20020422Schunke Direct.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )IDAHO POWER COMPANY FOR AN ENERGY )CASE NO.IPC-E-02-2COSTFINANCINGORDERANDAUTHORITY)TO INSTITUTE AN ENERGY COST BOND )CHARGE.)
IN THE MATTER OF THE APPLICATION OF )IDAHO POWER COMPANY FOR AUTHORITY )CASE NO.IPC-E-02-3TOIMPLEMENTAPOWERCOST)ADJUSTMENT (PCA)RATE FOR ELECTRIC )SERVICE FROM MAY 16,2002 THROUGH )MAY 15,2003.)
DIRECT TESTIMONY OF DAVID SCHUNKE
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 David Schunke and my business
4 address is 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 as a Public Utilities Engineer.
8 Q.What is your educational and experience
9 background?
10 A.I received my Bachelor of Science Degree in
11 Civil Engineering at Montana State University in 1972.I
12 have been licensed as a Registered Professional Engineer
13 in Idaho since 1977.I have worked in various
14 capacities,including a Cost and Materials Engineer with
15 Morrison Knudsen Co.,Inc.and a consulting engineer with
16 Stevens,Thompson &Runyan (STRAAM Engineers).As a
17 consultant,I worked as Project Engineer on numerous
18 civil engineering projects in Idaho and Oregon for more
19 than six years.
20 Since joining the Commission Staff as a
21 Utilities Engineer in 1979,I have been continuously
22 involved in rate design and regulatory matters with
23 virtually all the water,gas and electric utilities
24 regulated by the Commission.I served as the Engineering
25 Section Supervisor from 1983 to 1991,Utilities Division
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)14/22/02 Staff
1 Deputy Administrator from 1991 through 2000 and Engineer
2 Manager from 2001 to present.
3 Q.What is the purpose of your testimony?
4 A.My testimony will describe the Staff proposal
5 for rate design in this Idaho Power Company (IPC,
6 Company)case.Staff recommends that all customer energy
7 rates,except those in the residential schedule,be
8 increased on a uniform cents per kWh basis.I propose a
9 modification to the existing three-tiered residential
10 rate.
11 Q.What is the history of Power Cost Adjustment
12 (PCA)cost recovery through rates?
13 A.Except for the residential class in 2001-2002,
14 PCA costs have historically been recovered on a uniform
15 cents per kWh basis.Last year the Commission ordered
16 recovery of the PCA cost for the residential class
17 through a three-tiered inverted block rate.
18 Q.What was the Commission's basis for not
19 spreading the PCA increase to the Residential schedules
20 on a uniform cents per kWh basis last year?
21 A.At this time last year,water conditions were
22 among the lowest on record and the Company was still
23 purchasing power in the market at very high prices.
24 These conditions prompted the Company and the Commission
25 to implement the various buy-back programs in order to
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)24/22/02 Staff
1 avoid some of these high market purchases.Similarly,
2 any energy savings from conservation would also enable
3 the Company to avoid high priced market purchases.This
4 made conservation very valuable.
5 The Commission stated in Order No.28722 (p.24)
6 that "tiered-rates provide residential customers with
7 appropriate price signals to conserve electricity.This
8 structure provides an effective and efficient means of
9 providing customers with incentives to conserve
10 electricity."
11 Q.Have the water and market circumstances present
12 during implementation of last year's PCA changed?
13 A.Yes.Market prices have returned to normal and
14 water conditions have improved.Inflows into Brownlee
15 are expected to be better than last year,although the
16 forecast is still only 58%of normal.
17 Q.With these improved conditions,do you believe
18 that a price signal is still needed to conserve energy?
19 A.Yes.Clearly conditions have improved and the
20 urgency of the energy crisis has abated for now.
21 Consequently,I am proposing a modification to the tiered
22 rates.However,I believe it is important to preserve
23 the conservation signal provided by the tiered rate
24 structure.
25 Q.Please explain why you believe it is
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)34/22/02 Staff
1 appropriate to preserve a conservation price signal?
2 A.These past two years have revealed just how
3 volatile the market can be.Tiered rates reduce the
4 Company's exposure to this potentially volatile market at
5 a cost far below the cost of many alternate power
6 sources.While market prices have currently returned to
7 normal,hydro conditions have not.
8 Although the benefits of the tiered rates have
9 not been formally quantified,their effectiveness is
10 clear.Almost without exception,people testified in the
11 Twin Falls and Pocatello hearings that they were doing
12 everything they could to conserve energy.Whether they
13 were for or against tiered rates,customers credited them
14 for the "conservation signal"they were receiving.It is
15 Staff's goal to preserve a reasonable signal while
16 reducing the cost burden on high energy users.
17 Q.Should the tiered rates be discontinued until
18 high market prices return?
19 A.No.I do not support discontinuance of tiered
20 rates because it would create an inconsistent price
21 signal.People make two types of decisions that affect
22 their energy use.Operational decisions,such as setting
23 the thermostat back,taking shorter showers,and turning
24 off the lights,can easily be reversed and have few
25 lasting consequences.
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)44/22/02 Staff
1 Idaho Power Customers also make purchasing
2 decisions every day to buy appliances,equipment and
3 homes with varying levels of efficiency.The efficiency
4 consequence of these decisions will be in place for
5 years.Most homes,appliances,and equipment owned by
6 Idaho Power customers during the recent energy crisis
7 were purchased prior to the crisis when energy prices
8 were low.Without a conservation signal,those decisions
9 were probably made without much consideration to
10 efficiency.By providing a continuous conservation
11 signal with tiered rates,customers are more likely to
12 make energy efficient purchases.
13 Q.How do you propose to reduce the cost burden on
14 high energy users?
15 A.I propose to continue the tiered rate structure
16 but to flatten the rate difference between the blocks.
17 This would preserve the "conservation signal"while
18 greatly reducing the cost to high energy users.
19 Currently the rate difference between the first and third
20 block is 2.2 cents per kWh.I propose to reduce that
21 difference to approximately 1 cent per kWh.
22 Q.Under the Staff PCA cost recovery proposal
23 Option No.4,what effect would the proposed rate design
24 changes have on customers?
25
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)54/22/02 Staff
1 A.The Staff proposal for PCA cost recovery would
2 create an overall decrease in rates of 9.6%.With this
3 cost recovery option,Staff Exhibit No.110 shows what a
4 customer's bill would be under the existing rates and
5 under three rate options -a three-tiered rate,a two-
6 tiered rate and a flat rate.Staff Exhibit No.111 shows
7 this same information graphically.Because the two-
8 tiered rate and the three-tiered rate are so close,it is
9 difficult to distinguish between them on the graph.
10 From zero usage to approximately 6000 kWh,the
11 difference between the proposed three-tiered rate and the
12 two-tiered rate is never more than three dollars.
13 Customers using between approximately 1200 and 6000 kWh
14 would pay less under the three-tiered rate than the two-
15 tiered rate.
16 Up to about 1600 kWh of usage,the proposed
17 three-tiered rate is less than the flat rate by up to two
18 dollars.While the flat rate is lower for higher usage,
19 it is only $20 dollars less at 4500 kWh.
20 Q.Have you done a similar comparison for any of
21 the other cost recovery options discussed by Staff
22 witness Hessing?
23 A.Yes.Staff Exhibit Nos.112 and 113 are a
24 table and a graph comparing the existing rates and the
25 three rate options using the traditional one-year PCA
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)64/22/02 Staff
l cost recovery Option No.2.
2 Traditional rate recovery (Option No.2)would
3 result in a 3.54%increase in rates overall.As seen on
4 Staff Exhibit Nos.112 and 113,the two-tiered rate and
5 three-tiered rate are very close to one another.The
6 three-tiered rate is less expensive than the two-tiered
7 rate up to about 5000 kWh of usage.
8 Both tiered rate options would be slightly
9 higher than the existing rates up to about 3000 kWh.
10 Above that amount the proposed tiered rates would produce
11 lower bills than the existing rate.
12 Q.Were there other things that you considered in
13 making your proposal to modify the three-tiered rate
14 design?
15 A.Yes.The Commission held public meetings
16 throughout the Company's service area,both last year
17 when the three-tiered rates were put into place and again
18 this year.The Commission also received many phone
19 calls,letters and e-mails on this subject.Although
20 only 4%of residential bills registered more than 3000
21 kWh per month,these customers were the most vocal.
22 I am sympathetic to customers who heat their
23 homes with electricity or have other reasons for using
24 more electricity than the average customer.I have heard
25 their concerns and attempted to respond by
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)74/22/02 Staff
l
1 proposing a modification to the existing tiered rates.
2 Q.What is your proposal for cost recovery from
3 the non-residential schedules?
4 A.I concur with Staff witness Hessing that all
5 nonresidential rate schedules be increased on a uniform
6 cents-per kWh basis.The commercial and industrial
7 schedules include a very diverse group of customers that
8 are fairly sophisticated.Current rates should provide
9 them with an adequate conservation signal without the use
10 of tiered rates.This issue can be analyzed further in a
11 general rate case.
12 Q.How would the Company's proposal for a Demand-
13 Side Management (DSM)rider affect rates?
14 A.If the Commission chooses to recover the PCA
15 costs in a single year and approves a DSM rider,the
16 rates of all customers would increase uniformly by the
17 amount of the rider.If the Commission chooses a two-
18 year cost recovery period,multiple options exist.The
19 amount of the DSM rider could be added to the first year
20 rates,or additional PCA costs could be deferred to the
21 second year.Staff's exhibits comparing the various rate
22 designs do not include the DSM rider.
23 Q.Does the lag between when the PCA costs are
24 incurred and when they are recovered cause the Staff
25 concern?
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)84/22/02 Staff
1 A.Yes.When PCA costs were small,this lag was
2 not a particular concern.The forecast portion of the
3 PCA attempted to anticipate what variable power supply
4 costs would be in the coming year.The true-up portion
5 of the rate did not overshadow the total PCA and the PCA
6 adjustment generally reflected power supply costs.
7 However,the PCA costs of the last two years
8 have been very large and were not adequately predicted in
9 the forecast.The delay built into the PCA mechanism
10 allowed rates to remain at near base levels while market
11 prices soared.Now that market prices have returned to
12 normal,rates will remain high for at least another year
13 to pay off the deferred balances in the PCA.
14 When deferred PCA amounts grow large,the delay
15 in recovery becomes a problem.This lag in cost recovery
16 can result in sending the wrong price signal.This issue
17 is currently being addressed in the IPC-E-01-16 case.
18 Q.Does this conclude your direct testimony in
19 this proceeding?
20 A.Yes,it does.
21
22
23
24
25
CASE NOS.IPC-E-02-2/IPC-E-02-3 SCHUNKE,D (Di)94/22/02 Staff
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22ND DAY OF APRIL 2002,
SERVED THE FOREGOING DIRECT TESTIMONY OF DAVID SCHUNKE,IN CASE
NOS.IPC-E-02-02/IPC-E-02-03,BY MAILING A COPY THEREOF,POSTAGE
PREPAID,TO THE FOLLOWING:
LARRY D RIPLEY JOHN R GALE VICE PRESIDENT
SENIOR ATTORNEY REGULATORY AFFAIRS
IDAHO POWER COMPANY IDAHO POWER COMPANY
PO BOX 70 PO BOX 70
BOISE ID 83707-0070 BOISE ID 83707-0070
PETER J RICHARDSON WILLIAM M EDDIE
RICHARDSON &O'LEARY PPLC LAND &WATER FUND OF THE ROCKIES
PO BOX 1849 PO BOX 1612
EAGLE ID 83616 BOISE ID 83701
R SCOTT PASLEY DAVID H HAWK,DIRECTOR
ASSISTANT GENERAL COUNSEL ENERGY NATURAL RESOURCES
JR SIMPLOT COMPANY JR SIMPLOT COMPANY
PO BOX 27 PO BOX 27
BOISE ID 83707-0027 BOISE ID 83707-0027
SECRETARY
CERTIFICATE OF SERVICE
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Cu
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(k
W
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)
COST RECOVERY OPTION NO.2
1 Year PCA +3.54%Increase
Proposed Rates
Usage
Block Existing
kWh 3-Tiered 3-Tiered 2-Tiered Flat
0 -800 0.06165 0.0658427 0.06598286 0.0685742
801 -2000 0.06970 0.070398 0.07597409 0.0685742
2001 -over 0.08389 0.0780168 0.07597409 0.0685742
Residential Monthly Bill
kWh
use Existing 3-Tiered 2-Tiered Flat
500 $33.34 $35.43 $35.50 $36.80
1000 $65.77 $69.26 $70.49 $71.08
1500 $100.62 $104.46 $108.48 $105.37
2000 $135.47 $139.66 $146.47 $139.66
2500 $177.42 $178.67 $184.45 $173.95
3000 $219.36 $217.68 $222.44 $208.23
3500 $261.31 $256.69 $260.43 $242.52
4000 $303.25 $295.70 $298.41 $276.81
4500 $345.20 $334.70 $336.40 $311.09
5000 $387.14 $373.71 $374.39 $345.38
5500 $429.08 $412.72 $412.37 $379.67
6000 $471.03 $451.73 $450.36 $413.95
Exhibit No.112
Case Nos.IPC-E-02-2/
IPC-E-02-3
D.Schunke,Staff
4/22/02
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COST RECOVERY OPTION NO.4
First Year -9.59%Reduction
Proposed Rates
Usage
Block Existing
kWh 3-Tiered 3-Tiered 2-Tiered Flat
0 -800 0.06165 0.058345 0.056498 0.06126
801 -2000 0.06970 0.064125 0.067958 0.06126
2001 -over 0.08389 0.068789 0.067958 0.06126
Residential MonthlyBill
kWh
use Existing 3-Tiered 2-Tiered Flat
500 $33.34 $31.68 $30.76 $33.14
1000 $65.77 $62.01 $61.30 $63.77
1500 $100.62 $94.07 $95.28 $94.40
2000 $135.47 $126.14 $129.26 $125.03
2500 $177.42 $160.53 $163.24 $155.66
3000 $219.36 $194.92 $197.22 $186.29
3500 $261.31 $229.32 $231.20 $216.92
4000 $303.25 $263.71 $265.18 $247.55
4500 $345.20 $298.11 $299.15 $278.18
5000 $387.14 $332.50 $333.13 $308.81
5500 $429.08 $366.90 $367.11 $339.44
6000 $471.03 $401.29 $401.09 $370.07
Exhibit No.110
Case Nos.IPC-E-02-2/
IPC-E-02-3
D.Schunke,Staff
4/22/02