20040319Obenchain Rebuttal.pdf

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i.\1SSION
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 CUSTOMERS IN THE STATE OF IDAHO
CASE NO. IPC-O3-
IDAHO POWER COMPANY
REBUTTAL TESTIMONY
PHIL A. OBENCHAIN
please state your name and business address.
My name is Phil A. Obenchain, and my business
address is 1221 West Idaho Street, Boise, Idaho.
Are you the same Phil A. Obenchain who
previously testified before this Commission in this
proceeding?
Yes, I am.
Do you have comments on certain adjustments
to test year amounts proposed in the pre-filed direct
testimony of Staff and Micron Witness 'Dr. Peseau?
Yes.Recognizing the need to limit issues, I
will only address Staff's and Micron s reductions to the
Company s annualizing adjustments and known measurable
adjustments to the test year rate base.Thi s does not mean I
accept any additional proposed adjustments that are not
specifically addressed in my rebuttal testimony.
What is the purpose and intent of the test
year in setting rates for an electric utility?
Rates established during a general rate
proceeding are often in effect for many years; for Idaho
Power Company it has been ten years since the last general
revenue requirement proceeding.According to NARUC' s Cost
Allocation Manual it is important that rates established use
the most current actual, or proj ected, cost and sales
information available "which are expected to be
OBENCHAIN, Di - Reb
Idaho Power Company
representative of those that will be experienced during the
time the rates are likely to remain in effect.(NARUC :
Electric Utility Cost Allocation Manual, 1992, p. 24)
Typically this Commission and the Company have utilized the
most recent twelve months of actual data, with adjustments,
as the representative test period.Other state regulatory
Commissions have adopted either proj ected test periods or a
split between historical and projected to better match rates
to the costs that will be incurred by the utility during the
period in which the rates will be in effect.
In short, the test period should reflect, to the
greatest extent possible, the levels of rate base, expenses
and revenues that the util~ ty would reasonably expect to
experience during the time the rates being requested are in
effect.
What test period did the Company propose in
this case to best reflect the levels of rate base, expenses
and revenues that the Company will experience once new rates
become effective?
The Company filed its case based on six-
months of actual data and six-months of estimated 2003 test
year information adjusted for normalizing, annualizing, and
known and measurable adjustments.
In his testimony on behalf of Staff Mr.
Leckie proposes the elimination of certain annualizing
OBENCHAIN, Di - Reb .
Idaho Power Company
adjustments from the Company s rate base.Would you please
discuss in more detail the purpose of "annualizing
adjustments " for a test year?
Annualizing adjustments are adjustments
necessary to reflect changes that occur wi thin the test
period and will continue on an ongoing basis. In this case,
the test period is the twelve months ending December 31,
2003 If the annualizing adjustment is for an addition to
electric plant in service, then it is appropriate, in fact
imperative, that the investment be included for the full
Once again' we can look to the NARUC Manual foryear.
guidance as to the appropriateness of making this type of
adjustment to actual historical test year costs.
order reflect costthe
condi tions that may occur during the actual
effectiveness of most agenciesthe rates,
permi t adjustments actual datathe
reflect changed conditions,to correct for
unusual events during the recorded period,
include costs timeestimated for aor to
period in the near future.The goal is
adjust costs to presen normalthe actual
opera ting condi ti OTIS accura tely
possibl resul tingthat fromra tes
proceeding are appropriate for application
OBENCHAIN, Di - Reb
Idaho Power Company
immediate (emphasisthefuture
added) . " (NARUC :Electric Utili ty Cost
Allocation Manual, 1992, p.24)
What are the plant investments the Company
has included in its annualized adjustment?
The plant investments the Company is
requesting be included for the entire twelve months of the
test year is for two large projects currently in rate base,
that are used and useful and will continue to serve customers
from this point forward.The first is the Bridger rewind
proj ect at a total investment of close to $8.7 million of
which $6.6 million was reflected in the 'test year as an
annualizing adjustment.The second is the 230kv Brownlee-
Oxbow transmission line at a total investment of close to
$14.5 million of which $13.2 million was reflected in the
test year as an annualizing adjustment.The two large
proj ects total $23.2 million of which $19.8 million is for
the annualizing adjustment necessary to reflect the entire
investment for twelve months.
Do you agree with Mr. Leckie that Idaho Power
deviated from accepted methodology in its annualizing
adjustments to the test year in this case?
No, I do not.Idaho Power used the same
annualizing methodology for these plant investments that the
Commission has approved for annualizing adjustments in prior
OBENCHAIN, Di-Reb
Idaho Power Company
I am aware of several Commission orders in priorrate cases.
cases which support the Company s treatment of the
annualizing plant adjustments in this case.For example,
Unit No.1 of the Company s Valmy generating station was
included in rate base for the entire twelve months ending
December 31, 1981 even though it did not come online until
December 11, 1981.(Orders No. 17499, Case No. U-1006-185)
In Case Nos. U-1006-185, U-1006-265, and IPC-94-5 payments
for purchase power from CSPP projects that came in at various
times during the test year were all included for the full
year.
Did Mr. Leckie recommend the disallowance of
the annualizing adjustment pecause he did not believe the
particular plant item should be allowed in rate base?
Mr. Leckie does not seem to have anNo.
objection to the investment being allowed in rate base, but
just that it should not be reflected in rate base for an
entire year.
What is the basis for Mr. Leckie
recommendation?
Mr. Leckie's recommendation is based in a
belief there is a mismatch between costs and revenues.
Wi th regard to costs and revenues, Mr. Leckie
states that by putting the annualizing adjustments for the
Bridger rewind proj ect and Brownlee-Oxbow transmission
OBENCHAIN, Di - Reb
Idaho Power Company
project in for a full year the Company is violating the
matching principle that would allow an annualizing
adjustment.Do you agree with Mr. Leckie that there must
necessarily be a revenue match to warrant inclusion of plant
for a full year?
Absolutely not.These two proj ects are not
revenue producing proj ects.There is no revenue that the
Company is failing to include.Thus, there is no mismatch of
costs and revenues.The Bridger rewind proj ect consisted of
a generator ~ewind, control upgrade, plus, other plant
related costs, none of which creates additional revenue.
Even though these Bridger modifications did not add to the
plant's capacity, or create any additional revenue, the
investments were necessary to ensure ongoing plant
reliabili ty.
Why should the new 23 Okv Brownlee-Oxbow
transmission line be included for a full year?
Like the Bridger rewind proj ect investment
discussed above, the Brownlee-Oxbow line represents a
sizeable investment by the Company.The benefits of the new
Brownlee-Oxbow line are twofold: first, it increases the
over-all reliability of the Company s transmission system and
second, it increases simultaneous Brownlee east and northwest
import capability.This line is fully operational and will
benefit customers this year and for years to come.It is an
OBENCHAIN, Di-Reb
Idaho Power Company
appropriate ratemaking adjustment to reflect this investment
for a full year.
Why is it appropriate to reflect these plant
additions in rate base for an entire year?
As stated previously, the purpose of a test
year is to reflect the costs and revenues that customers will
be facing during the period rates will be in effect.It is
appropriate that customers pay the full annualized cost
associated with these plant additions because customers are
receiving the benefits of these sizable plant investments now
and will be receiving the benefits in all months once new
rates are established.The amounts and impact to the
historical test year costs are identifiable.As a result, it
is not reasonable that the Company and its investors should
have to wait an additional year before being able to earn a
return on these sizeable increases in plant.Mr. Leckie
proposed treatment reflects only a partial year s inclusion
of costs even though the plant will be there for customers
each and every month that new rates are in effect.
Dr. Peseau testifies that the annualizing
adjustment the Company has proposed constitutes a move to the
establishment of a year-end rate base.Do you agree?
Dr. Peseau is mistaken as to the Company
proposed annualizing adjustment.The Company did not propose
replacing the thirteen-month average balance with a year-end
OBENCHAIN, Di-Reb
Idaho Power Company
balance.As explained above, the proposed $19.8 million
annualizing adjustment is only for specific new large plant
investments and is treated in the same way that that the
Company treated new test year large plant additions in past
proceedings.
In his testimony on behalf of St~ff, Mr.
Leckie proposes the elimination of certain known and
measurable adjustments from the Company s rate base. Would
you please discuss in more detail the purpose of "known and
measurable a~justments " in a test year?
Known and measurable adjustments are
adjustments necessary to reflect changes that occur after the
test period, in this case December 31, 2003, but that are
appropriately incorporated for a full year on an ongoing
basis.Again, The goal is to adjust the actual costs
present normal operating conditions as accurately as possible
so that rates resulting from proceeding are appropriate for
application in the immediate future (emphasis added).
" (NARUC: Electric Utility Cost Allocation Manual, 1992, p. 24)
What are the plant additions the Company has
included as known and measurable adjustments to test year
rate base in this case?
The plant investment the Company is
requesting to be reflected in rate base for the twelve months
ending December 31, 2003 involves large transmission projects
OBENCHAIN, Di-Reb
Idaho Power Company
that will be in plant-in-service and used and useful by the
time the rates determined by this proceeding go into effect.
These projects will continue to serve customers from that
point forward.The Company requested only those transmission
projects that were of a significant size to be included for
the full test year recognizing that upon their completion
they would be of immediate benefit to customers of Idaho
Power.
Do you agree with Mr. Leckie that Idaho Power
deviated from accepted methodology in applying a known and
measurable adjustment for the full test year in this case?
No, I do not.Idaho Power calculated the
known and measurable plant adjustment for this case in the
same way as it has done, and the Commission has approved, in
all past rate cases that I am aware of.There are many
Commission orders in prior cases to support the Company
treatment of certain known and measurable plant adjustments
in this case.In Case No IPC-265 the Commission approved
the inclusion of Valmy II in rate base as a known and
measurable adjustment. Valmy II came online in May of 1985
and was a known and measurable adjustment to the 1984 test
More recently, the Commission allowed the inclusion ofyear.
the Swan Falls plant addition in the Company s last general
rate case, Case No. IPC-94-5, as a known and measurable.
The Swan Falls plant addition came online in April of 1994
OBENCHAIN, Di - Reb
Idaho Power Company
year.
and was a known and measurable adjustment to the 1993 test
In the 94-5 case the Company calculated the known and
measurable adjustment for Swan Falls in precisely the same
manner as proposed in this case.In addi tion to the known
and measurable adjustment to plant in service, the Company
also made all of the new plant related adjustments in
accordance with accepted Commission practice.Specifically,
the Company and the Commission have always used a half-year
convention in the calculation of the first year
depreciation reserve balance.
Did Mr. Leckie recommend the disallowance of
the transmission plant the Company proposed to include as a
known and measurable adjustment to the test year because he
didn't believe the particular plant 'item should be allowed in
rate base?
Mr. Leckie does not seem to have anNo.
objection to the item being rate based.In fact, Mr. Leckie
recommends that the Company make a known and measurable
adjustment to the test year, but only for one month.In over
twenty years of regulatory experience I am not aware of a
known and measurable adjustment to include a plant item, that
will be used and useful on an ongoing basis, for only one
month of the year.
Why is it appropriate to include these known
and measurable plant additions in rate base for an entire
OBENCHAIN, Di-Reb
Idaho Power Company
year?
As stated above, the use of a test year is
designed to reflect the costs and revenues that customers
will be facing during the period rates being requested are in
effect.It is appropriate that customers pay the cost
associated with the additional plant.Customers are
receiving the benefits of these sizable plant investments
The amounts and impact to the historical test yearnow.
costs are identifiable and it is not reasonable that the
Company and its investors should have to wait an additional
year or more before being able to include these sizeable
increases in plant.
Wi th regard to costs and revenues, Mr. Leckie
states that by putting the known and measurable adjustments
in for a full year the Company is violating the matching
principle that would allow such an adjustment.Do you agree
wi th Mr. Leckie that there must be full year of revenue match
to include plant adjustment for full a year?
No.The transmission projects at issue
involve investments, which will increase the transmission
system reliability.Even though these investments may not
produce revenues they do produce benefits for customers.
Dr. Peseau testifies that the known and
measurable adjustments make a miss-match from the year-end
problem even worse.Do you agree?
OBENCHAIN, Di-Reb 11
Idaho Power Company
Again, Dr. Peseau, is mistaken in his
understanding of what the Company has proposed.As wi th the
Company s annualizing adjustment, the known and measurable
adjustment was only for certain large investments to be
included in the test year not to bring the entire test year
balance to a June, 2004 level.
Does this conclude your direct rebuttal
testimony?
Yes, it does.
OBENCHAIN, Di-Reb
Idaho Power Company