20020422IPC-E-02-02 ICIP Hawk Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATIONOF )IDAHO POWER COMPANYFOR AN )ENERGY COST FIINANCING ORDER AND )CASE NO.IPC-E-02-02AUTHORITYTOINSTITUTEANENERGY)COST BOND CHARGE ..........................)
IN THE MATTER OF THE APPLICATIONOF )IDAHO POWER COMPANYFOR )AUTHORITY TO IMPLEMENT A POWER )COST ADJUSTMENT(PCA)RATE FOR )CASE NO.IPC-E-02-03ELECTRICSERVICEFROMMAY16,2002 )THROUGHMAY 15,2003.)
INDUSTRIAL CUSTOMERS OF IDAHO POWER
DIRECT TESTIMONY
OF
DAVID HAWK
l Q.Please state your name and business address.
2 A.My name is David Hawk and my business address is 999 Main Street,
3 Boise,Idaho.
4 Q.By whom are you employed and in what capacity?
5 A.I am employed by the J.R.Simplot Company as the Director of Natural
6 Resources and Energy.I have held this position for eighteen years.
7 Q.On whose behalf are you testifying?
8 A.I am testifying as the policy witness for the Industrial Customers of Idaho
9 Power,which are also known as the ICIP.
10 Q.Please describe the ICIP.
I 1 A.The ICIP is an unincorporatedassociation of large industrial customers who take
12 their electric service from Idaho Power Company under that utility'selectric service Schedule
13 No.19.
14 Q.What is the purpose of your testimony?
15
16 A.I want to make the followingpoints for the Commission's consideration:1)
17 Express the ICIP's support for the "securitization"through Idaho Power's proposed bonding of
18 its extraordinary PCA deferrals;(2)Encourage the Commission to adopt a five year pay back
19 period for the securitized amount;(3)We also would like to have an option in place,for those
20 customers who would like the opportunity,to opt out of the securitization process and satisfy
21 their deferral through the annual PCA;(4)We urge the Commission to not make any
22 programmatic changes in this docket,or in the alternative to extend the decision making time
23 frame in this docket on programmatic issues;and finally,(5)We,once again,express our support
24 for ongoing cost recover of DSM programs,while at the same time permitting the industrial class
HAWK-DI
ICIP
PAGE 1
l to self-direct the dollars collected from our class for DSM purposes.
2 Q.Why does the ICIP support securitization?
3
4 A.The ICIP supports the concept of spreading this rate increase over a period of
5 years.It appears that doing so through the newly authorized process of bonding is a fair and
6 equitable way to accomplish this goal with minimal financial impact on Idaho Power and its
7 ratepayers.
8 Q.Has the ICIP made similar recommendations in the past?
9 A.Yes.Although the bonding concept was onlyjustauthorized by the Idaho
10 Legislature,we recommended spreading extraordinary PCA deferrals over a period of years in
11 both of the last two PCA dockets.We recognized the truly extraordinary circumstances the
12 Company found itself in last year and urged the Commission to take the extraordinarystep of
13 deferring the PCA deferrals over a period of five years.We again urge the Commission to
14 spread this securitized bond recovery over a five-year period.
15 Q.Would spreading the PCA deferral over a period of five years be beneficial to
16 Idaho Power's ratepayers?
17 A.Absolutely.Idaho's industryhas been put at a serious competitive disadvantage
18 because of Idaho Power's rate increases.
19 Q.Aren't all business similarlyaffected?
20 A.No.It is important for the Commission to understand that the price effect of the
21 western energy crisis is only hurtingcompanies with operations in western states.We compete
22 with facilities in the mid-west and Canada -as well as all over the world.Those facilities have
23 not had similar rate increases and theyare posing a serious competitive thereat to our western
24 operations.I fear we may lose more industryand more jobs if a rate reduction is not
HAWK-DI
ICIP
PAGE 2
l immediately forthcoming.
2 Q.Idaho Power testifies that it does not want a pay back over a period any
3 longer than three years.Do you have any response to their concerns about a longer pay
4 back period?
5 A.Yes.Idaho Power is concerned that there may be another unusuallylarge PCA
6 increase before this one is paid off.The possibility of a pan caked PCA rate increase is not
7 sufficient reason to deny extending the pay back period to five years for several reasons.First,
8 the extreme possibility of another extraordinary rate jumpexists no matter over how many years
9 one chooses to recover this deferral.But more importantly,pan caked rates are not necessarily a
10 bad thing.For instance gas,consumers have lived with pan caked interstate pipeline rates for
11 years.Also I understand there were pan caked rates in the electric industry in the 1980s.They
12 are not inherentlybad.In fact,the benefits of extending the pay back and further lowering our
13 rates far outweigh the perceived harm from pan caked rates.We need immediate rate relief and
14 we need as much rate relief as possible.Industrial customers are willingto accept the risk of pan
15 caked rates in exchange for lower rates now.
16 Q.Do you have an understandingof the additional rate reduction ratepayers
17 would enjoyif the payback were extended to five years?
I 8 A.I have not personally done an analysis of that question,but I understand the
19 additional two years on the payback period would give Idaho Power's ratepayers an overall
20 13.5%rate reduction rather than the 10%being proposed by Idaho Power.In addition,the
21 industrial class would see its rate reduction increased from 12%to 16%.This additional rate
22 reduction would help Idaho's industry be more competitive and may be enough to keep some
23 facilities in operation.It would also signal the industry that the Commission shares our concerns
HAWK-DI
ICIP
PAGE 3
l about the continued viabilityof Idaho's industry.We must all work togetherto work our way
2 through the effects of last year's energy crisis.The crisis took several years in coming,it might
3 as well take several years in going.
4 Q.Do you have any other comments on the pay back period?
5 A.Yes.The Commission itself suggested longer deferrals of PCA balances
6 when it issued its initial order approving the PCA mechanism in 1993.In Order No.24806 the
7 Commission explicitly stated that any PCA increase in excess of seven percent would trigger an
8 examination of whether that PCA increase should be deferred.I believe the Commission was
9 wise when it expressed concern about PCA rate increase in excess of seven percent.This is not
10 the time to retreat from that original position.Because of the securitization process,IdahoPower
11 is completely indifferent on the question of the appropriate pay back period.In addition,the
12 ratepayers will benefit by the longer paybackperiod with no negativeinfluence on the power
13 company.
14 Q.Why do you want to allow some industrial customers to opt out of the
15 secritization and five year pay back proposal?
16 A.Our plant managers tell me that we need rate relief today in order to remain
17 competitive.However,the ICIP is a diverse group,some industrial customers may decide that
18 their internal rate of return or cost of money is such that they would be better off paying the PCA
19 deferrals in one year rather than financing it through the securitization process.That seems like
20 a reasonable option to give those customers.Once again,the Commission should listen to the
21 ratepayers.This is a very serious situation in which we find ourselves,we urge the Commission
22 to take all necessary and prudent actions possible to help heal the competitive wounds suffered
23 by Idaho industry due to these anomalous rate increases.
HAWK -DI
ICIP
PAGE 4
l Q.What do you mean when you sate that the Commission should not make any
2 "programmatic"changes in the PCA in this docket?
3 A.PCA proceedings move very quickly-and necessarily so.We have had only one
4 week in which to review Idaho Power's filing,prepare a response,and draft testimony.Our
5 analysis is therefore necessarily limited to the most basic and fundamental issues surrounding the
6 PCA.Addressing significant and far reaching issues such as,interest accruals on PCA balances,
7 and the magnitude of interest on deferred balances cannot be thoroughlyaddressed over the
8 course of one week.
9 Q.Can you give us an example of your concerns?
10 A.Yes.Idaho Power seeks to impose its overall rate of retum on deferral balances.
11 That rate of retum is 9.2 percent.Right now Idaho Power recovers the same interest rate on
12 deferral balances as it pays on customer deposits,which is currently4 percent.The overall rate
13 of retum is what Idaho Power eams on ratebase,or on actual plant used to serve ratepayers.
14 Deferred excess power supply costs are more akin to a loan made by Idaho Power to ratepayers.
15 I am not sure that the power company's overall rate of retum is the proper amount to charge
16 ratepayers for deferred excess power supply costs.In addition,I understand that Idaho Power is
17 planning on filing a general rate case next year.It has been almost a decade since the company's
18 last rate case.Therefore the overall rate of retum number may be stale.
19 Q.What do you recommend the Commission do with Idaho Power's proposed
20 programmatic changes to the PCA mechanism?
21 A.There simply isn't enough time to thoroughlyunderstand the issues and their
22 implications for these programmatic changes in the course of an expedited PCA proceeding.
23 Q.Does that mean the ICIP supports charging interest on deferral amounts?
HAWK-DI
ICIP
PAGE 5
1 A.Yes.The ICIP has always supported Idaho Power's attempts to be made whole.
2 We believe charging interest on deferrals that the Commission has found to be reasonable and
3 prudent is fair to Idaho Power and fair to the ratepayers.
4 Q.What is the ICIP's position on DSM recovery?
5 A.The ICIP has consistently taken the position that DSM costs should be recovered
6 by Idaho Power on an ongoing basis.We Support the Company in its efforts to not increase
7 deferrals of such costs.
8 Q.Does the ICIP have any concerns about DSM programs?
9 A.Yes.We believe the industrial class should be permitted to self-direct all funds
10 collected from it for DSM purposes.The administration and approval process needed for such a
11 venture can be minimal.We believe that the money collected from the industrial class can be
12 better spent by the industrial class customers themselves thereby achieving more conservation
13 per dollar than funnelingit through other agencies.
14 Q.Does this conclude your testimony?
15 A.Yes,it does.
HAWK -DI
ICIP
PAGE 6
CERTIFICATE OF SERVICE
I hereby certifythat I served the attached Testimony of David Hawk,on behalf of the
Industrial Customers of Idaho Power in Case Nos.IPC-E-02-2/IPC-E-02-3,by U.S.Mail,on thefollowing:
Larry D.Ripley John R.(Ric)Gale
Sr.Attorney Vice President,Regulatory Affairs
Idaho Power Company Idaho Power Company
PO Box 70 PO Box 70
Boise,ID 83707-0070 Boise,ID 83707-0070
R.Scott Pasley J.R.Simplot Company
Assistant General Counsel Attn.:David Hawk
J.R.Simplot Company Director,Energy Natural Resources
999 Main Street 999 Main Street
PO Box 27 PO Box 27
Boise ID 83702 Boise ID 83702
William M.Eddie
Land and Water Fund of the Rockies
PO Box 1612
Boise ID 83701
DATED at Boise,Idaho,this dday of April,2002.
Myrn .Walters
Legal Assistant
CERTIFICATE OF SERVICE
HAWK -DI