20060414Said direct.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
, '
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR
MODIFICATION OF THE LOAD GROWTH
ADJUSTMENT RATE WITHIN THE POWER
COST ADJUSTMENT METHODOLOGY
)CASE NO.
IDAHO POWER COMPANY
DIRECT TESTIMONY
GREGORY W. SAID
April 2006
IPC-06- 0'0
Please state your name and business address.
My name is Gregory W. Said and my business
address is 1221 West Idaho Street, Boise, Idaho.
By whom are you employed and in what
capaci ty?
I am employed by Idaho Power Company as the
Manager of Revenue Requirement in the Pricing and Regulatory
Services Department.
please describe your educational background.
In May of 1975, I received a Bachelor of
Science Degree in Mathematics with honors from Boise State
In 1999, I attended the Public UtilityUni versi ty.
Executives Course at the University of Idaho.
please describe your work experience with
Idaho Power Company.
I became employed by Idaho Power Company in
1980 as an analyst in the Resource Planning Department.
1985, the Company applied for a general revenue requirement
increase.I was the Company witness addressing power supply
expenses.
In August of 1989, after nine years in the
Resource Planning Department, I was offered and I accepted a
Wi th theposition in the Company s Rate Department.
Company s application for a temporary rate increase in 1992,
my responsibilities as a witness were expanded.While I
SAID, DI
Idaho Power Company
continued to be the Company witness concerning power supply
expenses, I also sponsored the Company s rate computations
and proposed tariff schedules in that case.
Because of my combined Resource Planning and
Rate Department experience, I was asked to design a Power
Cost Adjustment (PCA) which would impact customers ' rates
based upon changes in the Company s net power supply
I presented my recommendations to the Idahoexpenses.
Public Utili ties Commission in 1992 at which time the
Commission established the PCA as an annual adjustment to
I sponsored the Company s annual PCAthe Company s rates.
adjustment in each of the years 1996 through 2004 and
supervised the preparation of the PCA adjustment in 2005 and
2006.
In 1996, I was promoted to Director of
Revenue Requirement.At year-end 2002, I was promoted to
Manager of Revenue Requirement.
what topic do you discuss in your testimony
ln thi s proceeding?
There is only one topic in this proceeding
and that topic is the determination of the appropriate load
growth adjustment rate used for true-up computations within
the power cost adjustment (PCA).
Why did the Company make this filing?
The load growth adjustment rate was raised as
SAID, DI
Idaho Power Company
an issue during the negotiations leading to the Settlement
Stipulation among the parties in Case No. IPC-05-28.
Section 6 (d) of the Stipulation, the Parties agreed that
the PCA load growth rate issue will be addressed
contemporaneously with the Company s upcoming PCA
proceeding, which will be filed on or about April 15, 2006.
This Petition for Commission review of the load growth
adjustment rate is being filed contemporaneously with the
Company s PCA application in compliance with the
Stipulation.
Why did the Company file this petition under
a different docket than its PCA Application?
The PCA Application anticipates normal
Commission review wi th new PCA rates to be implemented on
June 1, 2006.Commission review of the load growth
adjustment rate does not require a conclusion by June
2006.
What is the appropriate load growth
adjustment rate at this time?
Idaho Power believes that the appropriate
load growth adjustment rate is $6.81/MWh, the current,
embedded PCA-related cost of serving load.
Does the current load growth adjustment
methodology use the embedded PCA-related cost of serving
load you are recommending?
SAID, DI
Idaho Power Company
The current load growth adjustmentNo.
methodology uses predicted marginal costs of serving load
rather than embedded cost of serving load.The current
approved load growth adjustment rate is $16.84 per MWh.
please summarize why the Company believes
that the current use of predicted marginal costs of serving
load to determine the load growth adjustment rate is unfair
and should be changed?
The use of predicted marginal costs in the
PCA credits customers with the higher, marginal PCA-related
cost of serving new customer loads even though the Company
is only allowed to recover the lower, embedded PCA-related
costs of serving new customer loads.This mismatch
automatically penalizes the Company when it serves new
customer loads.The Company should be afforded a reasonable
opportunity to recover its PCA-related expenses associated
wi th serving new customer loads in a timely manner.The
best way to do this is to match the load growth adjustment
rate to the Company s actual ability to recover its costs by
using embedded costs to determine the load growth adjustment
rate.
Historical BackGround of the PCA
Were you the Company witness who recommended
a PCA methodology to the Commission when the PCA was
originally implemented in Case No. IPC-92-25?
SAID, DI
Idaho Power Company
Yes, I was one of three Company witnesses in
Case No. IPC-92-25 ("the original PCA case
) .
testimony introduced the Company-proposed methodology for
the original PCA.
Please define the term "power supply
expenses " as the Company and the Commission have used the
term historically.
The Company and the Commission have used the
term "power supply expenses " to refer to the sum of fuel
expenses (FERC accounts 501 and 547) and purchased power
expenses (FERC account 555) excluding PURPA qualifying
facilities (QF) expenses minus surplus sales revenues (FERC
account 447) .For ra temaking purposes, QF expenses have
been quantified separately from other power supply expenses
and are treated as fixed inputs to power supply modeling
rather than variable outputs.
How do PCA expenses differ from power supply
expenses?
PCA expenses include both power supply
expenses and QF expenses.
In the original PCA case, did the Company-
proposed PCA methodology include a load growth adjustment
rate?
No.Under the Company-proposed PCA
methodology, the PCA mechanism would have compared the
SAID, DI
Idaho Power Company
actual PCA unit cost of serving load in dollars per
megawatt-hour (actual PCA expenses/actual MWh) to the
normalized PCA unit cost of serving load in dollars per
megawatt-hour (normalized PCA expense/normalized MWh.The
difference between the two rates would become the PCA rate.
Under its proposed PCA methodology, the Company envisioned
that 100 percent of the variation in power supply expenses
(including QF purchases) would have been reflected in the
PCA rate.
Did the Commission adopt the PCA methodology
proposed by the Company in the original PCA case?
While the Commission adopted manyNo.
aspects of the PCA methodology proposed by the Company, the
Commission determined that 100 percent tracking of power
supply expenses would remove any incentive for the Company
to seek the lowest-cost power supply opportunities.As a
result, the Commission adopted a 90 percent sharing
methodology for non-QF power supply expenses.QF expenses,
however were viewed differently by the Commission.Because
the Company has no discretion whether to enter into QF
contracts, the Commission determined that 100 percent of QF
purchased power expense deviations from base would flow
through the PCA.
Another Commission-adopted methodology
difference from the PCA the Company proposed in the original
SAID, DI
Idaho Power Company
PCA case was that, instead of comparing actual variable PCA
unit costs (in $/MWh) to normalized PCA supply unit costs
(in $/MWh), the Commission adopted a methodology that
compared actual PCA expenses (in dollars) to normalized PCA
expenses (in dollars) This introduces some confusion, at
times, because the terms costs and expenses are often used
interchangeably.
A problem with comparing PCA expenses rather
than comparing PCA unit costs is that the two PCA expense
levels being compared correspond to two different load
levels (i. e., actual and normali zed) .The Commission
ultimately decided that the actual PCA expense level should
be adjusted to reflect a proxy PCA expense of serving
normalized load levels. In that manner, the proxy for actual
PCA expense of serving normalized loads would be compared to
the normalized PCA expense of serving normalized load and
the difference between the two would be divided by the
normalized sales level to determine the PCA rate.
Other adjustments to the Company s proposed
methodology such as the natural logarithmic function for
forecasting annual power supply expenses were also adopted
by the Commission.Those adjustments are not at dispute in
thi s proceeding.
In the original PCA case, how was the actual
PCA expense of serving actual loads adjusted to arrive at
SAID, DI
Idaho Power Company
the proxy for actual PCA expense of servlng normalized
loads?
The difference between actual loads and
normalized loads would be determined monthly as part of the
It was assumed that typically loads would growPCA true-up.
over time and a load growth adjustment would reduce actual
PCA expenses of servlng actual loads to the proxy for actual
PCA expenses of serving normalized loads at the rate of
$16.84 per megawatt-hour for each megawatt-hour of load
growth.
How was the load growth adjustment rate of
$16.84 per megawatt-hour determined?
The $16.84 per MWh load growth adjustment
rate was determined by averaging the Boardman and Valmy fuel
costs.
Did the Staff contend that a load growth
adjustment was required to insure that the Company did not
recover its costs twice?
Order No. 24806 issued in Case No. IPC-Yes.
92-25 recaps the Staff contention as follows:
Staff argues that the power supply costs of serving
differences between normal and actual firm retail
load should be factored out of the PCA. Differences
from normalized firm retail load are caused by
factors such as changes in load and abnormalweather. Staff contends that some differences in
power supply costs are caused by changes in load and
that the associated differences in power supply
costs are not appropriate for PCA treatment. If the
SAID, DI
Idaho Power Company
Company is allowed to increase rates to account for
the power supply costs of serving additional load
and to recover base rates which also include power
supply costs, the Company is double recovering thosecosts. Fuel costs (a component of net power supply
costs) are first paid when load growth customers pay
their electric bills at the end of the month. They
are again paid in the following year after the
Company captures them in its year-end true-up and
spreads them to ratepayers.
Wi thout a load growth adjustment, could the
Company double-recover the costs of load growth?
If the Company-proposed methodology had been
adopted, the Company believes that a load growth adjustment
would not have been required and no double recovery would
have occurred.However, because the PCA methodology
originally proposed by the Company was modified to create an
adjustment based upon changes in expense (dollars) levels
rather than changes in unit costs ($/MWh), a potential for
double collection was created.
As growth occurs, how does the Company
recover its power costs?
As loads grow, the Company first recovers PCA
expenses to serve that load growth at the normalized,
embedded PCA-related cost of service rate included in the
base rates of the Company.The PCA true-up mechani sm then
tracks actual PCA expenses that include the additional
expenses to serve load growth. Without a credit for the
revenues already received (embedded) the Company would
SAID, DI
Idaho Power Company
collect the fully tracked additional expenses (disregarding
90% sharing) providing, in essence, a second collection of
The first collection would be at embedded costexpenses.
and the second collection would be at actual cost.
What does the Company view as a primary
intent of the PCA?
The Company believes that a primary intent of
the PCA is to allow rates to change annually to replace the
normalized PCA component of base rates with a PCA component
reflective of current (actual) PCA expenses.
In order to remove double collection of PCA
expenses and also be consistent with the PCA intent you have
discussed, what is the appropriate load growth adjustment
rate?
The appropriate load growth adjustment rate
is equal to the normalized embedded PCA-related cost-of-
service expense-rate component of base rates.By crediting
load growth at the normalized, embedded PCA-related cost of
service expense-rate component of base rates, the Company
recovers current (actual) PCA expenses.
In the original PCA case, did the Staff
propose use of the embedded PCA-related cost of serving load
as the appropriate load growth adjustment rate when they
proposed altering the Company-proposed PCA methodology?
No.The Staff proposed use of the marginal
SAID, DI
Idaho Power Company
cost of serving customer energy requirements as the
appropriate load growth adjustment rate.
In the original PCA case, did the Company
state a position regarding the appropriateness of the Staff-
proposed load growth adjustment rate?
At the time the PCA was created, theNo.
Staff's proposed marginal load growth adjustment rate seemed
like a small detail compared to the larger goal of
establishing a PCA mechanism.It was only after some time
had passed that the Company came to realize the impacts of
the penalty introduced by setting the load growth adjustment
at a marginal level rather than an embedded level.
Company Recommendation
Does the Company believe it is appropriate to
credi t the actual costs of serving new customer loads and
recover only the embedded PCA related cost of serving new
customer loads?
The Company believes that such a creditNo.
penalizes the Company for serving new customer loads while
at the same time the Company has an obligation to serve
Just as the Company has no discretion withthose customers.
regard to QF pricing, the Company also has no discretion not
to serve new customer loads.The Company should be afforded
a reasonable opportunity to recover the expenses associated
wi th serving new customer loads.
SAID, DI
Idaho Power Company
please describe the PCA penalty that results
from use of a predicted marginal cost load growth adjustment
rate as opposed to an embedded cost load growth adjustment
rate.
As loads grow following a test year, the
Company is obligated to serve the additional loads and
receives revenue at the embedded cost levels established for
the test year (for example the $5.24 per MWh established in
1992) .At the same time, the Company incurs addi tional
costs associated with serving the additional load (these
costs have varied greatly, but let's assume an individual
year actual cost of $30/MWh).These $30/MWh costs are
included in the PCA, but a credit of $16.84 /MWh also occurs
so PCA cost recovery is for $13.16/MWH ($30-$16.84 per MWh).
Adding base rate recovery to PCA recovery results in total
recovery at $18.40/MWh ($5.24+$13.16 per MWh) and a penalty
(non-recovery) of $11.60 /MWh ($30-$18.40 per MWh)
Please note that this penalty is equal to the
difference between the known embedded PCA related cost of
$5.24 and the approved load growth adjustment rate of
$16.84/MWh.If the load growth adjustment rate were equal
to the embedded PCA related cost, no penalty would exist.
The Company has an obligation to serve additional loads but,
based upon a load growth adjustment rate higher than the
embedded PCA related costs included in base rates, is denied
SAID, DI
Idaho Power Company
the opportuni ty to recover the additional expenses incurred
to serve the addi tional loads.
What was the embedded PCA related cost of
serving customer load requirements at the time the PCA was
originally established?
The normalized level of PCA expenses was
$73,079,128 and the normalized load was 13,952,283 MWh.
Based upon these numbers, the embedded PCA related cost of
serving customer load requirements was $5.24 per MWh.
How does this compare with the current
embedded PCA related cost of serving customer load
requirements?
Consistent with the Stipulation in Case No.
IPC-05-28, the 2005 normalized level of PCA expenses is
$100,916,495 and the normalized load is 14,819,152 MWh.
Based upon these 2005 normalized values, the current
embedded PCA related cost of serving customer load
18 ' requirements is $6.81 per MWh.
What has been the change in the normalized
PCA cost of serving normalized load growth during the period
of time between 1993 and 2005?
The normalized PCA cost of serving has
increased from $5.24 per MWh to $6.81 per MWh.
Please describe the incremental changes in
PCA expenses since 1993.
SAID, DI
Idaho Power Company
The change in normalized PCA expenses since
1993 has been an increase of $27,837 367.The change in
normalized loads has been 866,869 MWh.The incremental
change in the normalized PCA cost of serving the additional
886,869 MWh of normalized load growth has been $31.39 per
MWh.
What are the reasons for the increases in
normalized PCA expenses over the last 12 years?
Normalized PCA expenses have increased by
$27,837,367 because normalized power supply expenses have
increased by $7,319,370 and normalized QF expenses have
increased by $20,517,997.
What portion of the load growth from 1993 to
2005 has been served by QF generation?
QF generation in 1993 was 574,710 MWh.
2005, QF generation was 957,041 MWh.Growth in QF
generation has provided 382,331 MWh (43 percent) of the
886,869 MWh of load growth.
What has been the incremental rate for QF
growth?
QF expenses have increased by $20,517,997.
QF generation has increased by 382,331 MWh.The incremental
rate for QF growth has been $53.67 /MWh.
What portion of the load growth from 1993 to
2005 has been served by power supply excluding QF
SAID, DI
Idaho Power Company
generation?
Growth in non-QF generation has provided
504,538 MWh (57 percent) of the 886,869 MWh of load growth.
What has been the incremental rate for non-QF
growth?
Non-QF expenses have increased by $7,319,370.
Non-QF generation has increased by 504,538 MWh.The
incremental rate for non-QF served load growth has been
$14.51 per MWh.
Is the future actual cost of serving load
growth known?
No.
Was the future actual cost of serving load
growth known in 1993?
No.However, we now know that the $16.
load growth adjustment rate was higher than the $14.51 per
MWh incremental non-QF power supply cost of serving load
growth over the 12 years.
Does this historical review of incremental
non-QF power supply costs change the Company view as to the
appropriateness of estimating a future marginal power supply
cost rate for use as the load growth adjustment rate?
No.The penalty the Company faces when an
estimated future marginal power supply cost is used as the
load growth adjustment rate remains regardless of the
SAID, DI
Idaho Power Company
accuracy of the estimate of future marginal power supply
My discussion of the last 12 years of history merelycost.
points out that the penalty the Company hqs experienced was
greater than the penalty would have been if the estimate of
future marginal power supply cost had been closer to the
embedded PCA-related cost at which the Company served loads.
What is the Company s recommendation for the
appropriate load growth adjustment rate?
The Company recommends a load growth
adjustment rate of $6. 81/MWh, the current embedded PCA
related cost of serving load.
Does this conclude your direct rebuttal
testimony?
Yes, it does.
SAID, DI
Idaho Power Company