BOISEID83707-0070 BOISE ID 83707-0070
PETER J RICHARDSON WILLIAM M EDDIERICHARDSON&O'LEARY PPLC LAND &WATER FUND OF THE ROCKIESPOBOX1849POBOX1612EAGLEID83616BOISEID83701
R SCOTT PASLEY DAVID H HAWK,DIRECTORASSISTANTGENERALCOUNSELENERGYNATURALRESOURCESJRSIMPLOTCOMPANYJRSIMPLOTCOMPANYPOBOX27POBOX27BOISEID83707-0027 BOISE ID 83707-0027
SECRETÁRY
CERTIFICATEOF SERVICE
SCOTT WOODBURYDEPUTYATTORNEYGENERALIDAHOPUBLICUTILITIESCOMMISSION472WESTWASHINGTONSTREETPOBOX83720
BOISE,IDAHO 83720-0074
[phone]
BAR NO.1895
Street Address for Express Mail:472 W.WASHINGTON
BOISE,IDAHO 83702-5983
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )IDAHO POWER COMPANYFOR AN )CASE NO.IPC-E-01-14ACCOUNTINGORDERAUTHORIZINGIDAHO)POWER TO INCLUDE POWER SUPPLY )EXPENSES ASSOCIATEDWITH TEMPORARY)COMMENTSOF THEMOBILEGENERATIONINTHEPOWERCOST)COMMISSIONSTAFFADJUSTMENT,OR IN THE ALTERNATIVE,A )DETERMINATION OF EXEMPTSTATUS FOR )THE TEMPORARYGENERATION.)
COMES NOW the Staff of the Idaho Public Utilities Commission,by and through itsAttorneyofrecord,Scott Woodbury,Deputy AttorneyGeneral,and in response to the Notice ofApplication,Notice of Modified Procedure,and Notice of Comment/ProtestDeadline issued onJune18,2001,and pursuant to an informal agreement with Idaho Power Company to extend thecommentfiledeadlinetoJuly25,2001,submits the followingcomments.
On May 4,2001,Idaho Power Company (Idaho Power;Company)filed an ApplicationwiththeIdahoPublicUtilitiesCommission(Commission)seeking an accounting OrderauthorizingIdahoPowertoincludeexpensesassociatedwiththeacquisitionandoperation oftemporarymobileelectricgeneratingfacilitiesinthetrue-up portion of the Company's Power
Exhibit No.101
Case Nos.IPC-E-02-2/STAFF COMMENTS
1 IPC-E-02-3 JULY 25,2001A.Holm,Staff
4/22/02 Page 1 of 9
Cost Adjustment (PCA).In the alternative,the Company requests an Order determining that thegenerationfromthetemporarymobilegeneratorsbeexemptfromregulationbytheCommission.On May 31,2001 the Company supplemented its original application with an update tothestatusofthegeneratingunits.The Company explained that generating units had beeninstalledandwereoperatedforaperiodoftimeattheCloverdaleandMoraSubstations.TheCompanyfurtherexplainedthatduetosignificantlocalpublicconcernthegeneratorsatthesetwolocationshadbeenshutdownandthattheCompanywasseekmgoperatingapprovalatothermoreremotelocations.In the mean time the Company requested that the Notice of ApplicationbeissuedandthattheCommissionproceedtoprocessandconsidertheApplication.
STAFF ANALYSIS
In April when leases for the diesel generating equipment were being negotiated andsigned,forward market prices for summer and fall were more than S200/MWh.These prices ledtoCommissionapprovalofseveralotherprogramswithprojectedpowercostsofSl50/MWh ormore.The Company's initial projection was that leased diesel generators could supply energy at$124/MWh.This cost includes the fixed cost of the leased generating equipment and a variableoperatingcostof$78/MWh.Generating energy at this cost and offsettingpurchases in a veryhighpricedmarketcouldsaveratepayersandshareholdersmoneythroughthe90/10 sharingprovisioninthePowerCostAdjustmentMechanism.
The Company leased a total of25 diesel generating units beginning May 1,2001,andinstalled17oftheunitsattwoseparatesites.Since the decision was made to sign the leaseagreements,two significant events have occurred.First,after installing and operating 17 of the25leasedgeneratingunitsforafewdays,Idaho Power made the decision to shut them down andrelocatethemduetooppositionfromneighborsnearthegeneratingsites.Second,in early Junethemarketpricedroppedbelowtheoperatingcostofthedieselgenerationunitswhereithasremainedformosthoursofmostdayssincethattime.The significance of the drop in marketpriceisthatevenifthegeneratorswerenotvoluntarilyshutdownawaitingpermitstorelocate,the generators would not be runningdue to market prices below the cost of operating thegenerators.It is not knownhow long this condition will continue.
Staff has evaluated several potential positions with regard to the ratemaking treatment ofdieselgeneratingcosts.The Company in its filing provided the option to not include diesel
Exhibit No.101
Case Nos.IPC-E-02-2/STAFF COMMENTS 2 IPC-E-02-3 JULY 25,2001A.Holm,Staff
4/22/02 Page 2 of9
generation as a regulated utility resource.At the time that lease agreements were signed,dieselgeneratorswereexpectedtobebeneficialtocustomers.Based on the information available atthetime,the Company made a reasonable decision when it entered into the lease agreements.Staff therefore proposes that the Commission accept the diesel generating units with theirassociatedleasecostsasregulatedutilityresources.
If the mobile generating units are accepted as generatingresources for the regulatedutility,the Company proposes that all actual costs of leasing and operating the diesel generatingunitsbeacceptedintothePCA.Staffis concerned that the Company's voluntaryshut down oftheunitsduetothecomplaintsofneighborswhodidnotlikethenoiseandsmelliscostingthegeneralbodyofratepayersasubstantialamountofmoney.It is Staff s understandingthat IdahoPowerCompanyobtainedallrequiredpermitstooperatethedieselgeneratorsattheselectedsitesandthattheCompanyhadeverylegalrighttooperatethem.It is Staff's position that after theCompanydeterminedtherewereconcernswiththeinitialsiting,the Company should havecontinuedtorunthe17gridconnectedgeneratorswhilepursuingthenecessarypermitstorelocatethem.In so doing,the generators would have provided some of the bene'fits that theywereintendedtoprovideandthegeneralbodyofratepayerswouldhavebeenabletocapturesomebenefitstooffsettheleasecosts.
A third site is to be the generating location of the final 8 generators.It is Staff'sunderstandingthattheCompanydidnotinitiallyapplyforsitingpermitsforthethirdsite.It wastheCompany's beliefthat these permits would be easier to obtain after the initial two sites hadbeenpermitted.This has not been the case.The final group of generators has not received sitingapprovalanditisunclearwhetherornottheapplicationsforpermitshaveyetbeenfiled.It isStaff's position that the Company should have applied for permits to site and operate the final 8generatingunitswhenitappliedforpermitstooperatetheother17units.Not doing so subjectsratepayerstocostswithnopotentialforoffsettingbenefits.
Application of the above Staffpositions to the Company's PCA requires that adjustmentsbemadetoactualpowersupplycostsincurredbytheCompany.Staff proposes that theCompany's actual power costs be adjusted to reflect diesel generation costs and purchased powerbenefitsthatwouldhaveoccurredifthe25generatingunitshadbeencontinuouslydispatchedagainstmarketpricesbeginningMay1,2001.Such an adjustment eliminates the PCA rateeffectsoftheStaff's two previouslydiscussed concerns.First,that the Company shut down 17
Exhibit No.101
Case Nos.IPC-E-02-2/STAFF COMMENTS 3 IPC-E-02-3 JULY 25,2001A.Holm,Staff
4/22/02 Page 3 of 9
operating units prior to obtaining permits that would have allowed them to be immediatelyoperatedatanotherlocationand,second,that the Company did not initially apply for sitingpermitsfor8unitsandhasnotobtainedthepermitstodate.Staff has prepared a spreadsheet thatisAttachmentAtothesecommentsthatdemonstratesthecalculationoftherecommendedadjustment.Attachment A consists of three pages.Page 1 shows the calculation of the May andJuneadjustmentsthatStaffrecommendsbemadetoactualpowersupplycosts.Page 2 is themodelthatcalculatesMaycostsundertheStaffassumedoperatingscenarioandpage3isthesamemodelforJune.
The upper half of Page 1 of Attachment A indicates that actual mobile generation leaseandoperatingcostsinMaywere51,147,773 and that $738,787 in estimated purchase powercostswereavoidedorsavedbyoperatingthegeneration.These net to an increase in actualpowersupplycostscausedbythemobiledieselgeneratorsof$408,986.The StaffproposedmodelproducesMayleaseandoperatingcostsof$3,215,050 and purchased power cost savingsof$6,425,517.These net to a decrease in purchase power costs of 53,210,467.The differenceinthecostsofthetwoscenariosistheadjustmenttoactualcoststhatStaffisproposingforMay.Staffproposes that actual May power supply costs be reduced by $3,619,453 in PCAcalculations.The PCA allocates 90 percent of the savings to ratepayers.
The bottom half of Page 1 of Attachment A shows the calculation of the proposed StaffadjustmentforJune.The proposed June adjustment to actual power supply cost is much smallerduetotheverysubstantialdropinmarketpricesthatoccurredearlyinthemonth.Prices belowtheS78/MWh operating cost of the mobile generating units would not allow them to bedispatchedeveniftheywereavailable.The attachment indicates that actual power supply costsforJuneshouldbereducedby$213,210.
STAFF RECOMMENDATION
Staff recommends that the 25 mobile generating units leased by the Company be acceptedasregulatedutilityresourcesforthepurposeofratemaking.Staffalso recommends that actualpowercostsbeadjustedtoreflectwhattheywouldhavebeenifall25unitsweredispatchedagainstmarketpriceasdemonstratedinAttachmentA.The methodology developed and appliedtoMayandJuneshouldbeappliedtoallmonthsoftheleaseperioduntiltheCompanyhassitingapprovalforall25unitsandisdispatchingthemagainstmarketprice.For all full months after
Exhibit No.101
Case Nos.IPC-E-02-2/STAFF COMMENTS 4 IPC-E-02-3 JULY 25,2001A.Holm,Staff
4/22/02 Page 4 of 9
that occurs,the unadjusted actual costs should be included in PCA calculations.
Respectfullysubmitted this day of July 2001.
Scott Woodbury
Deputy AttorneyGeneral
Technical Staff:Keith Hessing
Alden Holm
SW:KH:AH:umisc/comments/ipce01.15swkhahte
Exhibit No.101
Case Nos.IPC-E-02-2/STAFF COMMENTS 5 IPC-E-02-3 JULY 25,2001A.Holm,Staff
4/22/02 Page 5 of9
IDAHO POWER COMPANYCaseNo.IPC-E-01-14MobileDieselGenerationAdjustmentstoActualPowerCosts
May 2001
Description Diesel Avoided DifferenceGenerationPurchasePower
Costs Costs '
Actual (Booked)1,147,773 (738,787)408,986Assumed(Modeled)3,215,050 (6,425,517)(3,210,467)
Adjustment 2,067,277 (5,686,730)(3,619,453)
June 2001
Description Diesel Avoided DifferenceGenerationPurchasePower
Costs *Costs
Actual (Booked)537,500 0 537,500Assumed(Modeled)1,026,716 (702,426)324,290
Adjustment 489,216 (702,426)(213,210)
'Actual (Booked)Avoided Purchase Power costs areestimatedusingthereportedamountofdieselenergygeneratedmultipliedbytheweightedaveragemarketpriceofpowerwhenthepricewasabove$78/MWh as calculated on the May andJunespreadsheet.
2 Since there was no actual generation from leased generatorsinthemonthofJune,actual diesel generation costs areassumedtobetheminimumleaseratepergeneratortimesthenumberofgenerators.
Exhibit No.101
Case Nos.IPC-E-02-2/Attachment A
,Case No.IPC-E-01-14U\lPCE0114\lPC-E-01-14 Workpapers 7/24/01 KDH IPC-E-02-3
A.Holm,Staff Staff Comments
4/22/02 Page 6 of9 7/25/01 Page 1 of3
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H
CERTIFICATE OF SERVICE
I HEREBYCERTIFY THAT I HAVE THIS 25TH DAY OF JULY 2001,SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF,INCASENO.IPC-E-01-14,BY MAILING A COPY THEREOF,POSTAGE PREPAID,TOTHEFOLLOWING:
BARTONL KLINE GREGORYW SAIDLARRYDRIPLEYDIRECTOROFREVENUEREQUIREMENTSENIORATTORNEYSIDAHOPOWERCOMPANYIDAHOPOWERCOMPANYPOBOX70POBOX70BOISEID83707-0070BOISEID83707-0070
SECRETARY
Exhibit No.101
Case Nos.IPC-E-02-2/
IPC-E-02-3
A.Holm,Staff
4/22/02 Page 9 of 9
CERTIFICATE OF SERVICE