HomeMy WebLinkAbout20051028Brilz direct.pdfBEFORE THE IDAHO PUBLIC UTILITIES COMMISSIONIN THE MATTER OF THE APPLICATIONOF IDAHO POWER COMPANY FOR AUTHORITY TO INCREASE ITS RATESAND CHARGES FOR ELECTRIC SERVICETO ELECTRIC CUSTOMERS IN THE STATEOF IDAHO. CASE NO. I PC - E - 05 - 28
IDAHO POWER COMPANY
DIRECT TESTIMONY
MAGGIE BRILZ
Please state you name and business addressMy name is Maggie Brilz My business addressis 1221 West Idaho Street, Boise, Idaho.By whom are you employed and in what capaci ty?I am employed by Idaho Power Company Director of Pricing.Please describe your educational background.In May of 1980 I received Bachelor of ArtsDegrees in Economics and Psychology from Smith College Northampton , Mas s achus et t s In 1998 I completed theUniversity of Idaho s Public Utilities Executive Course inMoscow, Idaho.I have also attended numerous seminars andconferences on pricing issues related to the utili ty industryand have attended seminars and courses involving public
utility regulation.
Please describe your bus iness experience wi
Idaho Power Company.
I started employment with Idaho Power Company
in November of 1984 as a Financial Analyst in the Planning
Department In 1986 I was promoted to the position of Rate
Analyst in the Rate Department My duties as a Rate Analyst
included the development of alternative pricing structures,
the analysis of the impact on customers of rate design
changes, the preparation of cost -of - service studies, and the
administration of the Company s tariffs In July of 1993 I
BRILZ , DI
Idaho Power Company
was promoted to Rate Design Supervisor.In that capaci ty Ialso became responsible for the overall rate designactivities of the Rate Department . In October of 1996 I waspromoted to my current posi tion of Director of pricing in thepricing and Regulatory Services DepartmentWhat is the scope of your testimony in thisproceeding?My testimony will address the Company s classcost -of - service studies and the allocation of revenuerequirement, or rate spread, to customer classesClass Cost -of -Service StudyPlease describe in general terms the processyou use to prepare a class cost -of -service study.There are two general steps used in preparing
a class cost -of -service study.The first step is to
determine the total costs of providing electric service,
adj usted for normal weather and water condi tions These
costs have been provided to me by Ms Schwendiman on Exhibit
No. 33 The next step is to establish a methodology for the
separation of those costs among customer classes
What methodology
among cus tomer classes?
The methodology
is used to separate costs
for separating costs among
classes consists of a three-step process generally referred
to as classification , functionalization , and allocation.
BRILZ , DI
Idaho Power Company
all three steps, recognition is given to the way in which thecosts are incurred by relating these costs to the way inwhich the utility is operated to provide electrical service.Please explain the meaning of classification.Classification refers to the identification a cost as being either customer-related, demand-related, orenergy-related.These three cost components are used toreflect the fact that an electric utility makes serviceavailable to customers on a continuous basis, provides much service, or capacity, as the customer desires at anypoint in time, and supplies energy, which provides thecustomer the ability to do useful work over an extendedperiod of time.These three concepts of availability,capacity and energy are related to the three components
cost designated as customer , demand and energy components,
respectively. In order to classify a particular cost by
component, primary attention is given to whether the cost
varies as a resul t of changes in the number of customers,
changes in demand imposed by the customers, or changes in
energy used by the customers
What are some examples of customer-, demand-
and energy-related costs?
Examples of customer-related costs are the
plant investments and expenses that are associated with
meters and service drops, meter reading, billing and
BRILZ , DI
Idaho Power Company
collection , and customer information and services as well a portion of the investment in the distribution system.These investments and expenses are made and incurred based onthe number of customers, regardless of the amount of energyused, and are therefore generally considered to be fixedcostsDemand-related costs are investments in generationtransmission, and a portion of the distribution plant and theassociated operation and maintenance expenses necessary toaccommodate the maximum demand imposed on the Companysystem.Energy-related costs are generally the variablecosts associated with the operation of the generating plants,such as fuel However , due to the hydro productioncapabili ty of the Company, a portion of the hydro and thermalgenerating plant investment has historically been classified
as energy-related.
What did you use as your primary guide in
classifying costs as either customer-, demand-, or energy-
related?
I used the Electric Utility Cost Allocation
Manual published by the National Association of Regulatory
Utility Commissioners as my primary guide to the
classification of customer-, demand-, and energy-related
costs
Please explain the meaning
functionalization.
BRILZ , DI
Idaho Power Company
In addition to classification , costs must befunctionalized; that is, identified with utility operatingfunctionsOperating functions recognize the different rolesplayed by the various facilities in the electric utilitysystem. In the Company s accounts these various roles arealready recognized to some degree, particularly in therecording of plant costs as production-, transmission-, ordistribution-related. However , this functional breakdown not in sufficient detail for cost -of -service purposesIndividual plant items are examined and, where possible, theassociated investment costs are assigned to one or moreoperating functions so that the costs may be allocated amongclasses of customersPlease explain the process of allocation.
The process of allocation is merely one of
apportioning the total jurisdictional cost among classes by
introducing allocation factors into the process
allocation factor is nothing more than an array of numbers
which specifies the class value or share of a total
jurisdictional quantity.
Once individual costs have been allocated to
the various classes of service, it is possible to total these
costs as allocated and thus arrive at a breakdown of utility
rate base and expenses by class . The results are stated in a
summary form to measure adequacy of revenues for each class
BRILZ , DI
Idaho Power Company
The measure of adequacy is typically the rate of returnearned on rate base compared to the requested rate of return.Have any changes been made to the class cost-of - service model or to the methodology used to prepare thestudy since the Company s last general rate case, Case No.IPC-03 -13?In Order No. 29505 issued in theYesCompanys last general rate case, the Commission opened CaseNo. IPC-04-23 for the purpose of evaluating cost-of-serviceissues raised during the general rate proceeding.Thre ecost-of -service " workshops were held with interested partiesbet wee n No v e mb e 2 a a 4 and F e ru a ry 2 a a 5 .During the workshopdiscussions, Idaho Power committed to make several changes toits cost -of - service study and methodology to address the
issues raised by the parties
Would you please describe the changes Idaho
Power committed to make?
Idaho Power commi t ted to make changes toYes
the design of the cost-of-service study to make it easier to
review and understand. In addition , a commitment was made to
revise the methodology used to convert billing period data to
calendar month data and to prepare two cost-of -service
studies, one using a surrogate for a demand normalization
methodology and one using the traditional methodology.
What changes did you make to the design of the
BRILZ , DI
Idaho Power Company
class cost-of-service study to make it easier to review andunderstand?In order to answer your question I think would be helpful to briefly describe the overall design the model The class cost-of-service model is actuallycomprised of two separate Microsoft Excel worksheets Thefirst worksheet, called the Assign Module, performs thefunctionalization and classification processes I describedearlier.This worksheet categorizes the Idaho jurisdictionalcosts identified by FERC account into operating functions,such as production , transmission , distribution , metering,customer service, etc.It also categorizes the functionalcosts into demand-, energy-, and customer-relatedclassificationsFor example, the Assign Module categorizes
the Company s investment in steam plant into the production
function and the demand- and energy-related classifications
This Assign Module worksheet is generally straightforward and
easy to understand.
The second worksheet, called the
Functionalized Cost Module, or FC Module for short, performs
the class allocation process This worksheet allocates the
functionalized and classified costs developed in the Assign
Module to the various customer classes For examp 1 e , the FC
Module allocates the demand- and energy-related production
costs identified in the Assign Module to each of the
BRILZ , DI
Idaho Power Company
Company s customer classes and special contract customersThe FC Module has generally been very confusing as itincludes mul tiple operations, such as the allocation tocustomer classes, the derivation of unit costs for meteredservice schedules, and the determination of the class-specific revenue requirement, within the same worksheetalleviate this confusion , the FC Module has been revised that each operation is separated into its own worksheetwi thin the FC Module workbook.This organization makes theallocation process very simple and easy to understand.What changes were made to the methodology toconvert billing period data to calendar month data?Customers are billed throughout each month andbilling periods, or cycles, typically include portions of
more than one calendar month.In previous rate case
proceedings, billing period data was converted into calendar
month data using a simple linear interpolation.Daily
consumption during the billing period was assumed to be flat,
and weather effects were ignored.The aggrega te calendar
month data was then used in the determination of the
coincident peak demands for each customer class
As part of the current rate case proceeding,
the billing period data has been converted into calendar
month data using a nonlinear method based on load research
data that utilizes actual daily usage patterns Total daily
BRILZ , DI
Idaho Power Company
consumption is assumed to fluctuate in proportion to thefluctuations in the daily consumption of the load researchsample customers This methodology captures the effects weather on energy consumption and improves the process de term i n i n g c 0 i n c ide n t pea k de man d res po n sib i 1 i t Y .Please describe the methodology Idaho Powercommitted to utilize in determining normalized coincidentpeak demands as part of this proceeding.The surrogate demand normalization methodologyagreed to by the parties as part of the cost-of -serviceworkshop process uses the five-year median demand ratios fromthe load research sample applied to the normalized monthlyenergy values for each customer class to determine thecoincident peak demands by class This methodology reduces
the effect of any atypical demand ratios that might exist
a given test year due to unusual weather conditions
One of the issues the Commission directed the
parties to investigate during the cost-of -service workshops
was how to best determine and weight monthly generation and
transmission allocators Did the parties to the cost -of-
service workshops reach consensus on any changes to the
methodology for weighting monthly generation and transmission
allocators?
The parties discussed a proposalNo.
presented by the irrigation representative at the final
BRILZ , DI
Idaho Power Company
workshop to develop a cost-based method for weighting theassignment of generation and transmission costs to classesHowever, no agreement was reached on any changes inmethodology.Have you incorporated any changes to themethodology used to determine weighting factors forgeneration and transmission costs in the current studies?No, I have not Al though a promisingmethodology did not emerge during the workshop process, Ihave continued to discuss this issue internally at IdahoPower. These discussions, like those had among the partiesduring the workshops, have focused on the issue of growth andhow to best incorporate a component for growth into the cost-of - service methodology.Despi te the intense focus on
potential growth-related weightings for the generation and
transmission allocation factors, I have not been able to
identify a methodology that produces reasonable results
Consequently, the marginal costs continue to be the only
components used in deriving the weighting factors for the
generation and transmission allocators
Have both a "traditional" and a "normalized"
cost-of -service study been submitted as part of this
proceeding?
Yes I have prepared both a tradi tional and a
normalized class cost-of-service study as part of this
BRILZ , DI
Idaho Power Company
proceeding.Both studies use the cost information providedto me by Ms Schwendiman on Exhibi t No.3 3 .The studies areidentical wi th the exception of the system coincident peakdemands used to determine the demand-related allocationfactors for production and transmission plant and the non-coincident group peak demands used to determine the demand-related allocation factors for distribution plantPlease identify the exhibits that comprise thetraditional" cost -of - service study.The "traditional" cost-of-service study iscomprised of the following exhibitsExhibi t DescriptionExhibit No. Functionalization and Classificationof Costs
Exhibi t No.3 6 Summary of Functionalized Costs
Exhibi t No.3 7 Allocation to Classes
Exhibi t No.3 8 Summary of Class Allocations
Exhibi t No.3 9 Revenue Requirement Summary
Exhibit No. Class Cost -of -Service Unit Costs
Exhibit No. Development of Weighted Demand and
Energy Allocators
Please describe Exhibi t No.3 5 .
Exhibit No. 35 contains 115 pages and consists
of 11 Cost Functionalization and Classification Tables . The
functionalization and classification of each component
BRILZ , DI
Idaho Power Company
rate base, operating revenue and expense is treated in detailin these tables The tables are shown in the followingsequenceTable No.DescriptionElectric Plant in ServiceAccumulated Provision for DepreciationAdditions and Deletions to Rate BaseOperating RevenuesOperation and Maintenance ExpensesDepreciation and Amortization ExpenseTaxes Other Than Income TaxesRegulatory Debi tsjCredi tsIncome TaxesDevelopment of Labor-Related Allocator
Functionalization Allocators
What is the significance of the column headed
Allocator
" ?
This column identif ies, by symbol , the basis
for each allocation. For example, for Accounts 310 through
316 , Steam Production , shown at line 20 on page 1 , the
constant "PI -S" is used to allocate the total investment in
steam production plant to the production function and to the
demand and energy cost classifications The resul tant
functionalization of costs may itself serve as a basis for
subsequent allocations This use is illustrated at line 115
BRILZ , DI
Idaho Power Company
on page 16 where the accumulated depreciation for steamproduction plant is allocated by the functionalization costs at line 2 a .Pleaseutilized the classIn the describe the classification of plantcost -of -service study.class cost-of-service study all steamand hydro production plant has been classified on a demandand energy basis using the methodology found preferable bythe Commission in prior general rate proceedings . The energyportion of the steam and hydro production investment has beendetermined by use of the Idaho jurisdictional load factor 45 percent The computation of the Idaho jurisdictionalload factor is included in my workpapers By application the load factor ratio to the steam and hydro production plant
investment, the energy-related portion is easily determined.
The balance of the steam and hydro production plant
investment is then classified as demand-related.All other
production plant and transmission plant has been classified
as demand-related.
Would you describe how distribution plant has
been classified?
Distribution substation plant, Accounts 360
361 , and 362 , has been classified as demand-related.
Distribution plant Accounts 364 , 365 , 366 , 367 and 368 were
classified as either demand-related or customer-related using
BRILZ , DI
Idaho Power Company
the same fixed and variable ratios utilized in the Companylast general rate caseWould you please describe thefunctionalization of general plant?General plant was functionalized based ontotal production , transmission , and distribution plant . As result, a portion of general plant was assigned to eachproduction, transmission , and distribution function based oneach function s proportion to the totalHow was the accumulated provision fordepreciation functionalized?The accumulated provision for depreciation wasfunctionalized using the resulting functionalization of costsfor the appropriate plant item.For example, the accumulated
depreciation for steam production plant shown at line 115 on
page 16 is functionalized based on the functionalization
steam production plant in service at line 2 o
Please describe Table 3 of Exhibi t No. 35
Table 3 indicates the functionalization of all
other additions to and deductions from rate base.Deductions
from rate base include customer advances for construction and
accumulated deferred income taxes Customer advances have
been functionalized based on the distribution plant
investment against which the advances apply.Accumulated
deferred taxes have been functionalized based on total plant
BRILZ , DI
Idaho Power Company
investment Addi tions to rate base consist of fuelinventory, which has been functionalized based on energyproduction, and materials and supplies, which have beenfunctionalized based on the appropriate plant function.Deferred conservation expenses have been functionalized basedon the Idaho jurisdictional load factor resulting in 58percent of the deferred expenses being functionalized toenergy production and the remainder being functionalized demand production.Please describe the functionalization of otheroperating revenue shown on Table 4 of Exhibit No. 35Other operating revenue is functionalizedbased on either the functionalization of the related ratebase item or , in the situation where a particular revenue
item may be identified with a specific service, the
functionalization of the specif ic service item.
Briefly describe the method by which operation
and maintenance expenses were functionalized.
The functionalization of operation and
maintenance expenses is detailed on Table 5 of Exhibi t No.
In general , the basis for the functionalization may be
readily interpreted from the exhibit, particularly since in
most cases the functionalization is the same as that for the
associated plant
How is supervision and engineering expense
BRILZ , DI
Idaho Power Company
treated throughout the allocation of operation andmaintenance expenses?For each applicable expense account in eachfunctional group, the labor component is separatelyfunctionalized in accordance wi th the detail provided onTable 10 of Exhibit No. 35 Referring to pages 91 through 105of Table 10, it can be seen that the total of allocated laborin each functional group becomes the basis for thefunctionalization of supervision and engineering expense. Forexample, for Account 535 at line 678 , the labor relatedsupervision and engineering expense is functionalized basedon lines 679-683 which represent the cumulative labor asfunctionalized for Accounts 536 through 540 shown on page of Exhibit No. 35 . In a similar fashion , the allocation
supervision and engineering associated wi th hydraulic
maintenance expense, Account 541 , is based on the composite
labor expense for Accounts 542 through 545, as expressed by
lines 686-689 Total functionalized labor expense serves the
additional purpose of functionalizing employee pensions and
other labor-related taxes and expenses Table 10 details the
development of all labor-related functionalization factors
used in this study.
Please describe the functionalization
depreciation expense, taxes other than income, regulatory
debi ts/ credi ts, and income taxes shown on Tables 6 , 7 8 and
BRILZ , DI
Idaho Power Company
9, respectively.Depreciation expense is functionalized basedon the function of the associated plant Taxes other thanincome are also functionalized based on the function of thesource of the tax.Regulatory debi ts/ credits functionalized based on total labor expense.Deferred incometaxes are functionalized based on total plant investmentThe functionalization of federal and state income taxes isbased on the functionalization of total rate base andexpenses and is discussed in more detail in my testimonyregarding the allocation of costs to classes of customersPlease describe Exhibi t No.3 6 .Exhibit No. 36 summarizes in row format thefunctionalized costs for each component of rate base and
expenses shown across the columns on Exhibit No. 35
Please describe Exhibi t No.3 7 .
Exhibit No. 37 details the allocation of the
summarized costs shown on Exhibit No. 36 to each class
customer including the special contract customers The
exhibit also includes a summary of results showing the actual
rate of return earned for each customer class and special
contract customer.The exhibit includes the following
tables
Table No.Description
Plant in Service
BRILZ , DI 1 7
Idaho Power Company
Accumulated Reserve for DepreciationAmortization ReserveSubstation CIACCustomer Advances for ConstructionAccumulated Deferred Income TaxesAcquisition AdjustmentWorking Capi talDe f erred ProgramsSubsidiary Rate BaseOther RevenuesOperation & Maintenance ExpensesDepreciation ExpenseAmortization of Limited Term PlantTaxes Other Than Income
Regulatory Debits/Credits
Provisions for Deferred Income Taxes
Investment Tax Credit Adjustment
State Income Taxes
Federal Income Taxes
Allocation Factor Summary
Briefly describe the manner in which you
allocated the summarized costs shown on Exhibi t No.3 6
each class of service as shown on Tables 1 through 18 of
Exhibi t No.3 7 .
The demand-related generation and transmission
BRILZ , DI
Idaho Power Company
costs have been allocated to customer classes based on amethodology that incorporates both actual and marginal-cost-weighted coincident peak demands The energy-relatedgeneration costs have been allocated to customer classesbased on a methodology that incorporates both actual andmarginal-cost -weighted normalized monthly energy consumption.What is the reasoning for using marginal costweightings in the derivation of the demand- and energy-related allocation factors?The use of marginal cost weighting is intendedto strike a balance between backward-looking costs alreadyincurred and forward-looking costs to be incurred in thefuture.Please describe the methodology used to derive
the demand-related allocation factors used to allocate
generation costs
The demand-related factors used to allocate
generation costs were derived using the same methodology
that used in the Company s previous general rate case, Case
No. IPC-03 -First, ratios based on the sum of the
actual coincident peak demands for both the summer and non-
summer seasons were calculated for each customer class
Second, weighted coincident peak demand values were derived
by multiplying the actual monthly coincident peak demands by
the monthly marginal costs Corresponding ratios for both
BRILZ , DI
Idaho Power Company
the summer and non-summer seasons were then calculated foreach customer class . Finally, the actual summer and non-summer ratios were averaged with the weighted summer and non-summer ratios to derive the demand-related allocators D1oSand D1oNS, respectively.These factors where used toallocate demand-related generation costs to the customerclassesHave the generation capacity marginal costsused in the current study been updated since the Companyprevious study in Case No. IPC-03-13?The generation capacity marginal costsYeshave been updated to reflect the costs associated with thenext peaking resource identified in the Company s 2004Integrated Resource Plan , or IRP.The generation capacity
marginal cost was seasonalized based on the monthly peak-hour
generation deficiencies which the Company expects
encounter during the next five years of the planning period
based on the 90 th percentile water and 70 th percentile load
cri teria used for planning purposes These deficiencies are
detailed in Figure 7 on page 44 of the 2 a 04 IRP.I have
included a copy of this Figure in my workpapers During the
first five years (2006 through 2010) of the remaining
planning period covered by the IRP , the months in which peak-
hour def ici ts exist are January, May, June, July, August,
September , November , and December.The relative sizes of the
BRILZ , DI
Idaho Power Company
five-year average monthly deficiencies were used to definethe share of the annual capacity cost assigned to each month.Are the months in which peak-hour deficiencieshave been identified in the 2004 IRP the same months as thoseused in the 2003 marginal cost analysis?The peak-hour-deficiency months used No.the 2003 marginal cost analysis were June, July, August,November , and December.To what do you attribute the change in themonths identified as having peak-hour deficiencies betweenthe 2004 IRP and the 2003 marginal cost analysis?Since the conclusion of the Company s lastgeneral rate case it has been determined that the deficitmonths of June, July, August, November , and December used
the 2003 marginal cost analysis were primarily determined by
firm generation supply acquisition needs rather than
determination of months in which a peak-hour deficiency
occurred.The deficit months of January, May, June, July,
August, September , November , and December used in the current
marginal cost analysis are directly tied to peak-hour
deficiency months identified in the 2004 IRP.
Does the use of the 2004 IRP-identified
deficit months in the current marginal cost analysis affect
the cost allocation relationship between customers
differently that does the use of the five deficit months
BRILZ , DI
Idaho Power Company
the 2003 marginal cost analysis?The use of the five deficit months YesJune, July, August, November and December in the 2003marginal cost analysis resulted in weighting factors thatattributed greater generation capacity cost responsibility tocustomer classes wi th usage mainly in the summer.The use ofeight defici t months (January, May, June, July, August,September , November , and December) in the current marginalcost analysis results in weighting factors that attributemore generation capacity cost responsibility to customerclasses with usage throughout most of the year.How were the demand-related transmissionmarginal costs determined?The transmission marginal costs reflect the
costs associated both wi th the backbone segment of
transmission required to integrate new resources into the
system and with the planned system expansions needed to
maintain reliable service as the Company s loads continue to
grow.The marginal costs associated with the backbone system
were seasonalized based on the same methodology used for
generation capacity, that is the relative sizes of the five-
year average monthly peak-hour deficiencies identified in the
2004 IRP were used to define the share of the annual capacity
cos t as signed to each month.The marginal costs associated
with the planned system expansions were seasonalized based on
BRILZ , DI
Idaho Power Company
the monthly share of the proj ected peak-hour load growth.The total demand-related transmission marginal costs for eachmonth were then derived by adding the monthly values for boththe backbone system and the planned system expansionsWhat factor was used to allocate transmissioncosts to the customer classes?The allocation factor D13 was used to allocatetransmission costs to customer classes This factor wasderived using the same methodology as that used in theCompanys previous general rate case First, ratios based onthe sum of the actual coincident peak demands were calculatedfor each customer class Second, weighted coincident peakdemand values were derived by multiplying the actual monthlycoincident peak demands by the monthly transmission marginal
costs Corresponding weighted ratios were then calculated
for each customer class Finally, the actual ratios were
averaged with the weighted ratios to derive the non-
seasonalized transmission allocation factor D13
What impact do the updated transmission
marginal costs have on the weighting factors used
determine the transmission allocation factor?
As wi th the impact on the weighting factors
for the generation allocator , the use of eight deficit months
(January, May, June, July, August, September , November , and
December) in the current marginal cost analysis results
BRILZ , DI
Idaho Power Company
weighting factors that attribute more cost responsibili ty customer classes with usage throughout most of the year. addition , the inclusion of the marginal costs associated withthe planned transmission system expansions also results inweighting factors that attribute more cost responsibili ty customer classes wi th usage throughout the year.Compared tothe transmission marginal costs used as weighting factors the Company s last general rate case, the updated marginalcosts result in less cost emphasis during the summer monthsof June, July, and AugustPlease describe the methodology used to derivethe energy-related allocation factorsThe energy-related allocation factors, E1oSand IONS, were der i ved through a three step proce s s .First,
summer and non-summer ratios based on each class
proportionate share of the total normalized energy usage for
the test year were determined.Next, summer and non - summer
ratios based on the monthly normalized energy usage for each
customer class weighted by the monthly marginal cost were
calculated.Finally, the two sets of ratios were averaged to
derive the summer and non-summer energy-related allocation
factors E1oS and E1oNS, respectively.
Have the generation energy marginal costs used
in the current study been updated since the Company
previous study in Case No. IPC-03-13?
BRILZ , DI
Idaho Power Company
Updated marginal energy costs wereYescalculated by quantifying the difference in net power supplycosts resulting from the addition of 50 megawatts of load all hours of the Company s base case system simulation runfor the five-year period 2005 through 2009Have you included information regarding thederivation of the Company s updated marginal costs with yourtestimony?I have included a copy of the Company s 2005Marginal Cost Analysis in my workpapersHave you prepared an exhibit that details thederivation of the weighted demand and energy allocationfactors?Exhibi t No. 41 details the derivation Yes
the allocation factors D10S, D10NS, D13 , E10S, and E10NS.
Have the marginal costs been used to develop
the Company s revenue requi remen t
No. The marginal costs have been used solely
for purposes of developing allocation factors and not for
purposes of developing the Company s revenue requirements
What was the method by which you allocated
costs associated with distribution plant?
The allocation of the capacity components
distribution plant, both primary and secondary, was by use of
the non-coincident group peak demands for each customer class
BRILZ , DI
Idaho Power Company
identified as demand allocation factors D20, D30, D50, andD60. The allocation of the customer components ofdistribution plant, both primary and secondary, was by use ofthe average number of customers identified as customerallocation factors C20 , C30 , C50 and C60What was the method by which you allocatedcosts associated with customer accounting and customerassistance expenses?The principal customer accounting expenseswhich require allocation are meter reading expenses, customerrecords and collections, and uncollectible accounts Themeter reading and customer records and collection expenseswere allocated based upon a review of actual practices ofIdaho Power Company in reading meters and preparing monthly
bills . The allocation of uncollectible amounts again was
based upon a review of actual Idaho Power Company data.
Customer assistance expenses were allocated based on the
average number of customers in each class
Does Exhibit No. 37 include a listing of the
allocation factors used to allocate to classes the various
costs shown on Tables 1 through 18?
Table 21 of Exhibi t No.3 7 includes aYes
listing of each allocation factor.
How did you allocate state and federal income
tax to each customer class and special contract customer
BRILZ , DI
Idaho Power Company
shown on Tables 19 and 2 a of Exhibi t No.3 7?The state and federal income taxes for theIdaho jurisdiction provided to me by Ms Schwendiman wereallocated to each customer class and special contractcustomer on the basis of net income before income taxes Theworksheets showing this allocation are included in myworkpapersWhat method was used to functionalize thestate and federal income taxes as shown on Table 19 and Table20 of Exhibit No. 37?State and federal income taxes werefunctionalized based on the functionalization of total ratebase and expenses for each class For example, the totalsummer power supply production rate base amount
$58 033 399 allocated to the residential class on Tables
through 10 of Exhibi t No.3 7 , and shown in summary form on
page 1 of Exhibi t No.3 8 at line 10, represents 8 26 percent
of the total rate base amount of $702 690 599 allocated to
the residential class The state and federal income taxes
allocated to the residential class ($2 409,116 and
$22 451 729, respectively) are multiplied by this same
percent to establish the summer power supply production
components of $198,963 and $1 854 23 a shown on Table 19 and
Table 2 a of Exhibi t No.3 7 .This same methodology is used
for all functional components and customer classes shown on
BRILZ , DI
Idaho Power Company
Tables 19 and 20Please describe Exhibi t No.3 9 .Exhibit No. 39 is the revenue requirementsummary based on the results of the "traditional" class cost-of - service study.The section headed "Revenue Requirementfor Rate Design " details the sales revenue required from eachcustomer class and special contract customer. The salesrevenue required includes return on rate base, totaloperating expenses, and incremental taxes computed using thenet-to-gross multiplier of 1 642 provided to me by MsSchwendiman.Please describe Exhibi t No.4 a .Exhib i t No.4 a shows the uni t cos f or eachfunction for metered service schedules as determined through
the "traditional" class cost -of - service study.The billing
units shown in the column labeled (E) reflect the billing
demands, normalized billing energy, basic load capacity, and
number of billings I have provided these uni t costs to Mr.
pengilly for his use in determining the component charges for
each service schedule.
Please identify the exhibits that comprise the
normalized" cost -of -service study.
The "normalized" cost -of -service study is
comprised of the following exhibits
BRILZ , DI
Idaho Power Company
Exhibi tExhibi t No.Exhibi t No.Exhibi t No.DescriptionAllocation to ClassesSummary of Class AllocationsRevenue Requirement SummaryExhibi t No. Class Cost -of -Service Unit CostsExhibit No. Development of Weighted Demand andEnergy AllocatorsThe Functionalization and Classification of Costs,Exhibi t No.35,and theExhibi t No.36,are thenormalizedstudies Summary of Functionalized Costs,same for both the traditional and theYou mentioned earlier that the traditional andnormalized cost-of-service studies are identical with theexception of the system coincident peak demands used
determine the demand-related allocation factors for
production and transmission plant and the non-coincident
group peak demands used to determine the demand-related
allocation factors for distribution plant . Please describe
how these normalized values have been incorporated into the
study.
The system coincident peak demands
normalized" through the surrogate methodology I described
earlier have been used in place of the actual system
coincident peak demands in the determination of the weighted
demand-related allocation factors D10S, D10NS, and D13 The
BRILZ , DI
Idaho Power Company
derivation of these allocation factors utilizing thenormalized coincident peak demands is detailed on Exhibit No.The normalized non-coincident group peak demands havebeen used to determine the D2 0, D3 0, D50, and D60 allocationfactors used to assign distribution costs to customerclassesI have included a worksheet showing the calculationof these distribution allocation factors in my workpapersHow do the results from the normalized studycompare to the results from the traditional study?The results from the normalized study areshown on Exhibi t No. 44 The results from the traditionalstudy are shown on Exhibi t No.3 9 As can be seen fromcomparing these two exhibits, the use of normalizedcoincident peak demands results in a lower revenue
requirement for general service (both Schedules 7 and 9)
irrigation service, traffic control service and Simplot
special contract service and a higher revenue requirement for
residential service, primary general service, dusk-to-dawn
customer lighting, large power service, unmetered general
service, street lighting service, and Micron special contract
service than does the use of traditional coincident peak
demands
Did you perform any other class cost-of-
service studies as part of this proceeding?
In order to gauge the impact to customerYes
BRILZ , DI
Idaho Power Company
classes of the generation and transmission weighting factors,I performed a study in which the demand and energy allocators- D10S, D10NS, D13 , E10S, and E10NS - were not weighted bymarginal costs Under this scenario, the demand and energyallocators were determined using the actual test year systemcoincident peak demands and the normalized energy.TheSummary of Revenue Requirement for this scenario is includedas Exhibit No. 47How do the results from the study in which nomarginal cost weightings are performed compare with theresults from the "traditional" study?The use of demand and energy allocators thatdo not include a marginal cost weighting resul t in a lowerrevenue requirement for small general service and irrigation
service and a higher revenue requirement for all other
customer classes, including the special contract customers,
than does the use of the traditional marginal-cost -weighted
demand and energy allocators
Are there any similarities in the results
among the three cost-of-service studies that you have
performed as part of this proceeding?
Although the absolute values areYes
different, the results from all three studies indicate that
the Large Power (Schedule 19), Irrigation (Schedule 24), and
special contract (Micron , Simplot, and DOE) customers should
BRILZ , DI
Idaho Power Company
have an increase in rates which is greater than the overallaverage increase requested by the Company.In addition , theresults indicate that Dusk-to-Dawn Lighting (Schedule 15) andUnmetered General Service (Schedule 40) should have adecrease in rates from the current level Exhibit No. includes in summary form the results from all three cost-of-service studies Revenue Requirement AllocationWhat is the Company s general philosophy ondetermining rates?The Company s primary approach to ratemakingin the last several general rate cases has been to establishrates that reflect costs as accurately as possibleAccordingly, the Company s ratemaking proposals usually
advocate movement towards cost-of-service results, which
assign costs to those customer classes that cause the Company
to incur the cos t s
Are there other obj ecti ves that may be
considered in the ratemaking process?
The Commission may consider a number Yes
other objectives, such as rate stability, rate shock , and
ability to pay, in the determination of rates
How did you approach the determination of the
revenue requirement for each customer class?
A pure cost-of -service revenue spread would
BRILZ , DI
Idaho Power Company
result in substantial increases to the irrigation class, thelarge power class, and to the three special contractcustomers. Except for the irrigation class, which received a13 . 95 percent increase, each of these other classes receivedeither a slight increase in rates or a decrease in rates as aresul t of the last general rate case In order to mitigatethe magnitude of the rate increase to each of these customerclasses that would be necessary to bring them to currentcost-of -service levels, I am recommending a uniformpercentage increase to all customer classes except the Dusk-to-Dawn Lighting and Unmetered General Service classesrecommend that the rates for these two classes of customersremain unchanged.Did you discuss the resul ts of the cost -of-
service study internally before deciding on your
recommendation for an equal percentage increase to each
customer class?
I discussed the results of the cost -of-Yes
service study and potential rate spread scenarios with Mr.
Gale, who is responsible for the overall preparation of this
case.My recommendation for an equal percentage increase to
the customer classes is a resul t of these discussions
Do you have an exhibit that details the class
revenue requirement determination?
Exhibi t No.4 9 is a four-page exhibi tYes
BRILZ , DI
Idaho Power Company
that steps through the revenue requirement allocation processfrom the cost-of-service results to the ultimate proposal foreach customer class Page 1 of Exhibit No. 49 is theproformed normalized test year sales and revenues Page details the resul ts from the cost-of -service study andillustrates the revenue changes that would be made to eachcustomer class to obtain the cost -of -service resul ts Page shows the results of setting each customer class s increaseequal to the overall requested increase of 7 82 % whileholding the Dusk-to-Dawn Lighting class and the UnmeteredGeneral Service class at current revenue levels Finally,Page 4 shows the proposed increase to the other customerclasses which results from spreading the shortfall created bythe mitigation to the remaining classes in order to obtain
the total Idaho jurisdictional target revenue requirement
The resultant increase to all customer classes, except the
Dusk-to-Dawn Lighting and Unmetered General Service which
receive no increase, is 7 84 % I have provided the results
from Page 4 to Mr. pengilly for his use in determining the
individual rates for the Company s general tariff and special
contract customers
Does this conclude your testimony?
Yes, it does
BRILZ , DI
Idaho Power Company