20061020Said rebuttal.pdf

IDAHO
POWE R (B)
RECEIVED BARTON L KLINE
Senior Attorney
2006 OCT 20 PH 4: 43
An IDACORP Company
iDAHO HJULiC
October 20 200E!JTIL!T!ES COMi~118SI0i\i
HAND DELIVERED
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise, Idaho 83720-0074
Re:Case No. IPC-06-
Petition For Modification of Load Growth Adjustment
Rate Within the Power Cost Adjustment Methodology
Dear Ms. Jewell:
Please find enclosed for filing an original and eight (8) copies of the Direct
Rebuttal Testimony of Gregory W. Said regarding the above-referenced matter.
I would appreciate it if you would return a stamped copy of this transmittal letter
to me in the enclosed self-addressed stamped envelope.
Very truly yours
(l )d-I~
Jon 2 Kline
BLK:sh
Enclosures
Telephone [phone] Fax [phone], E-mail BKlinefB/idahopower.com
RECE PIED
2005 OCT 20 PM 4: 44
IDAJ.iO H.JbLlC
UTILrriE:; COMi,:\lSSION
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. IPC-O6-
IDAHO POWER COMPANY
DIRECT REBUTTAL TESTIMONY
GREGORY W. SAID
please state your name and business address.
My name is Gregory W. Said and my business
address is 1221 West Idaho Street, Boise , Idaho.
Are you the same Gregory W. Said who
previously submitted direct testimony in this proceeding?
Yes, I am.
What is the purpose of your rebuttal
testimony?
I will respond to what I believe are
incorrect or inappropriate assumptions and conclusions
contained in the testimonies of Commission Staff Witness
Hessing, Industrial Customers of Idaho Power (ICIP) Witness
Reading and NW Energy Coalition Witness Weiss.
Are you sponsoring any exhibi ts wi th your
rebuttal testimony.
Yes.I am sponsoring three exhibits.
Exhibi t No.1 provides documentation for several numbers I
have included in my testimony.Exhibi t 2 is a copy of a
summary opinion by Moody Investment Service describing the
potential adverse ramifications of changes in the PCA
mechani sm.Exhibi t 3 shows how the fixed cost expense Idaho
Power incurs due to load growth is greater than the revenue
it receives from load growth.
At line 14 on page 3 of his testimony, Mr.
Hessing states that there two parts to the decision the
SAID, Di-Reb
Idaho Power Company
Commission is being asked to make in this case.Do you
agree?
In this case, Idaho Power Company has asked
the Commission to determine the appropriate load growth
adjustment rate to be utilized within the Power Cost
Adjustment (PCA) methodology.Mr. Hessing has stated that
prior to answering this question, the Commission should
first determine whether the Company should be allowed to
recover through the PCA any variable power supply costs
associated with load growth.Based on the filed direct
testimony it is apparent that the parties have differing
opinions as to the purpose to be served by the load growth
adjustment rate.The parties ' recommendations in their
testimony as to the appropriate load growth adjustment rate
are driven by their views regarding the role the load growth
adjustment rate should play in recovering Idaho Power
variable power supply expenses.As a resul t, it appears
that the Commission will need to address the purpose of the
load growth adjustment rate as well as Idaho Power s request
for a determination of the appropriate local growth
adjustment rate.
please summarize your recollections of the
historical intent of the load growth adjustment rate.
As I stated in my direct testimony, in 1992
the Staff recommended a number of modifications to the
SAID , Di-Reb
Idaho Power Company
Company s original proposal for a PCA, many of which were
adopted by the Idaho Commission.One maj or change the Staff
recommended and the Commission accepted was to create an
adjustment mechanism based upon changes in expense levels
(dollars) rather than changes in unit costs ($/MWh).
Adoption of an adjustment mechanism based on expenses levels
created the potential for double collection of power supply
expenses from customers.Idaho Power believes that the
intent of the load growth adjustment rate was to eliminate
the possibili ty of double collection of power supply
expenses.
Do the other witnesses in this case agree
that eliminating the possibility of double collection of
power supply expenses from customers has been a historical
intent of the load growth adjustment rate?
Yes.At line 1 on page 6 of Dr. Reading
testimony, he states,The load growth adjustment was
implemented by the Commission to prevent the Company from
double-collecting certain costs under the PCA.Mr. Hessing
states at line 12 on page 5 of his testimony that, "without
the adjustment the Company would double recover the
normalized cost of power supply.NW Energy Coalition
witness weiss is silent with regard to the historical
purpose of the PCA load growth adjustment rate.
Does Staff Witness Hessing contend that there
SAID, Di-Reb
Idaho Power Company
is an addi tional purpose for the load growth adjustment
rate?
Yes.Mr. Hessing states at line 10 page 9 of
his direct testimony that he does not believe that Idaho
Power Company should be allowed to recover any power supply
costs associated with load growth through the PCA mechanism.
This implies that Staff believes that an additional purpose
of the load growth adjustment rate is to remove from the PCA
the power supply expenses incurred to serve load growth that
occurs between rate cases.
One of the reasons Mr. Hessing cites in
support of his position that Idaho Power Company should not
be allowed to recover the power supply costs of load growth
in the PCA is that "Load growth related power supply costs
are addressed ln a general rate case.(Hessing Direct page
11, line Please comment on this statement.
Mr. Hessing s statement is incorrect.The
incremental costs of serving load growth between rate cases
is not addressed in general rate cases.In my experience
all of Idaho Power s general rate cases have been based upon
historical test years.As such , normalized power supply
expenses are set using historic periods of time and do not
reflect any expenses associated wi th prospective load
growth.As a result, the PCA mechanism is the appropriate
and only vehicle for addressing the incremental power
SAID, Di-Reb
Idaho Power Company
supply costs caused by load growth that occurs between
general rate cases.
Another reason Mr. Hessing gives for his
belief that Idaho Power Company should not be allowed to
recover power supply costs attributable to load growth is
that hundreds of utility accounts must be "trued up " in a
general rate case.Is that what occurs in a general rate
case?
Again, Mr. Hessing s statement is incorrect.
The term "trued up " has specific meaning in a PCA context.
In the PCA context, actual variable power supply expenses
are tracked and matched to corresponding variable power
supply revenues.There is no such "true up " in a general
ra te case.Rather , the variable power supply component of
rates is established based upon a relatively current, but
historic and normalized, level of variable power supply
expenses.
The Company has no opportuni ty to true-
incremental variable power supply expenses associated with
load growth that occurs between rate cases other than in the
PCA.
Mr. Hessing states at line 25 on page 10 of
his testimony that "It is not fair or reasonable to
exclusively select one group of costs or the other " for
tracking through annual rate adjustments.He states that
SAID , Di-Reb
Idaho Power Company
The only fair way to establish rates is to look at all the
utili ties costs together as is done in a general rate case.
Please comment on these statements.
These statements suggest a misunderstanding
of historic Commission practice and a bias against
adjustment mechanisms in general.The Commission for many
years has successfully used adjustment mechanisms to address
cost recovery between general rate cases for several of the
utilities it regulates.Intermountain Gas , Avista and Idaho
Power all have variable cost adjustment mechanisms.This
practice indicates that the Commission has already
determined that it is indeed fair , just and reasonable to
isolate individual cost components such as purchased natural
gas on power supply costs for specific review outside a
general rate case.
In your prior answer you mentioned
Intermountain Gas Company.Does Intermountain Gas Company
have the ability to recover its purchased gas expense
associated with load growth occurring between rate cases?
Yes.It is my understanding that the
variable gas costs associated with serving additional gas
loads are recoverable through Intermountain Gas s Purchase
Gas Adjustment mechanism (PGA).
Does Intermountain Gas Company s PGA contain
any adjustment that looks like a load growth adjustment?
SAID , Di-Reb
Idaho Power Company
For fixed costs, yes.I believe that
Intermountain Gas a position where additional
consumption by existing new customers actually reduces
per unit fixed cos ts.Intermountain Gas Company estimates
this fixed cost per unit reduction as part of its PGA
mechanism.Idaho Power does not experience declining fixed
costs per unit of consumption as I will discuss later in my
rebuttal testimony.
Does Mr. Hessing cite any other basis for his
posi tion that variable power supply expenses associated with
load growth that occurs between rate cases should not be
recoverable in the PCA?
In my opinion, the only remaining basis for
Mr. Hessing s position that variable power supply expenses
associated with load growth between rate cases should not be
recovered is his interpretation of the Commission s intent
expressed in Order No. 29602 issued in Case No. IPC-92-25.
Please explain the basis for your opinion.
As I noted in my direct testimony, there were
many contested issues at the time Idaho Power s initial PCA
was approved.The load growth adjustment rate was only one
of those issues.The Company agreed that wi th a change
from the Company-proposed PCA based upon changes in costs
per megawatt-hour to the Staff-proposed PCA based upon
changes in expenses (dollars) rather than costs per MWh
SAID, Di-Reb
Idaho Power Company
there was a potential for double collection of power supply
expenses related to load growth.All parties still agree on
this point.What the Company did not fully appreciate or
address at that time was the Staff's apparent belief that
all power supply costs associated with load growth that
occurs between rate cases should be non-recoverable in the
PCA.As I have stated, The PCA is the only vehicle the
Company has available to recover power supply expenses
associated with load growth occurring between rate cases.
Did Staff address this issue in the Company
general rate case that followed the initial implementation
of the PCA?
No.Mr. Hessing states in his testimony in
the paragraph beginning at line 17 on page 6 that Staff
reviewed marginal power costs as part of its preparation for
Case No. IPC-94-At that time , Staff believed that
their computation of marginal costs at $16.22 /MWh was close
enough to the $16. 84/MWh load growth adjustment rate used
for PCA computation to not require testimony in that case.
The Company also proposed no change to the load growth
adjustment rate in that case.As a resul t, nei ther the
Company nor the Staff had a clear understanding as to the
position of the other with regard to the appropriate or
intended purpose of the PCA load growth adjustment rate.
When did the Company discover that Staff had
SAID , Di-Reb
Idaho Power Company
a different opinion than that of the Company concerning the
intent of the load growth adjustment rate?
It was only after Staff presented testimony
in the IPC-03-13 case, some nine years later, that the
Company fully understood the difference of opinion that
Staff and the Company had with regard to the application of
the load growth adjustment rate.In the IPC-03-13 case,
the parties proposed that the issue be tabled for future
review.The Commission agreed and the review of that
dispute is the subj ect of this proceeding.
Why is the load growth adjustment rate within
the PCA so significant that it merits its own regulatory
hearing?
Because even relatively small changes in the
rate can shift large dollar amounts.
Please explain.
As page 1 of my Exhibit 1 shows, in Case No.
IPC-06-, the 2006 PCA case, load growth for the April
2005 through March 2006 time period was 611 114 MWh.Based
upon Mr. Hessing's recommendation of a load growth
adjustment rate of $40.87 /MWh, expenses would have been
credi ted by nearly $25 million (611,114 MWh * $40.87 /MWh =
$24,976,229) .Actual loads were 14,718,687 MWh served at a
net power supply expense of $82 723,371.Accepting Mr.
Hessings proposal would suggest that base level loads of
SAID , Di-Reb
Idaho Power Company
107,573 MWh (14,718,687 - 611,114) were served at an
expense of $57,747,142 ($82,723,371 - $24,976,229) and at a
rate of $4.09 MWh.Accepting Mr. Hessing s proposal would
also suggest that the additional load of 611 114 MWh was
served at $40.87/MWh. Under Mr. Hessing s proposal, the
final 4% of load (611,114 / 14,718,687 MWh) is assumed to be
served at 30% of total power supply expenses.Under Mr.
Hessing s proposal, only $4.2 million (611,114 MWh x
$6.81/MWh) out of this nearly $25 million power supply
expense would be recovered by the Company through base rates
while over $20 million would be non-recoverable.The
Company believes that the Commission never intended to
exclude 25 percent of the Company s power supply expense
from recovery in the PCA.To avoid that punitive result the
Commission should now confirm that the intent of the PCA
load growth adjustment rate is to eliminate the possibili
of double collection of revenues and not to eliminate the
Company s ability to recover variable power supply expenses
associated with load growth between rate cases.As my
previous testimony shows, the PCA is the only way the
Company can recover those expenses.
Please quantify the amount of variable power
supply expense Idaho Power can recover through the PCA
mechanism.
Currently, Idaho Power only has a PCA
SAID, Di-Reb
Idaho Power Company
mechanism in its Idaho jurisdiction.As a resul t, the
Company is limited in its ability to collect upward
deviations in power supply expenses to 94% (the Idaho
jurisdictional amount) .A second limiting factor is the 90%
sharing of non-QF power supply expenses.The combination of
the jurisdictional factor and the sharing factor result in a
cap on collection equal to 84.6% (94% * 90%) of the
variation in power supply expenses.
The 84.6% collection of variations in power
supply expenses is further reduced by crediting load growth
at greater than the embedded variable power supply costs
rate of $6.81/MWh.
Based on those percentages, what was the
actual percentage of variation in power supply expenses
allowed for recovery via the PCA and base rates in 2006?
The Company was allowed to recover just under
$21 million via the PCA and nearly $4.2 million (611,114 MWh
x $6. 81/MWh) variable power supply related base rates or
$25.1 million out of the $35 million variation in power
supply expenses.This equates to 71.7%.
What would the percentage have been if Mr.
Hessing s proposed Load growth adjustment rate had been in
place?
The Company would have been allowed to
recover only $10 million via the PCA and nearly $4.2 million
SAID , Di-Reb
Idaho Power Company
via variable power supply related base rates or $14.
million of the $35 million variation in power supply
expenses.This would equate to only 40.6%.
Is the Company concerned that a change to the
load growth adjustment rate in the magnitude proposed by
Staff Witness Hessing could have other negative impacts?
There are indications that such a change
could have a negative impact on Idaho Power s credit rating.
The financial community has indicated that it will look very
carefully at any material change to the PCA.For example,
my Exhibit 2 is a copy of the October 6, 2006 Summary
Opinion on Idaho Power Company from Moody s Investment
Service.In that report on Pages 2 and 3 under the heading
What Could Change the Rate - Down Moody s includes
...
any
unexpected change that comprises the PCA mechanism. . ." as
one of the events that could adversely affect Idaho Power
credi t rating.
Let's move next to Dr. Reading s testimony.
At line 8 on page 7 of his testimony, Dr. Reading states
that the load growth adjustment rate in the PCA prevents the
Company from "collecting an amount that would automatically
compensate the Company for the marginal costs it incurs to
meet new loads.Do you agree?
Yes.Dr. Reading is pointing to the very
penal ty for load growth I described in my direct testimony.
SAID, Di-Reb
Idaho Power Company
Dr. Reading acknowledges in his statement that the Company
incurs variable power supply expenses that it has no
opportuni ty to recover in the PCA.The PCA is the very
mechanism designed to review variable power supply expenses.
As I have testified, the Company has no opportunity to
recover these expenses in general rate cases or by any means
ther than the PCA.
Dr. Reading suggests at line 14 on page 8 of
his testimony that if the power supply costs associated with
load growth are not removed from the PCA Idaho Power
customers would lose the opportunity to be involved in the
review of the prudency of those costs.Is this true?
No.The prudency of power supply costs
included in PCA computations is reviewed every year by PUC
Staff.Historically, when Staff, in its review of power
supply expense has identified specific power supply expenses
that require additional review beyond the PCA time frames,
the Commission has allowed additional time for a more in-
depth review of such expenses.Parties other than Staff
also have the same opportunity to review power supply
expenses.
More importantly, power supply costs
associated with load growth are not differentiated from
power supply costs to serve existing loads.There is no
reason that the prudency review for one component of power
SAID, Di-Reb
Idaho Power Company
supply costs (i. e., load growth) should be different than
the review of another component of power supply costs (i. e. ,
tes t year loads) .
You have stated in your rebuttal testimony
that the Company did not fully understand the Staff position
on the load growth adjustment rate in 1992 when the
Commission adopted the Staff position on that issue.Dr.
Reading states at line 13 on page 10 of his testimony that
the Commission had ample opportunity to consider, and
decide, on the record that the load growth adjustment should
not be based upon embedded average costs.Has Dr. Reading
accurately described the record in that case?
No.Dr. Reading cites Commission Order No.
24806 to support his contention.Order No. 24806 actually
states that the Commission adopted the load growth
adjustment rate proposed by Staff because "it was the only
method proposed.(Reading Direct Page 9 line 13 quoting
IPUC Order No. 24806, p. 20.A load growth adjustment rate
based upon embedded average costs was not presented in the
original PCA case.I believe that Dr. Reading is
overstating the level of Commission review of the issue in
1992 in order to suggest that this issues does not need to
be fully reviewed by the Commission at this time.
Dr. Reading testifies at line 20 on page
of his testimony that nothing has changed since 1992 that
SAID , Di-Reb
Idaho Power Company
should suggest the Commission revisit the load growth
adjustment rate issue.Do you agree?
No.Dr. Reading ignores the fact that only
one load growth adjustment rate position was presented in
the IPC-92-25 case.He also ignores the fact that there
were different interpretations by the parties with regard to
the intent of the load growth adjustment rate.He concludes
that Idaho Power should have no right to ask for additional
review on the issue now.Mr. Hessing and I disagree with
Dr. Reading on this point and believe that the Commission
should determine the purpose of the load growth adjustment
rate.The Company does not believe that the Commission
intended to create a penalty to the Company for serving
additional load.
What load growth adjustment rate does Mr.
Hessing propose for approval at this time?
Mr. Hessing recommends a load growth
adjustment rate of $40.87 /MWh.
What load growth adjustment rate does Dr.
Reading propose?
Dr. Reading suggests that the appropriate
load growth adjustment rate could be anywhere from
$36.42/MWh to $48.81/MWh.
Were either Mr. Hessing s or Dr. Reading
recommendations for the appropriate load growth adjustment
SAID , Di-Reb
Idaho Power Company
rate determined in conformance with the methodology utilized
by the Commission in 1192 to determine a load growth
adjustment rate of $16. 84/MWh?
No.The Commission s determination in 1992
of $16. 84/MWh as the appropriate load growth adjustment rate
was based on a marginal cost of Idaho Power resources that
could serve additional loads.The methodology used an
average of the costs of Idaho Power Company s two most
expensive base load resources, Valmy and Boardman.Mr.
Hessing now recommends a change of methodology to a marginal
cost approach that compares two power supply model runs.
This new method introduces marginal surplus sales revenues
and marginal purchased power expenses contained in the model
runs to a methodology that previously only looked at the
costs of Company-owned resources on the margin.Dr. Reading
offers two other new methods and suggests that the
Commission adopt a value somewhere in the range suggested by
the two methods.
It should be noted that, whatever methodology
the Commission adopts in this Case , the methodology should
be driven by the purpose for the PCA.Al though Dr. Reading
suggests that the Company cannot now question the
Commission s intent underlying the PCA load growth
adjustment rate expressed in 1992, both he and Mr. Hessing
are comfortable proposing alternate methodologies for
SAID, Di-Reb
Idaho Power Company
computing the load growth adjustment rate without presenting
the load growth adjustment rate that would result from a
methodology consistent with the current Commission-approved
methodology.
What would the load growth adjustment rate be
based upon the 1992 adopted methodology?
The Company s two highest cost base-load
resources continue to be Valmy and Boardman. In the IPC-
05-28 case, Valmy cost was $16. 51/MWh and Boardman cost was
$12.62/MWh.The average of these two numbers is $14.57 /MWh.
If the Commission does not choose to confirm
that the sole intent of the load growth adjustment is to
remove the potential for double collection of power supply
expenses that could occur due to load growth, does the
Company believe it is appropriate to change the current
method by which the load growth adjustment rate is
determined?
No.
Please describe the fundamental difference
between the currently approved Commission methodology for
determining the load growth adjustment rate and the
methodology proposed by Mr.Hessing.
under the currently approved Commission
methodology for determining the load growth adjustment rate,
the Commission considered the marginal cost of Company-owned
SAID , Di-Reb
Idaho Power Company
base-load resources likely to be dispatched to meet
addi tional loads.Mr. Hessing s newly recommended
methodology introduces marginal purchased power expenses and
the marginal value of surplus sales into the equation.
please quantify the impacts of introducing
marginal purchased power expenses and marginal surplus sales
revenues in Mr. Hessing s newly proposed methodology.
Under Mr. Hessing s newly proposed
methodology, a base case power supply model run based upon a
2005 normalized test year is compared to a second power
supply model run with loads incremented by 10 megawatts.
His result of $40.87 /MWh is what he considers to be the
marginal cost of serving the additional 10 megawatts of
load.However , closer evaluation shows that nearly 7 of the
addi tional 10 megawatts of load growth , i. e., new native
load , would be served by generation that would otherwise
have gone to surplus sales.Mr. Hessing s proposed
methodology suggests that existing loads should be
guaranteed the value of surplus sales that no longer occur
once the Company has an obligation to serve new native
loads.The Company s cost of serving new native load from
resources that would otherwise be available for surplus
sales should be the resource cost not the surplus sales
value.Similarly, the inclusion of marginal purchased power
costs introduces costs that were not included in the current
SAID, Di-Reb
Idaho Power Company
Commission-approved methodology.Removing surplus sales and
off-system purchases from the equation and just looking at
the marginal cost of Company-owned resources results in a
rate of $17 .15/MWh. This amount is higher than the average
of Boardman and Valmy fuel costs at $14.57 /MWh and reflects
the occasional operation of the Company s combustion turbine
units.The computation of the $17 .15 /MWh amount is shown on
Page 2 of Exhibit
Please compare the two marginal cost
methodologies Dr. Reading recommends to the current
Commission-approved methodology for computing the load
growth adjustment rate.
In a similar manner to Mr. Hessing
approach, Dr. Reading s first methodology recommends
inclusion of marginal purchased power costs and marginal
surplus sales benefits in addition to the Commission
methodology that looks only at the marginal cost of Company
owned resources.Dr. Reading s second methodology
recommends the use of Bennett Mountain power plant costs as
the appropriate marginal cost resource.Because Bennet t
Mountain is a peaking unit, and would only run a few hours a
year , it is clear that Bennett Mountain would not be the
resource utilized to meet load growth during all hours of
the year.Dr. Reading s use of Bennett Mountain in his
second method sets an artificially high load growth
SAID, Di-Reb
Idaho Power Company
adjustment rate based upon an inaccurate assumption that a
peaking uni t is the typical marginal resource throughout the
year.
Does Mr. Weiss have a recommendation for the
appropriate load growth adjustment rate?
No.Instead , Mr. Weiss recommends a major
PCA redesign to create different load growth adjustment
rates by customer class and to further differentiate by
ei ther new loads of existing customers or new loads of new
customers wi thin each class.
Is this recommendation appropriate?
No.
Is Mr. Weiss s recommendation for a major PCA
redesign to create different load growth adjustment rates
for new loads of new customers and new loads of existing
customers in each customer class appropriate?
No.First, to create an appropriate load
growth adjustment rate, the Company believes the incremental
revenue that the Company receives is more appropriately
considered than is the incremental cost of serving new load.
(i. e., eliminate the potential for double collection of
variable power supply expenses associated with load growth
rate cases.
Second, Mr. Weiss seems confused on the
concept of incremental costs as they relate to this issue.
SAID, Di-Reb
Idaho Power Company
A new kilowatt-hour of consumption at any specific point in
time will have the same incremental variable power supply
cost regardless of the customer type (new or existing) or
customer class (residential or commercial for example)
consuming the power.Differences in class cost of service
arise from costs that are evaluated outside of the PCA such
as facilities required to serve customers, rather than
commodi ty price.The infusion of non-power supply expenses
into the PCA mechanism which is designed to address only
power supply expenses is inappropriate.
Much of Mr. Weiss s testimony in this case is
directed at evaluating the additional revenue that the
Company receives as a result of load growth.Please comment
on this testimony.
Unlike Dr. Reading and Mr. Hessing, who for
the most part ignore the revenue side of the equation , Mr.
Weiss focused his attention on revenues generated by load
growth.Because this is a PCA case, the Company believes it
is appropriate to look only at the revenue generated by the
component of rates associated with power supply expenses,
(i. e., the embedded power supply cost of $6. 81/MWh) .
However, Mr. Weiss considers the total additional revenue
generated by the full customer rates as a potential credit
to variable power supply expenses.Idaho Power contends
that other components of the total customer rate are
SAID, Di-Reb
Idaho Power Company
intended to recover costs other than variable power supply
expenses such as distribution , transmission, general and
administrative expenses.These costs should not be credited
to variable power supply expenses.
Please give an example of how Mr. Weiss
considers load growth revenues that are generated by rate
components other than power supply expenses.
On pages 5, 6 and 7 of his testimony, Mr.
weiss describes what he believes is a reasonable example
how the Company benefits from load growth.In his example
he assumes that the Company receives 6.5 cents for all kWh'
of load growth.In response to a Company data request, Mr.
Weiss explained that the 6.5 cents/kWh was his estimation of
the average summer residential rate.This class specific
summer rate includes the 0.681 cents/kWh associated with
power supply expenses and another 5.82 cents/kWh of non-
variable power supply expense related costs.
Is Mr. Weiss s 6.5 cents/kWh total revenue
assumption representative of true Idaho total incremental
revenues.
No.Mr. Weiss s assumption that all load
growth in the residential class occurs during the summer
season immediately skews his analysis.Year round load
growth in the residential class due to increased use of
"instant start" televisions and other electronic devices is
SAID , Di-Reb
Idaho Power Company
one example of why Mr. Weiss s assumption is poor.A more
reasonable approach that recognizes that growth can occur ln
any class and at any time of year would be to use the Idaho
jurisdictional average retail rate of 4.57 cents/kWh.Page
3 of Exhibi t 1 shows the computation of the average retail
rate.
Mr. Weiss concludes at line 6 on page 7 of
his testimony that incremental costs incurred by the Company
were 4.5 cents/kWh and as a result the Company would realize
2 cents/kWh of net revenue for residential customers.Is he
correct?
Based upon the 2 cents/kWh correction to Mr.
Weiss s 6.5 cents/kWh revenue assumption I described in my
previous answer , his assumed 2 cents/kWh net revenue
conclusion disappears.In addition, there is also no
revenue to cover the additional costs of distribution and
transmission that would be required to serve the additional
loads.
At line 23 on page 8 of his testimony, Mr.
Weiss states in that incremental fixed costs are "certainly
less than embedded fixed costs.Do you agree wi th Mr.
Weiss s statement?
No.In its discovery in this case, the NW
Energy Coalition requested information regarding the
incremental fixed costs of serving new loads in recent
SAID, Di-Reb
Idaho Power Company
years.Under my supervision, data from the last two general
rate cases was evaluated to determine the incremental fixed
costs of serving new loads between the 2003 test year and
the 2005 test year.Exhibit 3 contains the data utilized to
create the Company s response.Detail of embedded and
marginal costs by customer class , including separation of
distribution, transmission and generation fixed costs is
inc 1 uded in Exhibi t 3.Page 1 of Exhibit 3 shows fixed rate
components by class for the 2003 test year.For example,
the transmission fixed costs for the residential class in
2003 were $4.26/MWh. Page 2 of Exhibit 3 shows fixed rate
components by class for the 2005 test year.The comparable
transmission fixed costs for the residential class in 2005
were $5.06 /MWh.Page 3 of Exhibit 3 shows the incremental
fixed costs by class that occurred between rate cases.
What is the most important information
contained in Exhibit 3 for purposes of this case?
Wi tnesses in this case suggest that the
Company always benefits from load growth.This suggestion
is incorrect.
Wi th the exception of the irrigation class,
the incremental fixed costs of serving new loads for every
component (distribution , transmission and generation)
between the 2003 test year and the 2005 test year were
higher than the embedded fixed costs of serving customers.
SAID, Di-Reb
Idaho Power Company
Mr. Weiss s statement that incremental fixed costs are
certainly less than embedded fixed costs is not supported by
any evidence and is certainly contradicted by Exhibit
The Company currently incurs greater expenses due to load
growth than it receives from load growth.Including
addi tional penal ties for load growth in the PCA methodology
is unwarranted.
Mr. Weiss recommends that the load growth
adjustment rate be increased by $10/MWh to provide the
Company with a clear incentive to encourage conservation.
Please comment on this recommendation.
Mr. Weiss suggests that the Company s ability
to recover its power supply expenses should be limited as a
means to encourage the Company to promote conservation
measures.Likewise, Mr. Hessing suggests that the Company
proposal to allow for recovery of prudently incurred power
supply expenses associated with load growth creates a
disincentive to DSM acti vi ty.
Currently, a separate case, IPC-04-15,
exists to address methods for removal of disincentives to
DSM acti vi ty.Creation of a PCA load growth penalty is not
a means of removing disincentives to DSM activi ty.Rather
it is an anti-growth position that penalizes the Company for
growth trends that are beyond its control such as
immigra tion to Idaho.DSM programs identified in the
SAID, Di-Reb
Idaho Power Company
Company s resource plan are not designed with the intent to
consistently eliminate load growth.Instead, the Company
DSM programs are intended to reshape or reduce consumption
in a cost-effective manner.The recommendations of Mr.
Weiss and Mr. Hessing to adopt an anti-load growth view are
counter to productive removal of disincentives to DSM
activity.
Are there any other concerns you have wi
Mr. Hessing s proposal?
I believe that Mr. Hessing s recommendation
of a $40.87 /MWh load growth adjustment rate might create a
perverse impact from a conservation perspective.As an
example , assume that all load growth occurs within the Large
Power Service class.(In light of current state and local
efforts to bring new businesses to Idaho, that is not a
completely spurious assumption) .The average Idaho Large
Power Service customer pays $30. 90/MWh.For such a
customer , consumption of each additional megawatt-hour costs
$30.90 but results in a PCA credit of $40.78, part of which
flows back to the Large Power Service customer.The impact
is that the more energy the customer uses, the lower the
cost per megawatt-hour.I believe that a customer s ability
to decrease its rates by increasing consumption is not an
effective means to promote conservation.A more effective
conservation approach would be to let all customers
SAID, Di-Reb
Idaho Power Company
experience the true cost of variable power supply costs so
that they will take measures to avoid consumption during
periods of high price.Artificially lowering the price to
customers does not send appropriate price signals to promote
conservation by those customers.Creating PCA credits that
are greater than the embedded cost of variable power supply
artificially and unfairly lowers the price customers pay.
Creating PCA credits that are greater than the total rate
that a customer pays creates an incentive to customers to
consume more in order to reduce per unit costs.
Please summarize your rebuttal testimony.
All parties agree that a principal purpose of
the PCA load growth adjustment rate is to eliminate the
potential for double recovery of power supply expenses.
Idaho Power believes this should be the sole purpose of the
load growth adjustment rate.
Mr. Hessing believes that the Company should
not be allowed to recover any power supply expenses
associated with load growth based upon his contention that
the Company has such recovery opportuni ties in other
ra temaking proceedings.I have demonstrated that this is a
false assumption.
Mr. Reading believes that the Company should
not be allowed to recover any power supply expenses
associated with load growth based upon his contention that
SAID, Di-Reb
Idaho Power Company
such costs cannot be adequately reviewed for prudency within
PCA timeframes. I have pointed out that power supply costs
associated with load growth are no different from other
power supply expenses which have been adequately reviewed
wi thin PCA timeframes since inception of the PCA.
Mr. weiss recommends a major modification to
the PCA methodology that I have shown to be inappropriate.
In the name of conservation , Mr. Hessing and
Mr. Weiss have recommended adoption of a load growth
adjustment rate that is greater than embedded costs and for
some classes, greater than their total rate.I have
indicated that I believe their proposal is more in the veln
of a penalty imposed on Idaho Power for things beyond Idaho
Power s control, including its service areas growing
population. Their proposal suggests a puni tive approach
rather than a true conservation effort.
Mr. Hessing and Mr. Reading have recommended
new methods for determining marginal costs of supplying
power based upon inclusion of marginal purchased power costs
and marginal surplus sales revenues rather than looking at
the marginal cost of Company-owned resources as was done by
the Commission in Case No. IPC-92-25.I have discussed
the inappropriate impacts of such a change in methodology.
Do you have any additional comments in light
of the testimonies of Mr. Hessing, Dr. Reading and Mr.
SAID, Di-Reb
Idaho Power Company
Weiss.
Yes.Setting the PCA load growth adjustment
at a level that is greater than the embedded variable power
supply component of base rates has precluded the Company
from recovering a portion of its prudently incurred power
supply expenses.While the Company seeks to remove such
non-recovery on a forward-going basis, the potential changes
in the magnitude of the PCA load growth adjustment rate as
proposed by Mr. Hessing and Dr. Reading significantly reduce
the value of the PCA to the Company and its customers.
Penalizing Idaho Power for load growth that is beyond the
Company s control is not good regulatory policy nor is it
beneficial to Idaho residents.Idaho Power is pursuing
cost-effective DSM in accordance with its Integrated
Resource Plan and the Orders of this Commission.
reali ty, including anti-growth posi tioning wi thin the PCA
will do nothing more than force the Company to file more
frequent rate cases.
Are annual general rate cases the answer to
this problem?
No.So long as historic test years are used,
even annual rate cases will not allow the Company to recover
its addi tional variable costs attributable to load growth.
Please recap the Company s recommendations
regarding the appropriate load growth adjustment rate.
SAID, Di-Reb
Idaho Power Company
The PCA process provides the only opportunity
for the Company to recover variations in its variable power
supply expenses between rate cases, whether incurred to
serve existing loads or new loads.As such, the PCA load
growth adjustment rate should only eliminate the potential
for double recovery of variable power supply expenses.The
appropriate load growth adjustment rate based upon these
cri teria is $6. 81/MWh which is the embedded variable power
supply rate.
If the Commission finds that the PCA load
growth adjustment rate should also remove costs associated
wi th serving additional loads, Company-owned baseload
resource costs should be the predominant drivers consistent
with the current approved PCA load growth adjustment rate
methodology.As such, the load growth adjustment rate
should be no higher than $17.15 /MWh.
Does this conclude your direct rebuttal
tes timony?
Yes, it does.
SAID, Di-Reb
Idaho Power Company
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 20th day of October, 2006, I served a true and
correct copy of the within and foregoing document upon the following named parties by
the method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83720-0074
) U.S. Mail, Postage Prepaid
(X) Hand Delivered
) Facsimile
(X) Email Scottwoodbury(g)puc.idaho.qov
Peter J. Richardson
Richardson & O'Leary PLLC
515 N. 2ih Street
Boise, Idaho 83702
(X) U.S. Mail , Postage Prepaid
) Facsimile [phone]
(X) Email peter(g) richardsonandolearV.com
Don Reading
Ben Johnson Associates
6070 Hill Road
Boise, Idaho 83702
(X) U.S. Mail, Postage Prepaid
) Facsimile
(X) Email dreadinq (g) mindsprinq.com
William M. Eddie
Advocates for the West
610 SW Alder St , Suite 910
Portland , OR 97205
(X) U.S. Mail, Postage Prepaid
) Facsimile
(X) Email billeddie
(g)
rmci.net
Nancy Hirsh
NW Energy Coalition
219 First Ave South, Suite 100
Seattle, Washington 98104
(X) U.S. Mail, Postage Prepaid
) Facsimile
) Email
Lawrence A. Gollomp
Assistant General Counsel
United States Department of Energy
1000 Independence Ave., SW
Washington, DC 20585
(X) U.S. Mail , Postage Prepaid
) Facsimile
(X) Email Lawrence.qollomp(g)hq.doe.qov
Dale Swan
Exeter Associates, Inc.
5565 Sterret Place, Suite 310
Columbia, MD 21044
(X) U.S. Mail , Postage Prepaid
) Facsimile
(X) Email dswan (g) exeterassociates.com
J)Milj Barton L. Kline
DIRECT REBUTTAL TESTIMONY OF GREGORY W. SAID - Page