20040319Reading Rebuttal.pdf

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BEFORE THE IDAHO PUBLIC UTILITI~Jli 1'1P\R 19 Pr"i 3: 23COMMISSION
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dTIL!TJES CO~I!iiiSSlor'~
IN THE MA TIER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR AUTHOIDTY TO
INCREASE ITS RATES AND
CHARGES FOR ELECTRIC SERVICE
TO THE STATE OF IDAHO
CASE NO. IPC-03-
Rebuttal Testimony of
Don C. Reading, Ph.
Ben Johnson Associates, Inc.
on behalf of
Industrial Customers of Idaho Power (ICIP)
March 19 2004
Rebuttal Testimony of Don Reading, Ph.
On Behalf ofICIP, Case No. IPC-O3-
Are you the same Don Reading who previously fIled Direct Testimony on behalf of
the Industrial Customers of Idaho Power (JCIP) in this Docket?
Yes.
What is the purpose of your Rebuttal Testimony?
This Testimony will focus on the Direct Testimony of Staff Witness Rick Sterling pages
7 through 19 that address ratemaking treatment of Idaho Power s Danskin Station
Generating facility.
Could you briefly summarize the conclusions about the viability of the Danskin
facility found in Staff Witness Sterling s Direct Testimony?
Staff Witness Sterling believes Danskin Station will remain useful after the proposed
Bennett Mountain plant becomes operational. He states
, "
Small peak loads needs might
be more economically met. . . " by running Danskin even given its higher costs than
Bennett Mountain. (emphasis added, Direct Testimony of Rick Sterling, Idaho Public
Utilities Commission, pgs. 18 , IPC-03-13.) He comes to this conclusion without
discussing the full economic cost of Danskin's output other than to say the actual cost of
the facility to date have been "much closer" to the upper limit presented by Idaho Power
during the permitting process. (Ibid, p. 11.)
Do you agree with his conclusions?
No. His acceptance for the inclusion of Dans kin in rates is not based on the economics of
the plant as presented in this Docket by Idaho Power but rather on the fact the cost of
construction met the Company s estimates and that deferral balances accruing to the PCA
were very high in early 2001.
Could you be more specific about your criticism of Staff Witness Sterling s Direct
Testimony?
Rebuttal Testimony of Don Reading, Ph.
On Behalf of ICIP, Case No. IPC-O3-
He begins his analysis by quoting the Commissions Order 28773 that states
We are unconvinced that the best measure of the cost of alternative resources is market
price estimates in effect at the time the decision to proceed was made. The record
supporting such a rIDding remains to be developed.
And
We find that there is insufficient record to assess and determine the reasonableness of the
Company s commitment estimate and cannot therefore provide the Company with a
dollar amount of rate base assurance. . . . The Company needs to provide the
Commission with more information. What other alternatives were considered? What
was the Company s forecasted need? (Idaho Public Utilities Commission Order No.
28773, IPC-01-, July, 2001.)
He goes on to say that Idaho Power to date has not provide the additional information
requested by the Commission. Therefore the Staff will do the job of the Company
because
Danskin's plant cost recovery represents a large portion of increased revenue requirement
requested in this case. Staff believes it is important to address the issue and provide the
Commission with the Staff position. (Direct Testimony of Rick Sterling, Idaho Public
Utilities Commission, pg. 8, IPC-E-O3-13.
Do you feel the Staff adequately f"Illed in for the Company and provided the
Commission with the information they requested?
No. A large portion of Staff's testimony is directed at the reasonableness of capital costs
of the plant and the request for proposals process for the construction of the plant. Staff's
conclusion is that the capital cost portion of the plant was reasonable given the time
frame of construction. Staff did not present an analysis of the cost of output from
Rebuttal Testimony of Don Reading, Ph.
On Behalf ofICIP, Case No. IPC-O3-
Danskin as presented by the Company in this case and how these costs stack up against
other alternatives such as conservation, load shedding, interruptability, etc.. As pointed
out in my Direct Testimony filed in this Docket the projected average normalized cost of
Danskin of$13.65 per kWh is so high that reasonable alternatives cry out to be
considered.
How does Staff explain the fact that the actual costs of Danskin to date have by
much closer" to the upper limit of those estimated before construction?
Staff presents two reasons. First that it is a peaking plant and therefore would be expected
to have higher costs than a base load plant. The second reason stated by Staff was the
chaotic conditions in the energy markets during the planning of the plant. Staff however
failed to discuss cost of output from the plant that are being assigned to rates in this case.
Do you accept Staff's reasoning?
Staff's analysis is incomplete. It is true that peaking facilities should reasonably be
expected to cost more than base load plant. The real question is how much more
expensive and what could be the cost effective alternatives to the cost of output. Staff
failed to address these issues as requested of the Company by the Commission.
Staff is correct that conditions during the later part of2000 and the first half of2001 were
in turmoil as I discussed in my Direct Testimony on pages 9 and 10. However Staff
focuses on the deferrals in the PCA as the cost measure for justifying the plant and not
cost of the plant itself or cost effectiveness of alternatives. This proxy measure while
important is not the proper standard to measure the cost effectiveness of a generation
facility. Any generation plant, Danskin included, needs to be measured based on its own
economics compared to its need and the costs of alternatives. Both Staff and the
Company have failed to provide this analysis that would address the concerns of the
Commission at the time it issued Order 28773.
Rebuttal Testimony of Don Reading, Ph,
On Behalf ofICIP, Case No. IPC-O3-
You pointed out above that Staff stated there would need for Danskin to meet
Small peak loads needs" after Bennett Mountain comes on line. What analysis do
they provide to justify this statement?
As pointed out in my direct testimony Staff indicated in their comments in the Bennett
Mountain Docket that they felt that Danskin would operate at half its current operations.
The Company projects the plant would operate on average less than 10 hours per year at a
cost of$13.65 per kWh. At these few hours and enormous cost it seems reasonable that a
more cost effective alternative could be found.
Did Staff's Direct Testimony cause you to change any of your recommendations
regarding the Danskin Generating Station?
No. Staff did not focus the correct measures to justify the cost of the plant and failed to
examine the costs the Company has ask ratepayers to shoulder relative to the value
received from the plant. They also failed to consider the alternatives as requested by the
Commission.
Does this conclude your testimony on March 19, 2004.
Yes it does.