20040325OBENCHAIN Direct PUC Original Scan.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
CASE NO. IPC-O3-
IDAHO POWER COMPANY
DIRECT 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.
By whom are you employed and in what
capaci ty?
I am employed by Idaho Power Company as a
Senior Pricing Analyst in the Pricing and Regulatory
Services Department.
Please describe your educational background
and professional experience.
In May of 1979, I received a Bachelor of Arts
Degree in Economics from Boise State University in Boise,
Idaho.
In August of 1979, I was employed as an
Economic Research Assistant with Idaho First National Bank
(presently U. S. Bank).
In August of 1981 , I left Idaho First to
attend the University of Idaho in Moscow, Idaho to pursue a
Masters of Science Degree in Economics, with emphasis in
Regulatory Economics.I completed the necessary course work
in the spring of 1982.
In January of 1983, I accepted the position
of pricing Analyst with Idaho Power Company.My duties as
Pricing Analyst include the preparation of cost-of-service
information for use in the development of jurisdictional
OBENCHAIN, Di
Idaho Power Company
separation studies and class cost-of-service studies.More
specifically, I am responsible for gathering and analyzing
data from various sources to carry out cost-of-service
related analyses as required by the three jurisdictions
regula ting Idaho Power Company.
I was the Company s revenue requirement
wi tness before this Commission in Case No. IPC-94-5 and
testified on the earnings test results as part of Case No.
IPC-97-12.In addition, I have sponsored testimony before
the Oregon Public Utility Commission in Case UE 92 on the
Oregon jurisdictional revenue requirement.
What is the scope of your testimony in this
proceeding?
I am sponsoring testimony in this proceeding
on the Idaho jurisdictional revenue requirement resulting
from the Jurisdictional Separation Study (JSS).
My testimony is outlined as follows:
First, I am offering testimony summarizing
the adjustments to total system test year data used by the
Company for purposes of restating the Company s rate base,
revenues, and expenses for the 12 months ending December 31
2003.
Second, I am offering testimony relative to
the preparation of a jurisdictional separation study
prepared using the adjusted total system data for the 12
OBENCHAIN, Di
Idaho Power Company
months ending December 31, 2003 for the purpose of
determining the Idaho jurisdictional revenue deficiency.
Have you prepared or supervised the
preparation of various exhibits for this proceeding?
Yes.I have prepared or supervised the
preparation of the following exhibits:
EXHIBIT
Exhibi t No.
Exhibi t No.
Exhibit No. 23
Exhibi t No.
Exhibi t No.
Exhibi t No.2 6
Exhibi t No.
Exhibi t No.2 8
Exhibit No. 29
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
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
OBENCHAIN, Di
Idaho Power Company
Exhibi t No.3 0 Jurisdictional Separation Study - Idaho
Revenue Requirement
Exhibit No. 31 Development of Jurisdictional Allocation
Factors
Please describe Exhibi t No. 21.
Exhibi t No. 21 consists of two pages and
identifies the development of the adjusted total electric
system rate base and the development of net income for the
12 months ending December 31, 2003.The 2003 test year
values contained in column 1 of Exhibit No. 21 are the
unadjusted test year amounts. The adjustments proposed by
the Company for purposes of developing the 2003 adjusted
total electric system combined rate base and net income for
this proceeding are shown in columns 2 through 5 of Exhibit
No. 21.The unadjusted test year information and
adjustments, except as otherwise noted, were provided to me
by Ms. Smi th .The total system adjusted test year rate
base, expenses and revenues are summarized in column 6 of
Exhibi t No. 21.
Page 1 of Exhibit No. 21 summarizes the
development of rate base components for the 12 months ending
December 31, 2003. The total combined rate base prior to
adjustments is $1,752,511,220 as seen on line 24 in column 1
on page 1 of Exhibit No. 21.The total combined rate base
is reduced to $1,673,283,777 , after all test year
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Idaho Power Company
adjustments have been included, and can be seen on line 24
in column 6 on page 1 of Exhibit No. 21.
Page 2 of Exhibit No. 21 presents the
development of the total system net income for the 12 months
ending December 31, 2003.Operating revenues are summarized
on line 31 in columns 1 through Total operating expenses
are summarized on line 42 in columns 1 through The
resulting net income is summarized on line 46 in columns 1
through 6.Net income increases from the test year level of
$65,895,300 to $81,433,150 after all ratemaking adjustments
have been inc uded .
Please describe the total test year 2003 rate
base, expenses and revenues found in column 1 of Exhibit No.
21.
Total test year amounts, before adjustment,
are presented in column 1 of Exhibit No. 21.Wi th the
exception of test year firm operating revenues and test year
power supply expenses, the amounts in column 1 were provided
to me by Ms. Smith.Firm operating revenues, line 29, are
calculated utilizing (1) 2003 normalized test year sales
provided by the Company s Power Supply Planning department,
and (2) the current base rates.The test year values for
the Company s power supply accounts (Surplus Sales Revenues
- Account 447 , Fuel - Accounts 501 and 547, Market Purchases
- Account 555.1 and Purchases from Qualifying Facilities -
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Idaho Power Company
Account 555.2) are the account balances from the most recent
PCA filing provided to me by Mr. Said. A summary of these
accounts is presented by FERC Account on lines 48 through 55
on page 2, of Exhibit No. 21.
Why have the 2003 test period rate base,
revenues, and expenses of the Company been adjusted?
Test year information is adjusted to reflect
known changes to the test year data for determining the
Company I S rates. In this way, rates will reflect the most
current cost information available at the time those rates
become effective.
Please explain what types of ratemaking
adjustments are made for the development of the Idaho
jurisdictional revenue requirement?
Ratemaking adjustments are generally one of
three types.First, normalizing adjustments are made to
those items that are influenced by weather.Mr. Said
discusses the normalization of the Company s Net Power
Supply Expenses in his testimony in this proceeding.
Normalizing adjustments are shown in column 2 of Exhibit No.
21.
Second, annualizing adjustments are made to
reflect changes that occur wi thin the test year, but need to
be incorporated for the full year on an ongoing basis.
Annualizing adjustments are shown in column 3 of Exhibit
OBENCHAIN, Di
Idaho Power Company
No. 21.
Third, known and measurable adjustments
proposed in this filing reflect changes that will occur
after December 31, 2003, but prior to or coincident with the
effective date of the new rates.Known and measurable
adjustments are shown in column 4, Exhibit No. 21.
Please discuss the annualizing adjustments to
the rate base components summarized in column 3 of page 1 of
Exhibit No. 21.
The first annualizing adjustment in column
on page 1 of Exhibit No. 21 is an increase of $6,621,907 to
production plant in service investment, line f or the
rewind of Bridger Unit No.The second is an increase
$13,157,482 to transmission plant in service, line 10, for
the Brownlee-Oxbow transmission line.The last is an
increase of $1,709,301 to Accumulated Provision for
Depreciation to capture plant at the end of 2003.The above
adjustments were provided to me by Ms. Smith.
Please discuss the known and measurable
adjustments to rate base presented in column 4 on page 1 of
Exhibi t No. 21?
The first is an increase of $18,388,690,
line 10, to transmission plant in service investment for
upgrades to the Brownlee-Oxbow transmission line and the
Star, Valli vue, Midrose and Goshen (345 capacitor bank)
OBENCHAIN, Di
Idaho Power Company
transmission stations.The investment amounts were provided
to me by Ms. Smith.The second is an increase of $3,211,822
to the accumulated provision for depreciation reserve
associated with one-half of the annualized depreciation
expense adjustment that was also provided to me by Ms.
Smith.The last known and measurable adjustment is a
reduction of $2,076,923 to IERCO subsidiary rate base
associated with the revaluation of prior year contingent tax
reserves and a true-up of deferred tax related to prior
years.This adjustment was provided to me by the Company
Tax Department.
Have you included any other adjustments to
rate base other than the annualizing and known and
measurable adjustments?
Yes, other adjustments to rate base are
presented in column 5 on page 1 of Exhibit No. 21.
Please describe the other adjustments shown
in column 5 on page 1 of Exhibit No. 21.
The three adjustments shown in column 5 on
page 1 of Exhibit No. 21 are:
A reduction to production plant of $1,577,314
to reverse the amount booked in 2003 for
Asset Retirement Obligation (ARO) provided to
me by Ms. Smith.
An increase of $106,204,452 to Accumulated
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Idaho Power Company
Deferred Depreciation to reverse amounts
booked in 2003 associated with ARO, as
provided by Ms. Smi th.
A reduction of $2 615,452 to Fuel Inventory
to reflect current operating criteria that
result in the required coal inventory
140,000, 90,000 and 30,000 tons at Bridger,
Valmy and Boardman, respectively. The fuel
inventory adjustment was provided by Mr.
Said.
Please recap the net effect of the
annualizing, known and measurable, and other adjustments to
rate base.
After the annualizing, known and measurable,
and other adjustments are included, the adjusted total
electric system combined rate base for the 12 months ending
December 31, 2003, as shown on line 24 in column 7 of page 1
of Exhibit No. 21, is $1,673,283,777.Thi s amoun t
$79,227 443 less than the unadjusted number in column
please describe page 2 of Exhibit No. 21.
Page 2 0 f Exhibi t No. 21 shows the
development of the adjusted total electric system net income
for the 12 months ending December 31, 2003.
Please describe the Company s normalizing
adjustments to the net income components shown in column
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Idaho Power Company
on page 2 of Exhibit No. 21.
The normalizing adjustments in column 2 on
page 2 of Exhibit No. 21 consist of the following two
adjustments:
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 in this
proceeding.
Please explain the Company s annualizing
adjustments to the statement of income in column 3 on page 2
of Exhibit No. 21.
The annualizing adjustments to the income
component shown in column 3 on page 2 of Exhibit No. 21 are
made to reflect changes to expenses and revenues, occurring
within the test year that should be included for a full
year.
OBENCHAIN, Di
Idaho Power Company
Were there any annualizing adjustments to the
opera ting revenues of the Company?
Yes.A reduction of $72,871 was made to
other operating revenues to reflect changes to facility
charge revenue as provided and discussed by Ms. Brilz in her
testimony in this proceeding.
Please describe the annualizing adjustments
made to the operating expenses of the Company.
The annualizing adjustments to the Company
opera ting expenses were provided to me by Ms. Smi th and
consist of the following three adjustments presented in
column 3 on page 2 of Exhibit No. 21:
An increase of $3,256,361 to Operation and
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 Oregon.
This last adjustment has no impact on the
Idaho jurisdictional revenue requirement.
An increase to Depreciation Expense, Account
403, of $3,418,600, which reflects the 2003
OBENCHAIN, Di
Idaho Power Company
annualized depreciation.
An increase of $120,655 to Taxes Other Than
Income Taxes to reflect the property tax
impact the annualized plant additions.
Please explain the known and measurable
adjustments to the statement of income presented in column 4
on page 2 of Exhibit No. 21.
The known and measurable adjustments to the
statement of income components reflect the following:
An increase of $8,930,300 to Firm Sales
Revenues resul ting 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
OBENCHAIN, Di
Idaho Power Company
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
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. Smi th .
A reduction to IERCO operating income of
$5,291,270 provided to me by the Company
Tax Department
presented in column 5 on page 2 of Exhibit No. 21.
Please explain the other adjustments
Other system adjustments proposed by the
Company consist of the following:
An increase to retail sales revenues of
$665,816, which can be found on line 29 in
column 5.In addi tion , there were two
adjustments to other operating revenues:(1 )
a reduction of $665,816 in Account 454
Facilities Charge Revenues to reflect the
OBENCHAIN, Di
Idaho Power Company
change in treatment of facilities charge
revenues paid by MICRON under its special
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
three separate components.The first
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.
Smith provided these adjustments.
Are there any additional adjustments to the
OBENCHAIN, Di
Idaho Power Company
test year actual data that should be mentioned?
Yes.The impacts to Federal and State income
taxes paid resulting from the ratemaking adjustments
discussed above were provided to me by the Company s Tax
Department and are shown on lines 40 and 41 on page 2 of
Exhibi t No. 21.
please describe Exhibit No. 22.
Exhibi t No. 22 consists of 2 pages and
provides greater detail of the adjustments to the Company
Electric Plant In Service, by FERC account, used in this
proceeding.
please describe Exhibit No.2 3.
Exhibit No. 23 consists of 2 pages and
provides greater detail of the Accumulated provision for
Depreciation and Amortization Reserve.
Please describe Exhibit No. 24.
Exhibit No. 24 is a two-page exhibit, which
provides greater detail of other additions to or deductions
from the Company s total combined rate base.
please describe Exhibit No.2 5.
Exhibit No. 25 is a one-page exhibit, which
summarizes by FERC Account the Company I s operating revenues
for the test period used in this proceeding.
Please describe Exhibit No.2 6.
Exhibit No. 26 is a six-page exhibit, which
OBENCHAIN, Di
Idaho Power Company
provides greater detail of test year and adjusted test year
operation and maintenance expenses for the 12-month period
ending December 31, 2003.
Please describe Exhibit No. 27.
Exhibi t No.2 7 is a two-page exhibi t, whi ch
provides greater detailed information by FERC account of
Depreciation and Amortization Expenses used in this
proceeding.
Please describe Exhibit No. 28.
Exhibi t No.2 8 is a one-page exhibit, which
provides detailed information regarding taxes other than
income taxes used in this proceeding.
Please describe Exhibit No. 29.
Exhibit No. 29 is a one-page exhibit, which
provides a detailed summary of the income tax related
adjustments that result in the adjusted tax expenses on
lines 40 and 41 of page 2 of Exhibit No. 21.These
adjustments were provided to me by the Company I s Tax
Department.
Have you prepared an exhibit that sets forth
the Idaho jurisdictional revenue deficiency?
Yes.I have prepared Exhibit No.3 0 titled
Jurisdictional Separation Study - Idaho Revenue
Requirement" consisting of 35 pages.
Please discuss the methodology used to
OBENCHAIN, Di
Idaho Power Company
jurisdictionally separate costs in the preparation of this
study.
The cost of providing electric service is
measured through the use of test year data as adjusted for
the 12-month period ending December 31 , 2003.
In order to establish a methodology for
separating costs among jurisdictions, a three-step process
is generally used. The steps are referred to as
classification, functionalization, and allocation of costs.
In all three steps, recognition is given to the way in which
costs are incurred by relating these costs to the way in
which a utility is operated to provide electrical service.
The methodology used to separate costs by jurisdiction and
calculate the Idaho jurisdictional revenue requirement in
the present case is the same methodology utilized by the
Company and accepted by the Commission in previous rate
cases.
Would you please briefly explain the meaning
of classification, functionalization, and allocation?
Classification refers to the identification
of costs as being related to one of three components;
demand-related, energy-related or customer-related.
addition to classification, costs are functionalized; that
is, identified with utility operating functions such as
generation, transmission and distribution.Individual plant
OBENCHAIN, Di
Idaho Power Company
items are examined and, where possible, the associated
investment costs are assigned to one or more operating
functions.Once the Company s total system costs are
classified and assigned to the appropriate function they may
be allocated among jurisdictions.
The process of allocation is merely one of
apportioning the total system cost among jurisdictions by
introducing allocation factors into the process.
allocation factor is nothing more than an array of numbers,
which specifies the jurisdictional value or share of the
total sys tem quanti ty .For example, in the case of
energy-related costs, the allocation factor is annual
jurisdictional energy use, adjusted for losses.
Once individual accounts have been allocated
to the various jurisdictions, it is possible to summarize
these into total utility rate base and net income by
jurisdiction.The results are stated in a summary form
measure adequacy of revenues for the jurisdiction under
considera tion.The measure of adequacy is typically the
rate of return earned on rate base, which is compared to the
requested rate of return.
How have the various functional plant and
cost items been allocated?
After classification and functionalization,
allocation factors based on demand and energy use were
OBENCHAIN, Di
Idaho Power Company
determined.In order to allocate demand-related costs, the
average of the 12 monthly coincident peak demands was used.
The Company has used this allocation method for
jurisdictional separation purposes in all of its retail and
wholesale rate applications prepared during the past 25
years.This allocation method has been adopted by this
Commission and accepted by the Oregon Public Utility
Commission, and the Federal Energy Regulatory Commission.
The demand-related allocation factors used in the study are
designated as D10, D11, D60.The respective values used in
these demand allocation factors are shown at line numbers
967 through 969 on page 29 of Exhibit No. 30.
What method was used to allocate general
plant and certain labor-related administrative and general
expenses?
In accordance wi th FERC procedures, general
plant and administrative and general expenses have been
allocated in accordance with functionalized wages and
salaries.These labor-related allocation factors are shown
on Table 12 of Exhibit No. 30, pages 23 through 28.
How were the energy-related expenses
allocated among jurisdictions?
Energy-related expenses were allocated on the
basis of normalized jurisdictional kilowatt-hour sales,
adjusted for losses so as to establish energy requirements
OBENCHAIN, Di
Idaho Power Company
at the generation level.The energy-related allocation
factors used in the study are designated as E10 and E100.
The respective values used in these energy allocation
factors are shown on Table 13 of Exhibit No. 30, page 29
lines 972 & 973, respectively.
What was the method by which you allocated
customer-related costs?
The principal customer-related expenses,
which require allocation, are Account 902, Meter Reading
Expenses and Account 903, Customer Accounting and Billing.
These accounts were allocated based upon a review of actual
Company practices in reading meters and preparing monthly
bills or statements.
Please describe the derivation of the 2003
total system allocation factors used in this case.
The 2003 Jurisdictional Separation Study
utilizes 2002 data for most of the Allocation Factors with
some exceptions:
Capaci ty or demand-related allocation factors
(D10, D11, and D60) utilized 2002 Coincident
Peak information that was adjusted to reflect
known changes for 2003, for example the
expira tion of the UAMPS and Washington Ci
Sales for Resale contracts.
Energy-related allocation factors (E10 and
OBENCHAIN, Di
Idaho Power Company
E100) are the 2003 normalized test year sales
at generation level.
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 trea tmen t .
Would you please explain how the direct
assignment of accounts 360, 361 and 362 differs in the 2003
Jurisdictional Separation Study from prior studies?
Yes.Historically Contributions In Aid of
Construction (CIAC) have been treated as a reduction to the
total investment in accounts 360, 361 and 362 prior to any
allocation of plant and related operation and maintenance
expense.Consequently, all customers (jurisdictions) have
shared in the benefits of contributions paid by a few.
In order to pass the benefit of the CIAC to
the customers (jurisdictions) that made the contribution,
accounts 360, 361 and 362 were identified by the net
investment and by the net plus CIAC investment.The net
plus CIAC amount was then directly assigned to customers
(jurisdictions) prior to any reduction for CIAC.In thi s
way the customers (jurisdictions) that make the contribution
receive the full credit.
In addition, operation and maintenance
OBENCHAIN, Di
Idaho Power Company
expenses resulting from investment in accounts 360, 361 and
362 are related to the total investment and thus allocated
by the net plus CIAC investment.
In this way the Idaho jurisdictional costs
that are passed to Ms. Brilz for input into the class cost-
of-service model will give the proper recognition to the
customers who made the contribution.
Please describe the content of Exhibit No.
30.
Exhibi t No. 30 is the complete Jurisdictional
Separation Study detailing allocation of each component of
rate base, operating revenues and expenses by FERC account
resul ting in the Idaho jurisdictional revenue deficiency.
The JSS is organized as follows:
Summary of Results
Table 1 - Electric Plant in Service
Table 2 - Accumulated Provision for
Depreciation and Amortization
Table 3 - Additions and Deductions to Rate
Base
Table 4 - Operating Revenues
Table 5 - Operation and Maintenance Expenses
Table 6 - Depreciation and Amortization
Expense
Table 7 - Taxes Other Than Income Taxes
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Idaho Power Company
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
Allocat.ion Factors
Table 15 - Summary of Allocation Factors-
Ratios
Briefly describe the manner in which you
allocated Electric Plant In Service as shown in Table 1 of
Exhibit No. 30.
Production plant has been allocated to all
jurisdictions on the basis of the average of the 12 monthly
coincident peaks.The allocation of transmission and
distribution plant has been based on the same methodology.
Would you describe the functional categories
used for allocation of transmission plant and distribution
substations?
A description of the functional categories
used for allocation of transmission and distribution
substations is as follows:
Transmission facilities are the facilities
that form the bulk power transmission system
OBENCHAIN, Di
Idaho Power Company
together with transmission, step-
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
Provision for Depreciation and Amortization of Other Utility
Plant shown on Table 2 of Exhibit No. 30?
Accumulated Provision for Depreciation has
been allocated among jurisdictions as shown on Table 2 of
Exhibit No. 30.The accumulated totals for each type of
production plant and for each primary plant account in other
functional groups are allocated on the basis of the related
plant account as allocated in Table 1. Amortization of Other
Utility plant has been functionalized and then allocated on
the basis of the related plant items as allocated in
Table 1.
please describe Table 3 of Exhibit No.3 0 .
Table 3 details the allocation of all other
OBENCHAIN, Di
Idaho Power Company
addi tions to or deductions from rate base.Deductions from
rate base include Customer Advances for Construction which
have been directly assigned to the customers (jurisdictions)
and Accumulated Deferred Income Taxes which are allocated by
plant.Addi tions consist of Materials and Supplies which
have been functionalized and allocated by the respective
plant allocators; Fuel Inventory which has been allocated on
the basis of energy; components of IERCO, the Company s fuel
subsidiary which are allocated on the basis of energy; and
the Investment in Conservation are all Idaho programs and
directly assigned to the Idaho jurisdiction.
Working Cash Allowance has been excluded from
rate base in accordance with the Commission s previous
orders.
All rate base items, with the exception of
Accumulated Deferred Income Taxes and the Investment in
Conservation Programs, reflect the average of 13 monthly
balances.
Please describe Table 4 of Exhibit No.3 0 .
Table 4 indicates adjusted Firm Operating
Revenues for each jurisdiction for the 12 months ending
December 31, 2003. Opportunity Sales represent non-firm
energy sales to other utili ties, the revenues from which are
credi ted to each jurisdiction in proportion to its
generation-level energy usage.
OBENCHAIN, Di
Idaho Power Company
Other Operating Revenues are either allocated
among jurisdictions in a manner which offsets related
allocations of rate base, or, where a particular revenue
item may be identified with a specific jurisdiction, it is
directly assigned to the appropriate jurisdiction.
Briefly describe the methods by which O&M
expenses were allocated.
The allocation of each O&M expense is
detailed on Table 5 of Exhibit No. 30.In general, the
basis for each allocation may be readily interpreted from
the exhibit, due to the fact that in most cases either
demands, those identified by a source code beginning with a
D" prefix; energy use, those identified by a source code
beginning with an "E" prefix; or related plant, those
identified by a line number source code; serve as a basis
for the allocation.Customer-weighted allocation factors,
CW", which recognize differences in customer requirements,
have been used in the allocation of certain expense
accounts.
In what manner are supervision and
engineering expenses treated throughout the allocation of
O&M expenses?
For the applicable expense account in each
functional group, the labor component is separately
allocated in accordance with the detail provided on pages 25
OBENCHAIN, Di
Idaho Power Company
through 28 of Table 12 of Exhibit No. 30.The total of
allocated labor in each functional group becomes the basis
for the allocation of Supervision and Engineering Expense.
Total allocated labor expense serves the additional purpose
of allocating employee pensions and other labor-related
taxes and expenses.Table 12 of Exhibit No. 30 details the
development of all the labor-related allocation factors used
in this study.
Please describe Table 6 of Exhibit No.3 o.
The allocation of Depreciation Expense and
Amortization of Limited Term Plant is set forth on Table
These expenses have been identified by type of production
plant or by primary plant account for other functional plant
groups.Allocation is then accomplished on the basis of the
related plant account as previously allocated.
Please describe Table 7 of Exhibi t No.3 0,
and the allocation of Taxes Other Than Income Taxes.
Taxes Other Than Income Taxes are treated
individually and are allocated in a manner consistent with
the bases by which the respective taxes are assessed.
Please describe Table 8 of Exhibi t No.3 0 .
The expenses shown on Table 8 consist of
Deferred Income Taxes and the Investment Tax Credit
Adjustment.Both have been functionalized and allocated on
the basis of total allocated plant.Also summarized on
OBENCHAIN, Di
Idaho Power Company
Table 8 are State and Federal Income Tax liabilities.The
income taxes shown on Table 8 as well as Tables 9, 10 and 11
were obtained from the Company I s Tax Department.
please describe how you allocated Federal and
State Income Taxes shown on Tables 8, 9, 10 and 11 of
Exhibi t No.3 0 .
Total income taxes have not been allocated,
per se.Instead, the respective tax bases have been
developed and taxes have been calculated directly for each
jurisdiction.Operating income before taxes represents
adjusted operating revenues less all adjusted operating
expenses treated heretofore with the exception of deferred
income taxes and investment tax credits.Adjusted long-term
and other interest expenses are allocated on total plant in
order to develop net operating income before taxes.From
that point forward, additions to or deductions from the
respective tax bases are allocated to each jurisdiction by
net income before taxes.In this manner, taxable income for
each jurisdiction is developed, and the appropriate tax rate
is applied.Final tax amounts result after the allocation
of adjustments and tax credits. All details relating to the
calculation of Federal, Oregon, Idaho and Other state income
taxes are found on Tables 9, 10 and 11.
please describe Tables 12, 13, 14 and 15 of
Exhibit No. 30.
OBENCHAIN, Di
Idaho Power Company
Tables 12, 13, 14 and 15 of Exhibit No. 30
contain a list of the allocation factors used in the
Jurisdictional Separation Study. Tables 12, 13, 14 and 15 of
Exhibi t No.3 0 contain the principal allocation factors used
in the study and the respective jurisdictional values for
each allocation factor.Table 14 of Exhibit No. 30 presents
the ratios of the principal allocation factors included in
Table 13.
Please describe the development of the Idaho
Jurisdictional revenue deficiency.
The summary of results is presented on pages
1 and 2 of Exhibit No. 30.The development of the Idaho
jurisdictional revenue deficiency is presented in the column
entitled "Idaho IPUC" on page 1 of Exhibit No. 30.As can
be seen from this exhibit the Idaho net income of
$76,855,594 on line 24 results in a return on rate base of
967 percent on line 25.Under the rate of return of 8.334
percent provided to me by Mr. Gribble, the Company s Idaho
jurisdictional net income should be $128,963,944 on line 30.
This results in an earnings deficiency of $52,108,350 on
line 31.
What net-to-gross or incremental income tax
factor did you use in developing the Idaho jurisdictional
revenue deficiency?
As indicated on line 33 on page 1 of Exhibit
OBENCHAIN, Di
Idaho Power Company
No. 30, I used a composite incremental tax multiplier of
642 provided to me by the tax department, which represents
the use of the Federal effective tax rate of 32.795 percent,
an Idaho effective tax rate of 5.9 percent, an Oregon
effective tax rate of 0.4 percent and an Other state
effective tax rate of 0.1 percent for purposes of
determining the Company I s Idaho jurisdictional revenue.
What is the resulting Idaho jurisdictional
revenue deficiency?
The results of the Jurisdictional Separation
Study as shown on line 34 on page 1 of Exhibit No. 30,
indicate a total revenue deficiency of $85,561,910 for the
Idaho Retail Jurisdiction.This represents a required 17.
percent increase in normalized Idaho jurisdictional
revenues.
Please describe Exhibit No. 31.
Exhibit No. 31 is a six-page exhibit, which
provides summary allocation factors used this
proceeding.
Does this conclude your testimony?
Yes,does.
OBENCHAIN, Di
Idaho Power Company