20031021Obenchain Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC SERVICE
TO ELECTRIC CUSTOMERS IN THE STATE )
OF IDAHO )
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CASE NO. IPC-E-03-13
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
PHIL A. OBENCHAIN
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Q.
A.
Please state your name and business address.
My name is Phil A. Obenchain, and my
3 business 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 a
7 Senior Pricing Analyst in the Pricing and Regulatory
8 Services Department.
9 Q. Please describe your educational background
10 and professional experience.
11 A. In May of 1979, I received a Bachelor of
12 Arts Degree in Economics from Boise State University in
13 Boise, Idaho.
14 In August of 1979, I was employed as an
15 Economic Research Assistant with Idaho First National Bank
16 (presently U. S. Bank) .
17 In August of 1981, I left Idaho First to
18 attend the University of Idaho in Moscow, Idaho to pursue a
19 Masters of Science Degree in Economics, with emphasis in
20 Regulatory Economics. I completed the necessary course
21 work in the spring of 1982.
22 In January of 1983, I accepted the position
OBENCHAIN, Di
Idaho Power Company
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1 of Pricing Analyst with Idaho Power Company. My duties as
2 Pricing Analyst include the preparation of cost-of-service
3 information for use in the development of jurisdictional
4 separation studies and class cost-of-service studies. More
5 specifically, I am responsible for gathering and analyzing
6 data from various sources to carry out cost-of-service
7 related analyses as required by the three jurisdictions
8 regulating Idaho Power Company.
9 I was the Company's revenue requirement
10 witness before this Commission in Case No. IPC-E-94-5 and
11 testified on the earnings test results as part of Case No.
12 IPC-E-97-12. In addition, I have sponsored testimony
13 before the Oregon Public Utility Commission in Case UE 92
14 on the Oregon jurisdictional revenue requirement.
15 Q. What is the scope of your testimony in this
16 proceeding?
17 A. I am sponsoring testimony in this proceeding
18 on the Idaho jurisdictional revenue requirement resulting
19 from the Jurisdictional Separation Study (JSS).
20 My testimony is outlined as follows:
21 First, I am offering testimony summarizing
22 the adjustments to total system test year data used by the
OBENCHAIN, Di
Idaho Power Company
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1 Company for purposes of restating the Company's rate base,
2 revenues, and expenses for the 12 months ending December
3 31, 2003.
4 Second, I am offering testimony relative to
5 the preparation of a jurisdictional separation study
6 prepared using the adjusted total system data for the 12
7 months ending December 31, 2003 for the purpose of
8 determining the Idaho jurisdictional revenue deficiency.
9 Q. Have you prepared or supervised the
10 preparation of various exhibits for this proceeding?
11 A. Yes. I have prepared or supervised the
12 preparation of the following exhibits:
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EXHIBIT
Exhibit No. 21
Exhibit No. 22
Exhibit No. 23
Exhibit No. 24
TITLE
Summary of Total Rate Base and Net Income
Adjustments
Summary of Adjustments - Electric Plant In
Service
Summary of Adjustments - Accumulated
Provision for Depreciation and
Amortization
Summary of Adjustments - Additions and
Deductions to Rate Base
OBENCHAIN, Di
Idaho Power Company
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Exhibit No. 25
Exhibit No. 26
Exhibit No. 27
Exhibit No. 28
Exhibit No. 29
Exhibit No. 30
Exhibit No. 31
Q.
A.
Summary of Adjustments - Operating
Revenues
Summary of Adjustments - Operation and
Maintenance Expenses
Summary of Adjustments - Depreciation and
Amortization Expense
Summary of Adjustments - Taxes Other Than
Income Taxes
Summary of Adjustments - Income Taxes
Jurisdictional Separation Study - Idaho
Revenue Requirement
Development of Jurisdictional Allocation
Factors
Please describe Exhibit No. 21.
Exhibit No. 21 consists of two pages and
16 identifies the development of the adjusted total electric
17 system rate base and the development of net income for the
18 12 months ending December 31, 2003. The 2003 test year
19 values contained in column 1 of Exhibit No. 21 are the
20 unadjusted test year amounts. The adjustments proposed by
21 the Company for purposes of developing the 2003 adjusted
22 total electric system combined rate base and net income for
OBENCHAIN, Di
Idaho Power Company
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1 this proceeding are shown in columns 2 through 5 of Exhibit
2 No. 21. The unadjusted test year information and
3 adjustments, except as otherwise noted, were provided to me
4 by Ms. Smith. The total system adjusted test year rate
5 base, expenses and revenues are summarized in column 6 of
6 Exhibit No. 21.
7 Page 1 of Exhibit No. 21 summarizes the
8 development of rate base components for the 12 months
9 ending December 31, 2003. The total combined rate base
10 prior to adjustments is $1,752,511,220 as seen on line 24
11 in column 1 on page 1 of Exhibit No. 21. The total
12 combined rate base is reduced to $1,673,283,777, after all
13 test year adjustments have been included, and can be seen
14 on line 24 in column 6 on page 1 of Exhibit No. 21.
15 Page 2 of Exhibit No. 21 presents the
16 development of the total system net income for the 12
17 months ending December 31, 2003. Operating revenues are
18 summarized on line 31 in columns 1 through 6. Total
19 operating expenses are summarized on line 42 in columns 1
20 through 6. The resulting net income is summarized on line
21 46 in columns 1 through 6. Net income increases from the
22 test year level of $65,895,300 to $81,433,150 after all
OBENCHAIN, Di
Idaho Power Company
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1 ratemaking adjustments have been included.
2 Q. Please describe the total test year 2003
3 rate base, expenses and revenues found in column 1 of
4 Exhibit No. 21.
5 A. Total test year amounts, before adjustment,
6 are presented in column 1 of Exhibit No. 21. With the
7 exception of test year firm operating revenues and test
8 year power supply expenses, the amounts in column 1 were
9 provided to me by Ms. Smith. Firm operating revenues, line
10 29, are calculated utilizing (1) 2003 normalized test year
11 sales provided by the Company's Power Supply Planning
12 department, and (2) the current base rates. The test year
13 values for the Company's power supply accounts (Surplus
14 Sales Revenues - Account 447, Fuel - Accounts 501 and 547,
15 Market Purchases - Account 555.1 and Purchases from
16 Qualifying Facilities - Account 555.2) are the account
17 balances from the most recent PCA filing provided to me by
18 Mr. Said. A summary of these accounts is presented by FERC
19 Account on lines 48 through 55 on page 2, of Exhibit No.
20 21.
21 Q. Why have the 2003 test period rate base,
22 revenues, and expenses of the Company been adjusted?
OBENCHAIN, Di
Idaho Power Company
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1 A. Test year information is adjusted to reflect
2 known changes to the test year data for determining the
3 Company's rates. In this way, rates will reflect the most
4 current cost information available at the time those rates
5 become effective.
6 Q. Please explain what types of ratemaking
7 adjustments are made for the development of the Idaho
8 jurisdictional revenue requirement?
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10
A.
three types.
Ratemaking adjustments are generally one of
First, normalizing adjustments are made to
11 those items that are influenced by weather. Mr. Said
12 discusses the normalization of the Company's Net Power
13 Supply Expenses in his testimony in this proceeding.
14 Normalizing adjustments are shown in column 2 of Exhibit
15 No. 21.
16 Second, annualizing adjustments are made to
17 reflect changes that occur within the test year, but need
18 to be incorporated for the full year on an ongoing basis.
19 Annualizing adjustments are shown in column 3 of Exhibit
20 No. 21.
21 Third, known and measurable adjustments
22 proposed in this filing reflect changes that will occur
OBENCHAIN, Di
Idaho Power Company
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1 after December 31, 2003, but prior to or coincident with
2 the effective date of the new rates. Known and measurable
3 adjustments are shown in column 4, Exhibit No. 21.
4 Q. Please discuss the annualizing adjustments
5 to the rate base components summarized in column 3 of page
6 1 of Exhibit No. 21.
7 A. The first annualizing adjustment in column 3
8 on page 1 of Exhibit No. 21 is an increase of $6,621,907 to
9 production plant in service investment, line 9, for the
10 rewind of Bridger Unit No. 3. The second is an increase of
11 $13,157,482 to transmission plant in service, line 10, for
12 the Brownlee-Oxbow transmission line. The last is an
13 increase of $1,709,301 to Accumulated Provision for
14 Depreciation to capture plant at the end of 2003. The
15 above adjustments were provided to me by Ms. Smith.
16 Q. Please discuss the known and measurable
17 adjustments to rate base presented in column 4 on page 1 of
18 Exhibit No. 21?
19 A. The first is an increase of $18,388,690,
20 line 10, to transmission plant in service investment for
21 upgrades to the Brownlee-Oxbow transmission line and the
22 Star, Vallivue, Midrose and Goshen (345 capacitor bank)
OBENCHAIN, Di
Idaho Power Company
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1 transmission stations. The investment amounts were
2 provided to me by Ms. Smith. The second is an increase of
3 $3,211,822 to the accumulated provision for depreciation
4 reserve associated with one-half of the annualized
5 depreciation expense adjustment that was also provided to
6 me by Ms. Smith. The last known and measurable adjustment
7 is a reduction of $2,076,923 to IERCO subsidiary rate base
8 associated with the revaluation of prior year contingent
9 tax reserves and a true-up of deferred tax related to prior
10 years. This adjustment was provided to me by the Company's
11 Tax Department.
12 Q. Have you included any other adjustments to
13 rate base other than the annualizing and known and
14 measurable adjustments?
15 A. Yes, other adjustments to rate base are
16 presented in column 5 on page 1 of Exhibit No. 21.
17 Q. Please describe the other adjustments shown
18 in column 5 on page 1 of Exhibit No. 21.
19 A. The three adjustments shown in column 5 on
20 page 1 of Exhibit No. 21 are:
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1 . A reduction to production plant of
$1,577,314 to reverse the amount booked in
OBENCHAIN, Di
Idaho Power Company
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2003 for Asset Retirement Obligation (ARO)
provided to me by Ms. Smith.
An increase of $106,204,452 to Accumulated
Deferred Depreciation to reverse amounts
booked in 2003 associated with ARO, as
provided by Ms. Smith.
A reduction of $2,615,452 to Fuel Inventory
to reflect current operating criteria that
result in the required coal inventory of
140,000, 90,000 and 30,000 tons at Bridger,
Valmy and Boardman, respectively. The fuel
inventory adjustment was provided by Mr.
Said.
14 Q. Please recap the net effect of the
15 annualizing, known and measurable, and other adjustments to
16 rate base.
17 A. After the annualizing, known and measurable,
18 and other adjustments are included, the adjusted total
19 electric system combined rate base for the 12 months ending
20 December 31, 2003, as shown on line 24 in column 7 of page
21 1 of Exhibit No. 21, is $1,673,283,777. This amount is
22 $79,227,443 less than the unadjusted number in column 1.
OBENCHAIN, Di 10
Idaho Power Company
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Q.
A.
Please describe page 2 of Exhibit No. 21.
Page 2 of Exhibit No. 21 shows the
3 development of the adjusted total electric system net
4 income for the 12 months ending December 31, 2003.
5 Q. Please describe the Company's normalizing
6 adjustments to the net income components shown in column 2
7 on page 2 of Exhibit No. 21.
8 A. The normalizing adjustments in column 2 on
9 page 2 of Exhibit No. 21 consist of the following two
10 adjustments:
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1.
2 .
An increase to Operating Revenues in the
amount of $14,562,765 reflects the increased
level of opportunity sales associated with
multiple historical water conditions
provided and discussed by Mr. Said in his
testimony in this proceeding.
A reduction to Operation and Maintenance
Expense in the amount of $42,122,055
reflects the decreased fuel and purchase
power expenses associated with multiple
historical water conditions as quantified
and discussed by Mr. Said in his testimony
OBENCHAIN, Di 11
Idaho Power Company
1
2 Q.
in this proceeding.
Please explain the Company's annualizing
3 adjustments to the statement of income in column 3 on page
4 2 of Exhibit No. 21.
5 A. The annualizing adjustments to the income
6 component shown in column 3 on page 2 of Exhibit No. 21 are
7 made to reflect changes to expenses and revenues, occurring
8 within the test year that should be included for a full
9 year.
10 Q. Were there any annualizing adjustments to
11 the operating revenues of the Company?
12 A. Yes. A reduction of $72,871 was made to
13 other operating revenues to reflect changes to facility
14 charge revenue as provided and discussed by Ms. Brilz in
15 her testimony in this proceeding.
16 Q. Please describe the annualizing adjustments
17 made to the operating expenses of the Company.
18 A. The annualizing adjustments to the Company's
19 operating expenses were provided to me by Ms. Smith and
20 consist of the following three adjustments presented in
21 column 3 on page 2 of Exhibit No. 21:
22 1. An increase of $3,256,361 to Operation and
OBENCHAIN, Di 12
Idaho Power Company
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Maintenance Expenses (O&M), which consists
of: ( 1) an increase to specific O&M expense
accounts to reflect an annualized Payroll
adjustment of $2, 913, 244; (2) an increase to
Property and Liability Insurance of
$389,417; and (3) a reduction to Account
908, Customer Assistance, of $46,300 related
to the expiration of DSM amortization in
9 Oregon. This last adjustment has no impact
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2 .
3 .
Q.
on the Idaho jurisdictional revenue
requirement.
An increase to Depreciation Expense, Account
403, of $3,418,600, which reflects the 2003
annualized depreciation.
An increase of $120,655 to Taxes Other Than
Income Taxes to reflect the property tax
impact of the annualized plant additions.
Please explain the known and measurable
19 adjustments to the statement of income presented in column
20 4 on page 2 of Exhibit No. 21.
21 A. The known and measurable adjustments to the
22 statement of income components reflect the following:
OBENCHAIN, Di 13
Idaho Power Company
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An increase of $8,930,300 to Firm Sales
Revenues resulting from an increase to the
level of Opportunity Sales - Account 447
provided by Mr. Said.
An increase of $346,171 to Other Operating
Revenues resulting from a change to Pole
Attachment Revenues - Account 456 reflecting
2004 Cableone contract revenues provided to
me by Ms. Smith.
An increase in Operation and Maintenance
Expenses of $18,185,548 that is composed of
two primary adjustments: the first, an
increase of $8,269,427 in accounts 501, 547
and 555, which reflect the increased levels
provided by Mr. Said, and the second, an
increase to Operation and Maintenance
Expenses other than power supply expenses of
$9,916,121 provided to me by Ms. Smith.
An increase to Depreciation Expense of
$6,423,645 to reflect the additional
depreciation expense associated with the
known and measurable adjustments to electric
OBENCHAIN, Di 14
Idaho Power Company
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6 .
Q.
plant in service provided to me by Ms.
Smith.
An increase to Taxes Other Than Income Taxes
of $112,171 for Property Taxes associated
with the known and measurable adjustment to
Electric Plant In Service provided to me by
Ms. Smith.
A reduction to IERCO operating income of
$5,291,270 provided to me by the Company's
Tax Department
Please explain the other adjustments
12 presented in column 5 on page 2 of Exhibit No. 21.
13 A. Other system adjustments proposed by the
14 Company consist of the following:
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1. An increase to retail sales revenues of
$665,816, which can be found on line 29 in
17 column 5. In addition, there were two
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adjustments to other operating revenues:
(1) a reduction of $665,816 in Account 454
Facilities Charge Revenues to reflect the
change in treatment of facilities charge
revenues paid by MICRON under its special
OBENCHAIN, Di 15
Idaho Power Company
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contract retail rate as provided to me by
Ms. Brilz, and (2) an increase to
Miscellaneous Service Revenue of $907,290 to
reflect the Company's revised Service
Establishment, Reconnection and Field
Collection fees provided to me by Ms. Drake.
These two adjustments net to the $241,474
found on line 30 in column 5 on page 2 of
Exhibit No. 21.
A reduction to Operation and Maintenance
Expenses of $475,556 reflecting the sum of
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component is an increase to Idaho Rate Case
Expense of $4,953. The second component is a
decrease of $452,125 to reflect the removal
of General Advertising Expense. The final
component is a $28,384 reduction to
Memberships and Contributions. Advertising
Expense and Memberships and Contributions
have been disallowed in past orders of this
Commission and thus have been removed from
the 2003 test year operating expenses. Ms.
OBENCHAIN, Di 16
Idaho Power Company
1
2 Q.
Smith provided these adjustments.
Are there any additional adjustments to the
3 test year actual data that should be mentioned?
4 A. Yes. The impacts to Federal and State
5 income taxes paid resulting from the ratemaking adjustments
6 discussed above were provided to me by the Company's Tax
7 Department and are shown on lines 40 and 41 on page 2 of
8 Exhibit No. 21.
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Q.
A.
Please describe Exhibit No. 22.
Exhibit No. 22 consists of 2 pages and
11 provides greater detail of the adjustments to the Company's
12 Electric Plant In Service, by FERC account, used in this
13 proceeding.
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Q.
A.
Please describe Exhibit No. 23.
Exhibit No. 23 consists of 2 pages and
16 provides greater detail of the Accumulated Provision for
17 Depreciation and Amortization Reserve.
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Q.
A.
Please describe Exhibit No. 24.
Exhibit No. 24 is a two-page exhibit, which
20 provides greater detail of other additions to or deductions
21 from the Company's total combined rate base.
22 Q. Please describe Exhibit No. 25.
OBENCHAIN, Di 17
Idaho Power Company
1 A. Exhibit No. 25 is a one-page exhibit, which
2 summarizes by FERC Account the Company's operating revenues
3 for the test period used in this proceeding.
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Q.
A.
Please describe Exhibit No. 26.
Exhibit No. 26 is a six-page exhibit, which
6 provides greater detail of test year and adjusted test year
7 operation and maintenance expenses for the 12-month period
8 ending December 31, 2003.
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Q.
A.
Please describe Exhibit No. 27.
Exhibit No. 27 is a two-page exhibit, which
11 provides greater detailed information by FERC account of
12 Depreciation and Amortization Expenses used in this
13 proceeding.
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Q.
A.
Please describe Exhibit No. 28.
Exhibit No. 28 is a one-page exhibit, which
16 provides detailed information regarding taxes other than
17 income taxes used in this proceeding.
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Q.
A.
Please describe Exhibit No. 29.
Exhibit No. 29 is a one-page exhibit, which
20 provides a detailed summary of the income tax related
21 adjustments that result in the adjusted tax expenses on
22 lines 40 and 41 of page 2 of Exhibit No. 21. These
OBENCHAIN, Di 18
Idaho Power Company
1 adjustments were provided to me by the Company's Tax
2 Department.
3 Q. Have you prepared an exhibit that sets forth
4 the Idaho jurisdictional revenue deficiency?
5 A. Yes. I have prepared Exhibit No. 30 titled
6 "Jurisdictional Separation Study - Idaho Revenue
7 Requirement" consisting of 35 pages.
8 Q. Please discuss the methodology used to
9 jurisdictionally separate costs in the preparation of this
10 study.
11 A. The cost of providing electric service is
12 measured through the use of test year data as adjusted for
13 the 12-month period ending December 31, 2003.
14 In order to establish a methodology for
15 separating costs among jurisdictions, a three-step process
16 is generally used. The steps are referred to as
17 classification, functionalization, and allocation of costs.
18 In all three steps, recognition is given to the way in
19 which costs are incurred by relating these costs to the way
20 in which a utility is operated to provide electrical
21 service. The methodology used to separate costs by
22 jurisdiction and calculate the Idaho jurisdictional revenue
OBENCHAIN, Di 19
Idaho Power Company
1 requirement in the present case is the same methodology
2 utilized by the Company and accepted by the Commission in
3 previous rate cases.
4 Q. Would you please briefly explain the meaning
5 of classification, functionalization, and allocation?
6 A. Classification refers to the identification
7 of costs as being related to one of three components;
8 demand-related, energy-related or customer-related. In
9 addition to classification, costs are functionalized; that
10 is, identified with utility operating functions such as
11 generation, transmission and distribution. Individual
12 plant items are examined and, where possible, the
13 associated investment costs are assigned to one or more
14 operating functions. Once the Company's total system costs
15 are classified and assigned to the appropriate function
16 they may be allocated among jurisdictions.
17 The process of allocation is merely one of
18 apportioning the total system cost among jurisdictions by
19 introducing allocation factors into the process. An
20 allocation factor is nothing more than an array of numbers,
21 which specifies the jurisdictional value or share of the
22 total system quantity. For example, in the case of
OBENCHAIN, Di 20
Idaho Power Company
1 energy-related costs, the allocation factor is annual
2 jurisdictional energy use, adjusted for losses.
3 Once individual accounts have been allocated
4 to the various jurisdictions, it is possible to summarize
5 these into total utility rate base and net income by
6 jurisdiction. The results are stated in a summary form to
7 measure adequacy of revenues for the jurisdiction under
8 consideration. The measure of adequacy is typically the
9 rate of return earned on rate base, which is compared to
10 the requested rate of return.
11 Q. How have the various functional plant and
12 cost items been allocated?
13 A. After classification and functionalization,
14 allocation factors based on demand and energy use were
15 determined. In order to allocate demand-related costs, the
16 average of the 12 monthly coincident peak demands was used.
17 The Company has used this allocation method for
18 jurisdictional separation purposes in all of its retail and
19 wholesale rate applications prepared during the past 25
20 years. This allocation method has been adopted by this
21 Commission and accepted by the Oregon Public Utility
22 Commission, and the Federal Energy Regulatory Commission.
OBENCHAIN, Di 21
Idaho Power Company
1 The demand-related allocation factors used in the study are
2 designated as DlO, Dll, D60. The respective values used in
3 these demand allocation factors are shown at line numbers
4 967 through 969 on page 29 of Exhibit No. 30.
5 Q. What method was used to allocate general
6 plant and certain labor-related administrative and general
7 expenses?
8 A. In accordance with FERC procedures, general
9 plant and administrative and general expenses have been
10 allocated in accordance with functionalized wages and
11 salaries. These labor-related allocation factors are shown
12 on Table 12 of Exhibit No. 30, pages 23 through 28.
13 Q. How were the energy-related expenses
14 allocated among jurisdictions?
15 A. Energy-related expenses were allocated on
16 the basis of normalized jurisdictional kilowatt-hour sales,
17 adjusted for losses so as to establish energy requirements
18 at the generation level. The energy-related allocation
19 factors used in the study are designated as ElO and ElOO.
20 The respective values used in these energy allocation
21 factors are shown on Table 13 of Exhibit No. 30, page 29
22 lines 972 & 973, respectively.
OBENCHAIN, Di 22
Idaho Power Company
1 Q. What was the method by which you allocated
2 customer-related costs?
3 A. The principal customer-related expenses,
4 which require allocation, are Account 902, Meter Reading
5 Expenses and Account 903, Customer Accounting and Billing.
6 These accounts were allocated based upon a review of actual
7 Company practices in reading meters and preparing monthly
8 bills or statements.
9 Q. Please describe the derivation of the 2003
10 total system allocation factors used in this case.
11 A. The 2003 Jurisdictional Separation Study
12 utilizes 2002 data for most of the Allocation Factors with
13 some exceptions:
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Capacity or demand-related allocation
factors (DlO, Dll, and D60) utilized 2002
Coincident Peak information that was
adjusted to reflect known changes for 2003,
for example the expiration of the DAMPS and
Washington City Sales for Resale contracts.
Energy-related allocation factors (ElO and
ElOO) are the 2003 normalized test year
sales at generation level.
OBENCHAIN, Di 23
Idaho Power Company
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Q.
The directly assigned revenue accounts were
updated to reflect 2003 test year revenues.
Finally, the direct assignment of plant
accounts 360, 361 and 362 received specific
new treatment.
Would you please explain how the direct
7 assignment of accounts 360, 361 and 362 differs in the 2003
8 Jurisdictional Separation Study from prior studies?
9 A. Yes. Historically Contributions In Aid of
10 Construction (CIAC) have been treated as a reduction to the
11 total investment in accounts 360, 361 and 362 prior to any
12 allocation of plant and related operation and maintenance
13 expense. Consequently, all customers (jurisdictions) have
14 shared in the benefits of contributions paid by a few.
15 In order to pass the benefit of the CIAC to
16 the customers (jurisdictions) that made the contribution,
17 accounts 360, 361 and 362 were identified by the net
18 investment and by the net plus CIAC investment. The net
19 plus CIAC amount was then directly assigned to customers
20 (jurisdictions) prior to any reduction for CIAC. In this
21 way the customers (jurisdictions) that make the
22 contribution receive the full credit.
OBENCHAIN, Di 24
Idaho Power Company
1 In addition, operation and maintenance
2 expenses resulting from investment in accounts 360, 361 and
3 362 are related to the total investment and thus allocated
4 by the net plus CIAC investment.
5 In this way the Idaho jurisdictional costs
6 that are passed to Ms. Brilz for input into the class cost-
7 of-service model will give the proper recognition to the
8 customers who made the contribution.
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10 30.
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Q.
A.
Please describe the content of Exhibit No.
Exhibit No. 30 is the complete
12 Jurisdictional Separation Study detailing allocation of
13 each component of rate base, operating revenues and
14 expenses by FERC account resulting in the Idaho
15 jurisdictional revenue deficiency. The JSS is organized as
16 follows:
17 Summary of Results
18 Table 1 - Electric Plant in Service
19 Table 2 - Accumulated Provision for
20 Depreciation and Amortization
21 Table 3 - Additions and Deductions to Rate
22 Base
OBENCHAIN, Di 25
Idaho Power Company
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17 Q.
Table 4 - Operating Revenues
Table 5 - Operation and Maintenance Expenses
Table 6 - Depreciation and Amortization
Expense
Table 7 - Taxes Other Than Income Taxes
Table 8 - Deferred Income Taxes and ITC
Table 9 - Federal Income Tax
Table 10 - State Income Tax -- Oregon
Table 11 - State Income Tax - Idaho and
Other
Table 12 - Development of Labor Allocator
Table 13 - Summary of Allocation Factors
Table 14 - Summary of Distribution/CIAC
Allocation Factors
Table 15 - Summary of Allocation Factors-
Ratios
Briefly describe the manner in which you
18 allocated Electric Plant In Service as shown in Table 1 of
19 Exhibit No. 30.
20 A. Production plant has been allocated to all
21 jurisdictions on the basis of the average of the 12 monthly
22 coincident peaks. The allocation of transmission and
OBENCHAIN, Di 26
Idaho Power Company
1 distribution plant has been based on the same methodology.
2 Q. Would you describe the functional categories
3 used for allocation of transmission plant and distribution
4 substations?
5 A. A description of the functional categories
6 used for allocation of transmission and distribution
7 substations is as follows:
8
9
10
11
12
13
14
15
16
17
18
19
20
21
1.
2 .
3 .
Q.
Transmission facilities are the facilities
that form the bulk power transmission system
together with transmission, step-up
substation facilities required to introduce
the Company's generation into the power
supply system, which include facilities
rated at 500kv through 46kv.
Distribution facilities refer to lower
voltage lines and substation facilities that
provide localized service.
Direct assignments refer to facilities that
are identified as serving and paid by a
specific customer.
How have you allocated the Accumulated
22 Provision for Depreciation and Amortization of Other
OBENCHAIN, Di 27
Idaho Power Company
1 Utility Plant shown on Table 2 of Exhibit No. 30?
2 A. Accumulated Provision for Depreciation has
3 been allocated among jurisdictions as shown on Table 2 of
4 Exhibit No. 30. The accumulated totals for each type of
5 production plant and for each primary plant account in
6 other functional groups are allocated on the basis of the
7 related plant account as allocated in Table 1. Amortization
8 of Other Utility Plant has been functionalized and then
9 allocated on the basis of the related plant items as
10 allocated in Table 1.
11
12
Q.
A.
Please describe Table 3 of Exhibit No. 30.
Table 3 details the allocation of all other
13 additions to or deductions from rate base. Deductions from
14 rate base include Customer Advances for Construction which
15 have been directly assigned to the customers
16 (jurisdictions) and Accumulated Deferred Income Taxes which
17 are allocated by plant. Additions consist of Materials and
18 Supplies which have been functionalized and allocated by
19 the respective plant allocators; Fuel Inventory which has
20 been allocated on the basis of energy; components of IERCO,
21 the Company's fuel subsidiary which are allocated on the
22 basis of energy; and the Investment in Conservation are all
OBENCHAIN, Di 28
Idaho Power Company
1 Idaho programs and directly assigned to the Idaho
2 jurisdiction.
3 Working Cash Allowance has been excluded
4 from rate base in accordance with the Commission's previous
5 orders.
6 All rate base items, with the exception of
7 Accumulated Deferred Income Taxes and the Investment in
8 Conservation Programs, reflect the average of 13 monthly
9 balances.
10
11
Q.
A.
Please describe Table 4 of Exhibit No. 30.
Table 4 indicates adjusted Firm Operating
12 Revenues for each jurisdiction for the 12 months ending
13 December 31, 2003. Opportunity Sales represent non-firm
14 energy sales to other utilities, the revenues from which
15 are credited to each jurisdiction in proportion to its
16 generation-level energy usage.
17 Other Operating Revenues are either
18 allocated among jurisdictions in a manner which offsets
19 related allocations of rate base, or, where a particular
20 revenue item may be identified with a specific
21 jurisdiction, it is directly assigned to the appropriate
22 jurisdiction.
OBENCHAIN, Di 29
Idaho Power Company
1 Q. Briefly describe the methods by which O&M
2 expenses were allocated.
3 A. The allocation of each O&M expense is
4 detailed on Table 5 of Exhibit No. 30. In general, the
5 basis for each allocation may be readily interpreted from
6 the exhibit, due to the fact that in most cases either
7 demands, those identified by a source code beginning with a
8 "D" prefix; energy use, those identified by a source code
9 beginning with an "E" prefix; or related plant, those
10 identified by a line number source code; serve as a basis
11 for the allocation. Customer-weighted allocation factors,
12 "CW", which recognize differences in customer requirements,
13 have been used in the allocation of certain expense
14 accounts.
15 Q. In what manner are supervision and
16 engineering expenses treated throughout the allocation of
17 O&M expenses?
18 A. For the applicable expense account in each
19 functional group, the labor component is separately
20 allocated in accordance with the detail provided on pages
21 25 through 28 of Table 12 of Exhibit No. 30. The total of
22 allocated labor in each functional group becomes the basis
OBENCHAIN, Di 30
Idaho Power Company
1 for the allocation of Supervision and Engineering Expense.
2 Total allocated labor expense serves the additional purpose
3 of allocating employee pensions and other labor-related
4 taxes and expenses. Table 12 of Exhibit No. 30 details the
5 development of all the labor-related allocation factors
6 used in this study.
7
8
Q.
A.
Please describe Table 6 of Exhibit No. 30.
The allocation of Depreciation Expense and
9 Amortization of Limited Term Plant is set forth on Table 6.
10 These expenses have been identified by type of production
11 plant or by primary plant account for other functional
12 plant groups. Allocation is then accomplished on the basis
13 of the related plant account as previously allocated.
14 Q. Please describe Table 7 of Exhibit No. 30,
15 and the allocation of Taxes Other Than Income Taxes.
16 A. Taxes Other Than Income Taxes are treated
17 individually and are allocated in a manner consistent with
18 the bases by which the respective taxes are assessed.
19
20
Q.
A.
Please describe Table 8 of Exhibit No. 30.
The expenses shown on Table 8 consist of
21 Deferred Income Taxes and the Investment Tax Credit
22 Adjustment. Both have been functionalized and allocated on
OBENCHAIN, Di 31
Idaho Power Company
1 the basis of total allocated plant. Also summarized on
2 Table 8 are State and Federal Income Tax liabilities. The
3 income taxes shown on Table 8 as well as Tables 9, 10 and
4 11 were obtained from the Company's Tax Department.
5 Q. Please describe how you allocated Federal
6 and State Income Taxes shown on Tables 8, 9, 10 and 11 of
7 Exhibit No. 30.
8 A. Total income taxes have not been allocated,
9 per se. Instead, the respective tax bases have been
10 developed and taxes have been calculated directly for each
11 jurisdiction. Operating income before taxes represents
12 adjusted operating revenues less all adjusted operating
13 expenses treated heretofore with the exception of deferred
14 income taxes and investment tax credits. Adjusted
15 long-term and other interest expenses are allocated on
16 total plant in order to develop net operating income before
17 taxes. From that point forward, additions to or deductions
18 from the respective tax bases are allocated to each
19 jurisdiction by net income before taxes. In this manner,
20 taxable income for each jurisdiction is developed, and the
21 appropriate tax rate is applied. Final tax amounts result
22 after the allocation of adjustments and tax credits. All
OBENCHAIN, Di 32
Idaho Power Company
1 details relating to the calculation of Federal, Oregon,
2 Idaho and Other state income taxes are found on Tables 9,
3 10 and 11.
4 Q. Please describe Tables 12, 13, 14 and 15 of
5 Exhibit No. 30.
6 A. Tables 12, 13, 14 and 15 of Exhibit No. 30
7 contain a list of the allocation factors used in the
8 Jurisdictional Separation Study. Tables 12, 13, 14 and 15
9 of Exhibit No. 30 contain the principal allocation factors
10 used in the study and the respective jurisdictional values
11 for each allocation factor. Table 14 of Exhibit No. 30
12 presents the ratios of the principal allocation factors
13 included in Table 13.
14 Q. Please describe the development of the Idaho
15 Jurisdictional revenue deficiency.
16 A. The summary of results is presented on pages
17 1 and 2 of Exhibit No. 30. The development of the Idaho
18 jurisdictional revenue deficiency is presented in the
19 column entitled "Idaho IPUC" on page 1 of Exhibit No. 30.
20 As can be seen from this exhibit the Idaho net income of
21 $76,855,594 on line 24 results in a return on rate base of
22 4.967 percent on line 25. Under the rate of return of
OBENCHAIN, Di 33
Idaho Power Company
1 8.334 percent provided to me by Mr. Gribble, the Company's
2 Idaho jurisdictional net income should be $128,963,944 on
3 line 30. This results in an earnings deficiency of
4 $52,108,350 on line 31.
5 Q. What net-to-gross or incremental income tax
6 factor did you use in developing the Idaho jurisdictional
7 revenue deficiency?
8 A. As indicated on line 33 on page 1 of Exhibit
9 No. 30, I used a composite incremental tax multiplier of
10 1.642 provided to me by the tax department, which
11 represents the use of the Federal effective tax rate of
12 32.795 percent, an Idaho effective tax rate of 5.9 percent,
13 an Oregon effective tax rate of 0.4 percent and an Other
14 state effective tax rate of 0.1 percent for purposes of
15 determining the Company's Idaho jurisdictional revenue.
16 Q. What is the resulting Idaho jurisdictional
17 revenue deficiency?
18 A. The results of the Jurisdictional
19 Separation Study as shown on line 34 on page 1 of Exhibit
20 No. 30, indicate a total revenue deficiency of $85,561,910
21 for the Idaho Retail Jurisdiction. This represents a
22 required 17.68 percent increase in normalized Idaho
OBENCHAIN, Di 34
Idaho Power Company
1 jurisdictional revenues.
2
3
Q.
A.
Please describe Exhibit No. 31.
Exhibit No. 31 is a six-page exhibit, which
4 provides a summary of allocation factors used in this
5 proceeding.
6
7
Q.
A.
Does this conclude your testimony?
Yes, it does.
OBENCHAIN, Di 35
Idaho Power Company