20040319Minor Rebuttal.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-O3-
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS INTERIM
AND BASE RATES AND CHARGES FOR
ELECTRIC SERVICE.
IDAHO POWER COMPANY
DIRECT REBUTTAL TESTIMONY
DANIEL B. MINOR
please state your name and business address.
My name is Daniel B. Minor and my business
address is 1221 West Idaho Street, Boise, Idaho 83702.
Wha t is your po sit i on a t I daho Power Company?
I am the Vice President of Adrninistrati ve
Services and Human Resources.
What is your educational background?
I graduated from Idaho State University in
Pocatello, Idaho in 1981 receiving a Bachelor of Business
Administration in Accounting.In 1984, I passed the
Certified Public Accounting exam and was licensed as a CPA
In 1996 I attended the University ofin the state of Idaho.
Idaho Public Utility Executive s Course.
please outline your business experience.
I began my career as a staff accountant with
Alexander Grant & Company (later known as Grant Thornton
International) in August 1981. In April 1983 I began my
employment with Idaho Power Company in the property
I advanced through severalaccounting department.
accounting positions and in October 1990, I was promoted to
Manager of Employment & Compensation in the Human Resources
Department. In October 1995 I was appointed to Senior
Manager of Human Resources and served in that capacity until
September 1998 when I left the Company.I returned to the
Company in July of 2001 as the Director of Audit Services
MINOR, Di - Reb
Idaho Power Company
and served in that capaci ty until May of 2003 when I was
appointed to Vice President of Corporate Services and in
November 2003 I was also given responsibility for the Human
Resources and Information Security departments as the Vice
President of Administrative Services and Human Resources.
What are your duties as the Vice President of
Administrative Services and Human Resources?
I am responsible for general oversight of the
Human Resources, Corporate Services and' Information Security
Departments.
What is the purpose of your testimony?
As the Company s Vice President responsible
for Human Resources, I am responding to the issues regarding
the Company s total cash compensation comprised of base pay
and annual pay-at-risk incentives raised by Staff Witness
Holm.
Please describe the Company s cash and
benefi t compensation philosophy.
Idaho Power s compensation philosophy is
generally based on achieving four goals:(1) facilitating
the achievement of Idaho Power's vision, mission and goals,
(2) attracting, retaining and motivating employees with the
skills and performance level to achieve the goals of the
(3) providing opportunities for employeeCompany,
development and advancement, and (4) maintaining our non-
MINOR, Di-Reb
Idaho Power Company
Successful execution of that philosophyunion status.
requires that cash compensation and benefits be competitive
in the labor markets where the Company competes for
employees.
Has the Company s compensation philosophy
evo 1 ved over time?
Prior to 1991, the CompanyYes.
compensation goal was focused on providing a wage and
benefit package that was sufficiently. competitive for the
Company to remain, a non-union employer.To assure
compliance with that goal , the Company annually conducted a
survey of Pacific Northwest utilities focusing on the
Lineman position. Based on that survey, management would
recommend to the Board a Salary Structure Adjustment ("SSA"
that would maintain the compensation for the Company
Linemen and other skill/craft positions at a level that was
at or near the top of the market in the northwest.
Were changes to the compensation program
implemented in 1991?
In 1991, the Company adopted a numberYes.
of structural changes to its cash compensation program.
that time the compensation market was expanded beyond the
Pacific Northwest to encompass the intermountain west
utili ty industry and the competi ti ve level for cash
compensation was set at the 60th percentile of that market.
MINOR, Di-Reb
Idaho Power Company
The Company also moved away from a single competi ti ve
benchmark position (lineman) comparison in the market to a
salary benchmarking process that included approximately
seventy union , professional, supervisory and administrative
posi tions that were reviewed annually to determine the
amount of adjustment necessary to maintain the overall
competitiveness of the compensation structure.
How has the general compensation program
evolved since 1991?
In 1995, the Company made several major
changes to its compensation program to meet new, more
The biggest change was thecompeti ti ve labor markets.
decision by the Board to put a portion of employees
compensation at risk based on pre-determined goals.This
pay-at-risk program is generally referred to as the annual
At implementation, the control point forincentive program.
base pay was adjusted to the 50 ili percentile of the
competi ti ve market with the target for total cash
compensation (base pay + at-risk pay) remaining at the 60
percentile.
Why do you refer to the annual incentive
program as pay at-risk?
Unlike base pay, which is guaranteed,
incentive pay may not be paid unless the Company
performance meets or exceeds predetermined goals.For
MINOR, Di-Reb
Idaho Power Company
example, in 2003 no incentive payout was made to Company
employees.
Staff Witness Holm has recommended that the
Commission remove all incentive pay expense from the
Do you believe the CommissionCompanys 2003 test year.
should accept Mr. Holm s recommendation.
Mr. Holm s recommendation should beNo.
First, Mr. Holm erroneouslyrej ected for several reasons.
concludes that including the pay-at-risk component of the
Company s compensation package will result in Idaho Power
employees being overpaid.Second, Mr. Holm does not
understand the labor markets in which the Company competes
Finally, Mr. Holm erroneouslyfor skilled employees.
concludes that the Company s pay-at-risk compensation
structure does not benefit Idaho Power s customers.
Staff Wi tness Holm is critical of the
Company s use of national market data for setting employee
Why did the Company change its competi ti vecompensation.
compensation market from intermountain west utili ties to a
national utility market?
Utili ty associations such as National
Electric Power Association (NELPA) and Edison Electric
Insti tute (EEl), in conjunction with human resource
consul ting firms such as Towers Perrin, have conducted
compensation surveys for their members for many years.With
MINOR, Di - Reb
Idaho Power Company
the onset of deregulation, and the ensuing competition for
experienced professionals between companies, utili ties
became extremely protective of this data. With fewer
companies participating in the Northwest Utility Salary
Survey, the data became less reliable and was increasingly
vulnerable to high salary/high cost of living areas such as
Portland and Seattle. The national utili ty market offered
the Company a broader based, more reliable data pool on
which compensation decisions could be, made.Further, the
Company felt the data was more relevant to our market
because it wasn ' t as heavily influenced by the high
salary/high cost of living cities as the Northwest Utility
Because many Idaho Power Company jobs areSalary Survey.
only found in other electric utili ties, we must survey
compensation levels outside the state and local markets and,
in our opinion, the national market provides the most
reliable and relevant database available.
Why does the Company align its pay with the
th percentile of the relevant marketplace?
We believe compensation is an important
strategic tool and a key part of how a successful company is
run. We keep our fixed costs at a reasonable level by paying
salaries at the middle of the market (50 th percentile), and
reward superior performance results through variable cost
incentive plans that only pay when pre-defined results that
MINOR, Di - Reb
Idaho Power Company
benefit the Company s customers and shareholders are
achieved. Compensation levels reach the 60th percentile only
when a target incentive is earned through accomplishing
By structuring our total cashperformance goals.
compensation program this way, the Company is able to vary
pay based on actual Company performance -- paying a 50
percentile salary (and less than 60ili percentile total cash
compensation) when performance goals are not achieved, and
ili percentile salary (50ili percentile salary plus pay at-
risk) when goals are achieved.The total c'ash compensation
program is an important strategic tool because: 1) it helps
us manage our costs by varying total cash compensation
levels based on Company performance; and 2) it specifically
identifies and focuses all of our employees on important
goals for each fiscal year.
Staff Witness Holm is critical of the
Company s decision not to immediately cut wages when it
Please explain why theimplemented the pay-at-risk plan.
Company did not cut wages when it implemented the pay at-
risk plan.
The Company believed that precipitously
cutting compensation to implement an at-risk component of
compensation would have undermined the ultimate success of
Consistent with the approach used by manythe plan.
companies, Idaho Power elected to transition to the 50
MINOR, Di-Reb
Idaho Power Company
percentile over a three year period by implementing a less
than competitive annual salary structure adjustment each
The Company continued to conduct annual salaryyear.
structure reviews and as the base salary structure moved
closer to the 50th percentile, the Company increased the
target incentive award opportunity at levels necessary to
maintain total cash compensation (base pay + at-risk pay) at
the 60 ili percentile.
Mr. Holm compares Idaho Power s wages to the
wages of all employees in the state in general and
specifically to employees of the State of Idaho.Are
average pay levels wi thin the state and for State of Idaho
employees relevant for assessing Idaho Power wages?
Mr. Holm s comparisons overly simplify aNo.
First, an overall average is acomplex business issue.
meaningless statistic unless you are comparing like-jobs in
Since such comparisons are onlyboth organizations.
possible with a small number of jobs, an overall average is
not representative of the entire organization and doesn ' t
demonstrate whether compensation is high, low or in-between.
Second, competi ti ve markets for compensation comparisons
should be those job markets where the Company recruits and
Gi ven the verywhere the Company loses employees.
specialized types of jobs needed to run a successful
electric utility, the national electric utility employee
MINOR, Di - Reb
Idaho Power Company
market is far more important than the general state employee
market for compensation comparisons. A more meaningful and
appropriate comparison would be the average Company. wage
$59,173 as compared to the average wage at the Bonneville
Power Administration of $73,380 or the average wage at Grant
County PUD in 2002 of $72,429 as reported in the
February 23, 2004 issue of Clearing Up (Exhibit 71)
In his testimony Mr. Holm compares employee
turnover rates between Idaho Power and the employees of the
What conclusions can be drawn from thestate of Idaho.
comparison of employee turnover at Idaho Power to the
employee turnover experience by the State of Idaho?
There are many variables that impactNone.
turnover in both workforce populations includihg culture,
work environment, morale, satisfaction with pay and
benefi ts, promotional opportunities, personal choice,
travel, work shift, permanent vs. temporary or seasonal
labor. We believe there are many benefits to the customer
Low turnover means higher levelsfrom having low turnover.
of insti tutional knowledge among our employees, less
investment in retraining and employee development, improved
safety records, lower worker compensation costs, and better
Each not only benefits the customer, butcustomer service.
the Company and its shareholders as well.
How does using an IDACORP earnings goal in
MINOR, Di-Reb
Idaho Power Company
the at-risk incentive plan benefit the customers of Idaho
Power?
In addition to being the variable component
of compensation, the real benefit of any at-risk pay plan is
the collective employee focus on key Company goals.In the
first few years of the plan the Company established goals
based on controlling O&M costs, customer satisfaction and
safety. However, as the Company gained experience with pay-
at-risk the plan evolved to support the strategic direction
of the Company. Beginning in 1997, the Company moved to
focus employees on continuous process improvement with the
goal of each employee contributing towards the "Operational
Excellence " of each area of the Company. As the Company
considered how the plan should evolve in support of this new
direction, it was decided that the original goals while
extremely important to all stakeholders, limi ted the power
of the pay-at-risk plan. Upon further review it became
apparent that the impact of achieving each of the original
goals as well as the results of continuous process
improvement could be best measured in the earnings of the
Company. Additionally, an earnings goal provided an
obj ecti ve, audi table metric for performance under the plan.
In 1997, the Company made the decision to change the plan to
a single goal of earnings on common shares of Idaho Power
Company (Later IDACORP) with the performance level being set
MINOR, Di-Reb
Idaho Power Company
independently by the Compensation Committee of the Company
When discussing this goal withBoard of Directors.
employees, representatives of Human Resources as well as
management continue to focus utility employees ' behavior on
achieving operational excellence making a difference where
they can through excellence in customer service, working
efficiently, safely, and controlling utility operations and
Wi th an ongoing focus on these areasmaintenance expenses.
by employees, both Idaho Power and its utility customers
will continue to benefit.
Are the capitalized incentive amounts the
Company included in its test year data appropriate?
Yes. The incentive payroll amounts
capitalized by the Company reflect the ratio of base
salaries and overtime charged to Capital and O&M proj ects in
If the Company had not implemented an at-riskeach year.
pay incentive plan and had continued to maintain the salary
structure at the 60ili percentile base pay level, base
compensation, including overtime would be $7-8 million
This additional cost would placedollars higher per year.
upward pressure on benefits tied to wages such as the 401k,
pension, vacation and sick leave. Additionally, the Company
and its customers would lose the benefit of the at-risk
incentive compensation program and its power to focus
employee behavior on the achievement of operational
MINOR, Di-Reb
Idaho Power Company
excellence, and aligning the interests of the customer,
shareholders and the Company.
Did the Company raise base pay wages for
2004?
The Company completed its annualNo.
competi ti ve analysis for the salary structure in November
This competitive analysis indicated that the Company2003.
needed to implement a 3% salary structure adjustment.
effective January 1, 2004 to maintain the competitiveness of
the base pay structure at the 50 th perc.entil'e. In November,
management and the Board elected to not grant the increase
until financial conditions of the Company improve.
reaching its determination, management considered a number
of factors including the overall financial condition of the
Company, failure to receive interim rate relief, the
reduction in the dividend from $1.86 to $1.20 per share and
the potential for a fifth consecutive year of below normal
wa ter condi tions .This effectively deferred any upward
Salary Structure Adjustment until such time that the
Company s financial situation improves.
How will the decision to not grant a Salary
Structure Adjustment in 2004 affect the Company?
The salary structure will fall below
competi ti ve pay levels in the relevant market and the
Company will face a greater threat of losing quality
MINOR, Di-Reb
Idaho Power Company
employees and becoming a union shop.Since early February
2004, representatives of the International Brotherhood of
Electrical Workers Union have been actively engaged in
efforts to organize the Company s Delivery Business Unit
The key organizing issue raised by the unionemployees.
representative is the Company s failure to implement the
January 2004 salary structure adjustment and the lack of a
Unfortunately, it is true that2003 incentive payment.
wi thout the salary structure adjustment and with no
incentive payment, the compensation of many of our workers
is currently below the pay of their peers, particularly in
the Pacific Northwest. This situation cannot continue over
the long term or we will face ongoing organizing efforts and
perhaps even the unionization of our work force.
What action will the Company be required to
take if recovery of the at-risk pay expense is disallowed?
As previously discussed, the Company believes
that in order to retain our skilled employees and maintain
our non-union status, total cash compensation must be at the
th percentile.If the outcome of these proceedings
indicates that at-risk compensation expense is not favored
by the Commission, management will be forced to consider
termination of the current pay-at-risk plan and restoration
of base pay to the 60th percentile of the competitive market.
This will require a significant one-time increase in base
MINOR, Di-Reb
Idaho Power Company
pay wi th a resulting
compensation.
testimony?
increase in our fixed total
Does this conclude your direct rebuttal
Yes.
MINOR, Di-Reb
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTiliTIES COMMISSION
CASE NO. IPC-03-
IDAHO POWER COMPANY
EXHIBIT NO. 71
D. MINOR
Clearing Up
February 23 , 2004
CLEARING UP. February 23 2004. NO. 1122 . Page 2
Laggardly Market Lulls Prices to Sleep
Thanks to the Presidents Day Holiday, the week
got off to a slow start and prices crept downward as
the week progressed, making for a largely uneventfulweek.
There s nothing dramatic going on anywhere
remarked one trader about last week's electricity-
market activities. Peak-power deals at Mid-Columbia
sagged to a low of 38.75 mills/KWh in Thursday trad-
ing, having managed to stay between 40.75 mills and
42 mills/KWh earlier in the week. Friday trading for
Monday deliveries displayed a bit more life; prices
moved back up to between 41 mills and 41.
mills/KWh. Off-peak power prices stayed in the vi-
cinity of between 38 mills and 40.75 mills/KWh before
sinking to 35.75 mills/KWh in end-of-week trading. At
the California-Oregon Border hub, peak power was
moving for between 42.50 mills and 44 mills/KWh on
Tuesday, but also lost strength later in the week. By
Thursday, the price was down to between 40 mi11s and
41.50 mills/KWh.
Prices at the Palo Verde hub in the Southwest had
trouble staying above the 40 mills/KWh mark last week.
Though trading opened Tuesday at between 41 mills and
43.25 mills/KWh for peak offerings, by Thursday the
price was down to 38.50 mills/KWh. Next-week deliver-
ies were moving for 43.25 mills/KWh on Friday. Off-
peak power lost a few mills as the week wore on, starting
off at between 34 mills and 36 mills/KWh prior to drop-
ping to a low of 29.75 mills/KWh on Thursday. Again
the price jumped on Friday-up to 37.25 mills/KWh.
At NPI5, peak power changed hands for between
45 mills and 47 mills/KWh in early-week trading. By
the end of the week, power was being bought and sold in
the narrow band of 42.45 mills and 43.75 mills/KWh.
Low-demand power deals were done for between 38 mills
and 40 mills/KWh on Tuesday before slipping down to
the 33 mills to 35 nillls/KWh range on Thursday.
SP15 prices showed more strength than NPI5'
during the fast part of the week, but just barely. Power
for peak delivery traded for between 46.50 mills and
48 mills/KWh, while off-peak power moved for 35 mills
to 37.50 mills/KWh. Off-peak prices perked up to a high
of 39.50 mills/KWh at the end of the week.
Scheduled work in the Pacific Northwest dropped the
Pacific DC Intertie down to 1086 MW north to south and
1070 MW south to north on both Tuesday and Wednes-
day /Shauna O'Donnell).
Western Electricity Prices
February 17-20, 2004
peak
12.68-149.
45.25-55
38. 75-42
40-
42.40-
41-
38.50-43.
Alberta
APX California
Mid-Columbia
COB
NP15
SP15
Palo Verde
Off-peak
83-46.
38-39.
35.75-40.
35.50-
33-
34-39.
29.75-37.
week in
summary
Lawmakers also OK'd a bill requir-
ing power plants to mitigate for car-
bon dioxide emissions, by paying
into a fund or by installing CO2 mitigation equipment.
At /14), bills face uncertain fate in this year s 60-day
session.
IS) WUTC Tells Avista to stop Using
Affiliate to Buy Cas
A vista Energy will no longer be allowed to buy gas
for Avista Utilities' Washington Customers , according
to a Washington Utilities and Transportation Commis-
sion ruling. In a 2-1 vote, the commission questioned
whether the utility and its affiliate were at arms length
and what the arrangement s benefits were to customers.
But at /12) A vista found an ally in ChaiIWoTT/Lln Marilyn
Showalter, who called the ruling "conceptually flawed and
unduly limiting.
16) BC Hydro's Net Profit Improving on
Higher Domestic consumption
An increase in domestic electricity consumption
helped BC Hydro post a net income of C$150 million
($113 million) for the first nine months of fiscal 2004.
Improved water inflows have also helped the BC gov-
ernment-owned utility brighten its financial picture.
For details, turn to /11).
Briefs
17) Public Power Earnings: Average
BPA Pay TopS $70 000
Last year, 227 Bonneville Power Administration em-
ployees earned over $100,000, according to recently
released data. That's 7 percent of the total
230 employees. A total of 468 employees, or
14.5 percent, earned over $90 000.
Agency-wide, the average pay is $73 380.
This information comes from a freedom of informa-
tion request by Louis Bloom of Camano Island, who
posts salaries of government employees, most from
Washington, and including several PODs, at his Web
site www.lbloom.net.
BPA listed 15 employees who earn the government
highest annual salary--$142 500--including 13 of 18 vice
presidents, the administrator and deputy administrator.
The average salary at Grant County POD in 2002
was $72 429; and the new Seattle City Light Superin-
tendent came on with a starting wage of $210 000. The
Snohomish County POD general manager was reported
at $194 600 in 2002, while the top job at Benton POD
received $135 000.
However it appears the highest paid public power of-
ficial is Energy Northwest s CEO, Vic Parrish, who
earns $486 590 (Ben Tansey).
(7.1) Ninth Puts Kibosh on Challenge to
DSI Contracts--Again
The 9th V.S Circuit
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denial, of challenges tc Exhibit No. 71
Case No. I PC-O3-
D. Minor, IPCo
Page 1 of 1Copyright (92004, Energy NewsData Corporation