20040319Henderson Rebuttal.pdf

BEFORE THE IDAHO PUBLIC UTILITIES
COMMISSION
IN THE MA TIER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR AUTHORITY TO
INCREASE ITS RATES AND
CHARGES FOR ELECTRIC SERVICE
TO THE STATE OF IDAHO
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CASE NO. IPC-03-
Rebuttal Testimony of
Michael Henderson
ConAgra Foods, Inc.
on behalf of
Industrial Customers of Idaho Power (ICIP)
March 19, 2004
Rebuttal Testimony of Michael Henderson
On Behalf ofICIP, Case No. IPC-O3-
Would you please state your full name and job title?
Yes. My name is Michael E. Henderson, and I am the Energy and Environmental
Engineering Manager for ConAgra Foods, Inc., Specialty Potato Products. I have been a
part of this company for over 27 years. My current role is to support plant operations in
the areas of Energy and Environmental affairs.
Could you please tell the Commission a little about ConAgra Foods and the plants
you have in Idaho Power s service territory?
ConAgra Foods, Specialty Potato Products is a major manufacturer of processed, frozen
potato products. We purchase potatoes and have operating facilities in Idaho, Oregon
Washington, Minnesota, and international locations. We compete and sell into major
foodservice and retail markets in this country and globally. We have two major potato
processing plants in Idaho: they are located in Twin Falls and American Falls, both are in
Idaho Power s service territory. We also have a corporate office in Boise. Our total
employment in Idaho is over 1200 persons.
What is the purpose of your Rebuttal Testimony?
I disagree with the statements made by Dr. Dennis Goins in his pre-filed Direct
Testimony presented on behalf of US DOE as they relate to the mandatory Time-of-Use
(TOU) rates for Schedule 19 customers that are proposed by Idaho Power in this Docket.
Could you be specific about where you disagree with the US DOE witness?
On page 20 of his Direct Testimony Dr. Goins states while discussing Idaho Power
proposed Schedule 19 rates
Rebuttal Testimony of Michael Henderson
On Behalf ofICIP, Case No.IPC-O3-
While I do not object to the manner in which IPC designed the rate, I am
concerned about the law of unintended consequences. IPC claims that the new
rate design is revenue neutral. However, ifIPC' s large commercial and
industrial customers are not prepared to operate cost-effectively under the new
rate, they may incur unexpected and unacceptably high bills for their energy use. (Direct
Testimony of Dennis Goins, IPC-03-, p. 20.
I disagree with his acceptance of Idaho Power s mandatory Time-of-Use rates for
Schedule 19 customers. However I fully agree with his analysis that forcing TOU rates
on large customers can lead to "unintended consequences . In addition, he seems to
imply that if large commercial and industrial customers are "not prepared to operate cost-
effectively" they may receive unacceptably high power bills. Because we are in a highly
competitive global market, ConAgra Foods is continually adjusting its production process
to be cost effective. The problem with Idaho Power s proposed mandatory TOU rates is
that in attempting to lower energy costs by shifting production we may well cause other
costs to increase. It is not as simple as just being "prepared" to minimize electric costs.
What other costs do you mean could increase by changing your production process
in an attempt to adjust to the proposed electric charges
They could include a whole range of other production costs. We attempt to optimize our
costs, but we have several constraints. We already operate around the clock on many
days, including many weekends. However, we are down for cleanup and maintenance on
some days and most of those include weekend days. Our workforce requires a higher rate
of pay to work outside normal day-shift weekday times. Many would be personally
impacted with movement of work activities into off shift and weekends, so we would
expect to see increases in absenteeism and other problems. Our costs would increase.
Another response to TOU rates could be to attempt to limit the rate of production. This is
a very expensive alternative, as the product produced at the highest production rate is
Rebuttal Testimony of Michael Henderson
On Behalf ofICIP, Case No. IPC-O3-
typically the least costly to produce, because the same fixed costs are distributed over
more production. The imposition of additional external constraints, such as TOU rates
would then make the option of simply limiting production very expensive. We have
sought load shedding opportunities to reduce demand charges and found very few are
cost effective or offer significant hope. At the least, they typically require capital outlay,
artificially constrain a factory, increase costs oflabor, reduce efficiency and generally
increase costs. These cost increases could offset any savings in electric rates and could
lead to overall increased production costs. The end result could mean remaining on our
current production schedule with no significant change in electric use but higher costs.
This would defeat a major reason for the recommendation for the imposition of the
mandatory TOU by Idaho Power. Since our plants compete not only with each other, but
in global economy, increased costs at a given site can reduce operations at that site as
production is moved to our lower cost facilities or lost to lower cost competitors in other
areas. The net result could be net lost jobs in Idaho.
What do you mean when you say it would defeat a major reason for a TOU rate
design?
One reason Idaho Power has proposed mandatory TOU rates is because the cost of peak
power is more expensive than power at other times. The intent of charging higher rates
for power during those periods would be to cause lower use by customers and a savings
to Idaho Power in power expenses. If customers can t economically change their pattern
of power use there would be no savings in Idaho Power s power supply costs. Another
reason for TOU rates should be to reflect the costs imposed on the system by a customer
class.
Does your power consumption vary significantly over different seasons of the year?
When we are competitive enough to operate, which we diligently work to accomplish, we
do not have large seasonal load shifts. We primarily use natural gas for heat and electric
power for freezing, wheel turning and lighting. Weather impacts electric heating and air
Rebuttal Testimony of Michael Henderson
On Behalf ofICIP, Case No. IPC-O3- I3
conditioning loads much more than it impacts our loads. This is typical of many Schedule
19 customers. As shown in Exhibits 205 and 206 ofICIP witness Teinert's Direct
Testimony, the residential class demonstrates much more variation over the course of the
year than does the industrial class. Therefore, the cause of the peaking expense faced by
Idaho Power is more attributable to the residential class than industrial customers.
However, Idaho Power has singled out the industrial rate class to force a TOU rate
experiment.
Do you know why Schedule 19 was singled out for mandatory TOU rates by Idaho
Power?
It appears we are the only class with sufficient metering capability to implement TOU
rates. A more rational approach by Idaho Power for offering TOU rates would be on the
classes that are the source of the problem and have a greater ability to adjust their
consumption patterns. This approach is more rational than to do it just because you can
without incurring metering costs.
Do you agree with his conclusions of US DOE witness Goins that the mandatory
TOU rates be allowed to go into effect subject to monitoring by the Commission?
No. Dr. Goins recommends
Specifically, the Commission should require IPC to prepare
And ftle semiannual reports for the first year in which the rate is in effect
Concerning the implementation of the new TOU rate. At a minimum, these
Reports should include not only analyses of how well customers understand and
Respond to the new rate, but also detailed customer billing analyses that would
Enable the Commission to evaluate whether the rate is creating unanticipated and
Unacceptable hardship on some customers. (Direct Testimony of Dennis Goins, IPC-
03-, p. 21.)
Rebuttal Testimony of Michael Henderson
On Behalf ofICIP, Case No. IPC-O3-
This is putting the cart before the horse. Rates should not be imposed that cause
unanticipated and unacceptable hardships" on customers only to change them after the
harm has been done. We are not opposed to the concept of Time- of-Use rates. We
however, strongly believe that large commercial and industrial users should not be the
only class forced to use them. We would be willing to support optional not mandatory.
TOU rates for Schedule 19 customers. This would allow those firms that could adjust
their production process to take advantage of the TOU rates and thus saving Idaho Power
higher power expenses. Changes in consumption pattern with in large commercial and
industrial class could then be monitored to measure the impacts with causing the
unacceptable hardships" pointed out by Dr. Goins.
Does this conclude your testimony?
Yes it does.