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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