20060915Reading direct and exhibit.pdf

RECEIVED
200G SEP Il~ PH~: 40
IDAHO PUBLIC
UTILITIES COMMISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR
MODIFICATION OF THE LOAD GROWTH
ADJUSTMENT FACTOR WITHIN THE POWER
COST ADJUSTMENT (PCA) METHODOLOGY
) CASE NO. IPC-O6-
DIRECT TESTIMONY OF
DR. DON READING
ON BEHALF OF
THE INDUSTRIAL CUSTOMERS OF IDAHO POWER (ICIP)
SEPTEMBER 15, 2006
Reading (Di) - 1 -
ICIP
PLEASE ST ATE YOUR NAME AND BUSINESS ADDRESS.
My name is Don Reading and my business address is Ben Johnson
Associates, 6070 Hill Road, Boise, Idaho.
WHAT IS YOUR OCCUPATION?
I am a principal with Ben Johnson Associates.
HAVE YOU PREPARED AN EXHIBIT OUTLINING YOUR
QUALIFICATIONS AND BACKGROUND?
Yes. Exhibit No. 20 I serves that purpose.
ARE YOU SPONSORING ANY OTHER EXHIBITS WITH THIS
TESTIMONY?
No.
WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS
CASE NO. IPC-06-08?
I have been retained by the Industrial Customers of Idaho Power (ICIP)
to review the load growth adjustment rate used in the true-up portion of the Power Cost
Adjustment (PCA) methodology.
DR. READING, COULD YOU PLEASE GIVE AN OVERVIEW
OF THE POLICY DECISION PRESENTED IN THIS CASE FOR THE
CO MMISSI ON?
Yes. While the specific calculations and applications of the load growth
adjustment rate are complex, the policy choice for the Commission is straightforward and
easily defined. The basic question being presented to the Commission is whether the
calculation of the load growth adjustment rate should be changed from a marginal basis to
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an average basis. The complexity of the mechanism being discussed in the case can tend
to cloud this central issue. All parties agree, however, that the load growth adjustment
rate is currently based on a marginal analysis. Idaho Power is asking that this be
fundamentally changed, and is advocating that the load growth adjustment be calculated
on an average- or embedded-cost basis. Other PCA-related issues are not a part of this
docket.
SINCE THE LOAD GROWTH ADJUSTMENT IS PART OF THE
POWER COST ADJUSTMENT, COULD YOU FIRST GIVE A BRIEF HISTORY
WASHOWIDAHOPOWER'POWER COST ADJUSTMENT
ESTABLISHED?
In 1981 , the Idaho Commission approved setting power supply costs
based on multiple hydro years, or normalized conditions. See Case No. U-1006-185. It
was assumed this approach would make the Company whole in the long run. However
severe droughts followed which caused the Company to file for drought surcharges due to
deteriorated hydro conditions. The Commission found this method of dealing with
volatile hydro conditions to be undesirable, and the PCA was subsequently developed and
implemented.
In its Order implementing the PCA the Commission explained
Since we adopted the current system of normalization, Idaho Power
has requested and received two separate drought related surcharges. . . .
We find that the current system of normalizing power supply costs and
granting Idaho Power a surcharge during drought years is defective
because it is unpredictable and ratepayers do not receive any rate reduction
during high water years. . . . (WJhile ratepayers are subject to a surcharge
in poor years, they currently do not receive any reduction in rates in high
water years leading most customer groups to believe that the current
system works to their disadvantage when hydro conditions are good. The
PCA we adopt addresses this concern and will produce consumer benefit
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in the form of lower rates during years of favorable stream flows. (IPUC
Order No. 24806, Case No. IPC-92-, March 1993 , pgs. 4 5).
Thus, the PCA mechanism was established as a result of dissatisfaction on the part
of the Company s customers and the Commission itself. Its purpose was to create a
system where both Idaho Power and its customers would share in the costs and benefits of
changes in power supply costs, caused primarily by variations in stream flows, that occur
between general rate filings. The PCA looks at year-to-year changes in power supply
costs caused primarily by changing water conditions. It is first set on a forward looking
basis, then trued up after loads and power costs are known.
BY ESTABLISHING A PCA BASED ON ANNUAL CHANGES IN
STREAM FLOWS, AND HENCE POWER SUPPLY COSTS, WAS THE
COMMISSION ABANDONING THE APPROACH IT TOOK IN 1981 OF
NORMALIZING POWER SUPPLY COSTS BASED ON MULTIPLE HYDRO
YEARS?
No. The Commission stated expressly that it viewed the normalization
procedure (basing power supply costs on multiple hydro years) as a valuable tool in
setting rates in a general rate case. The PCA mechanism, on the other hand, is a limited
exception to the usual reliance on normalization procedure. In adopting the PCA, the
Commission explained the limited departure from the multi-year normalization procedure
that the PCA represents. The Commission stated
We find, therefore, that it is in the best interests of ratepayers and
shareholders alike to adopt a PCA for Idaho Power. We emphasize
however, that our decision is limited to the unique circumstances of Idaho
Power s highly variable power supply costs. While it is difficult for a
normalization process to capture these large annual changes, we continue
to believe that normalization is a valuable ratemaking methodology for
other types of expenses and revenues. Nothing in this Order should be
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construed to the contrary. (IPUC Order No. 24806, pg. 5) (emphasis
added).
Later, in the same order, the Commission explained the PCA was not intended to
substitute for normal prudency review of costs incurred by Idaho Power to serve load
growth. The Commission explained
We recognize and support the Company s right to recover costs
associated with prudent plant additions. Our decision to not allow a PCA
mechanism to recover costs to offset legitimate plant costs caused by load
growth in no way prevents the Company from recovering these costs in
traditional ratemaking proceedings. A PCA is not intended to replace the
prudency review process inherent in a general rate case. (IPUC Order No.
24806, pg.20) (emphasis added).
Thus, although the Commission believed it appropriate to allow a PCA to modify
rates based on large annual changes in power supply costs due to variability in fuel costs
(primarily hydro variations), it did not believe that the PCA should become a mechanism
through which Idaho Power could avoid traditional ratemaking review of its other costs
including costs incurred in order to serve load growth. The PCA is meant to adjust for
the change (up or down) in power supply costs each year from those set between rate
cases.
The cost of generation used to serve additional load, that is, load in addition to the
load accounted for in the PCA year, is different from the cost of generation established in
a general rate case. It thus represents a different type of cost than that for which the PCA
was intended to provide automatic recovery in rates.
COULD YOU EXPLAIN BRIEFLY WHAT FUNCTION THE
LOAD GROWTH ADJUSTMENT SERVES IN THE PCA MECHANISM?
Reading (Di)
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A. The load growth adjustment was implemented by the Commission to prevent the
Company from double-recovering certain costs under the PCA. (IPUC Order No. 24806).
The load growth adjustment factor is used to adjust for power supply costs that the
Company has already recovered from customers through their rates.Although new
customers (or other new loads) add to Idaho Power s power supply costs over and above
those established through rate case normalization procedures, these new customers (or
other increased loads) pay Idaho Power s rates for the power they receive. Allowing the
Company to automatically recover in the PCA the full costs of serving new load would
therefore result in an over-recovery by the Company. In other words, ifthe PCA were not
adjusted to take into account the revenues the Company receives from new customers or
increased load, the Company would again receive them automatically in the PCA as
higher power supply costs.
Additionally, since this load growth is on the margin, Idaho Power incurs marginal
power generation costs to serve the load. The load growth adjustment also serves the
purpose of preventing the Company from automatically recovering the marginal costs of
serving new load. As stated above, the marginal costs of serving new load are properly
subjected to prudency review in general rate proceedings.
HOW DOES THE PCA ADJUST FOR THE POTENTIAL OVER-
RECOVERY OF POWER SUPPLY COSTS?
Each year the PCA surcharge is established based on normalized
Company loads and forecast stream flow conditions that are a significant driver of power
supply costs. Because these are simply projections, actual power supply costs for the year
will differ from the forecast. The difference between actual and projected power supply
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costs are 'trued-up,' and then become part of the coming year s PCA rate. During the
true-up step, the load growth adjustment rate is multiplied by the difference between
actual MWh sales and those used as base loads in the PCA original calculation. This
amount is then subtracted from the costs that are to be recovered by the PCA surcharge.
When the Company s loads are growing, the load growth adjustment results in a
reduction of the PCA surcharge. This prevents the PCA from recovering an amount that
would represent a double-recovery of the revenues it receives from new loads, and from
collecting an amount that would automatically compensate the Company for the marginal
costs it incurs to meet new loads. If the Company s loads decrease between the time the
PCA is established and the time of the true-up, the load growth adjustment would
increase the PCA rate.
WASTHISCOMPLEXADJUSTMENTTHAT
IMPLEMENTED BY THE COMMISSION IN ESTABLISHING THE PCA
SURCHARGE. COULD YOU GIVE AN EXAMPLE TO HELP CLARIFY YOUR
EXPLANATION?
As stated above, the PCA is set based on assumptions of stream flow
conditions and normalized loads.If all of the assumptions that go into the PCA
calculations turned out to perfectly match actual conditions and costs, then forecasted
power supply costs and actual power supply costs would be exactly the same. However
if over the course of the PCA year the Company had experienced load growth or decline
such that actual loads differed from what was assumed in the original PCA calculation
then actual costs will not match forecasted costs. If loads have increased above forecasts
then the costs of serving those loads would have been incurred by the Company and
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power supply costs will be higher than projected. Allowing the Company to collect all of
those increased costs through the next year s PCA, however, would result in a double
recovery by the Company of significant costs because the new customers (or other
sources of increased loads) that came onto the system have already paid the Company
rates for the power they have received. Without a load growth adjustment, the extra
revenues received due to the increased load would not be accounted for, and the
Company would simply collect its increased costs, without an offset for the revenues
produced by the increased load.
Also , in addition to preventing a double-recovery by the Company of the costs
associated with new load, the load growth adjustment prevents the Company from
automatically recovering the marginal costs of serving new load.The load growth
adjustment currently removes from the PCA the marginal costs of serving new load. If it
did not remove these costs, the Company would automatically get them through the PCA
and the Commission and Idaho Power s customers would lose the opportunity to be
involved in a review ofthe prudency of those costs.
IS IT TRUE NONE OF THE PARTIES ARE REQUESTING THE
ELIMINATION OF THE LOAD GROWTH ADJUSTMENT, BUT ARE,
RATHER PRESENTING DIFFERING METHODS OF HOW IT SHOULD BE
DETERMINED?
Yes.As stated above, the issue before the Commission in this
proceeding is simply whether the load growth adjustment should be calculated based on
the marginal costs of serving new load, or whether it should be calculated based on the
embedded cost of serving load. Throughout the history of the PCA, the load growth
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adjustment has been based on marginal costs of serving new load. However, Idaho Power
is now advocating that it should be based on embedded costs.
WHAT ARE SOME OF THE REASONS THE IDAHO
COMMISSION RELIED ON WHEN IT ORIGINALLY ADOPTED THE USE OF
MARGINAL COSTS RATHER THAN AVERAGE COSTS IN DETERMINING
THE LOAD GROWTH ADJUSTMENT?
In its Order establishing the PCA mechanism for Idaho Power, the
Commission agreed with the Commission Staff's recommendation that the load growth
adjustment method be based on marginal costs. The Commission stated
We find that the net power supply costs associated with serving
differences in load between normal and actual should be removed from the
PCA. We adopt the method proposed by the Staff for making this
adjustment; it was the only method proposed. We agree with Staff that
Idaho Power s proposal unduly broadens the scope of this proceeding,
which is simply to devise a mechanism for the recovery of power supply
costs that include the sum of fuel costs, non-firm energy purchases and
CSPP costs less revenues from non-firm energy sales and FMC secondary
sales. Idaho Power s proposed PCA allows it to double recover fuel costs
associated with load growth which, essentially, offsets the cost of
constructing additional plant. (IPUC Order No. 24806, p 20).
IN HIS TESTIMONY IN THIS CASE, COMPANY WITNESS MR.
SAID IMPLIES THAT THE COMPANY NEVER WEIGHED IN ON WHETHER
THE LOAD GROWTH ADJUSTMENT SHOULD BE BASED ON THE
MARGINAL OR EMBEDDED COSTS OF SERVING GROWTH.DO YOU
BELIEVE THAT THE COMMISSION FAILED TO CONSIDER WHETHER
THE LOAD GROWTH ADJUSTMENT SHOULD IN FACT BE BASED ON
EMBEDDED COSTS RATHER THAN MARGINAL?
No. The full Question and Answer you refer to by Mr. Said is:
Reading (Di)
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Q. In the original PCA case, did the Company state a position
regarding the appropriateness of the Staff proposed load growth
adjustment rate?
A. No. At the time the PCA was created, the 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. (Direct Testimony of Said, IPC-
06-p. 11).
However an examination of the record in the original PCA case, as pointed out
below, shows that the Commission had an ample opportunity to consider, and decide, on
the record that the load growth adjustment should not be based upon embedded average
costs. In the original PCA Case the Commission agreed with the marginal approach
proposed by Staff. In the current docket the Commission is being asked to re-decide the
same issue again. The Commission agreed with its Staff in the original PCA proceeding
by ruling that the load growth adjustment should be based on the marginal costs of
serving new load. The Commission rejected Idaho Power s proposed approach. It
refused to allow the Company to automatically collect the costs it incurs in serving load
growth.
In surrebuttal testimony in the case establishing the PCA (IPC-92-25), Staff
witness Mr. Hessing responded to an example presented by the Company witness Mr.
Said of the types of costs Idaho Power incurs in serving load growth. In that example the
Company assumed to serve a base load of 100 000 MWh at a cost of $300 000, or $3 per
MWh. The Company went on to assume that an increase in load of 10 000 MWh would
cost an additional $30 000, meaning the costs for serving new customers would remain at
$3 per MWh. (Said Rebuttal Testimony, IPC-92-, p. 19). Staff witness Hessing
answered this Company example by stating,
Reading (Di)
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Although his example is technically possible it is far from normal. It
requires that the Company s resources be operated in an uneconomic
manner. The example assumes that 10 000 MWh of additional energy can
be supplied in a given situation for the same average cost as the initial
100 000 MWh. Since load growth is served from the marginal resource it
will be served at a higher incremental cost than average cost. Thus Mr.
Said's example which demonstrates a $3 MWh additional and a $3 per
MWh incremental cost is at best an anomaly. (Hessing Surrebuttal, IPC-
92-, p. 5).
Thus, Staff made clear its position that Idaho Power incurs higher marginal costs in
order to serve load growth and that the load growth adjustment should be based on those
marginal costs.
Additionally, the record shows that Idaho Power advocated for a PCA that would
allow it to automatically collect the marginal costs it incurs in serving new loads. In his
Rebuttal Testimony, Idaho Power witness Gail argued that Staff failed to include in the
PCA a host of other factors that contribute to the costs of serving new load other than fuel
costs.
With increasing economic prosperity comes increasing employment
and increasing population. Load growth associated with increasing
population causes other costs than just variable energy costs. Load growth
of this type means new services, line extensions, meters, meter reading,
customer service activity, contract construction, and other miscellaneous
costs which vary with additional customers. Witness Hessing fails to
consider these other incremental costs in his analysis and his
recommendation to exclude the power supply expenses associated with
load growth from the PCA. (Gail Rebuttal, IPC-92-, p. 14).
Thus, as demonstrated by the above quotes, Idaho Power was advocating for a PCA
that allowed it to automatically recover the costs of serving new load. Commission Staff
on the other hand, argued that the marginal costs of serving new load should be removed
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from the PCA, and that those costs were more appropriately part of a general rate
proceeding.
After reviewing the positions of both the Commission Staff and the Company, this
Commission accepted the marginal approach proposed by its staff. The Commission
explained in its order adopting the PCA
Our decision to not allow a PCA mechanism to recover costs to
offset legitimate plant costs caused by load growth in no way prevents the
Company from recovering these costs in traditional ratemaking
proceedings. A PCA is not intended to replace the prudency review
process inherent in a general rate case. (IPUC Order 24806
, pg.
emphasis added).
RECORD AND PARTIES'HAVE YOU REVIEWED THE
POSITIONS IN THE ORIGINAL PCA DOCKET?
Yes. I have reviewed the record and the positions taken by Idaho Power
and the Commission s Staff in the original docket.
WHAT, IF ANYTHING, HAS CHANGED SINCE THAT TIME
SUCH THAT THE COMMISSION SHOULD REVERSE ITSELF ON THIS
ISSUE?
Nothing.
WHERE DO YOU STAND ON SETTING THE LOAD GROWTH
ADJUSTMENT ON A MARGINAL OR AVERAGE BASIS?
I agree with the Idaho Commission s decision in the original PCA case
to set the load growth adjustment based on the marginal costs of serving new load. The
Company s arguments presented in this docket simply rehash an issue settled by the
Commission some time ago, when it established the PCA. The underlying reasons for
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setting the load growth adjustment based on the marginal costs of serving new load
remain sound and compelling. The Company s proposal in this proceeding to set the load
growth adjustment based on an average, embedded-cost basis would fundamentally
change the nature of the PCA.
WHY IS IT APPROPRIATE TO USE THE MARGINAL
APPROACH FOR THE LOAD GROWTH ADJUSTMENT RATE?
U sing a load growth adjustment based on the marginal cost of serving
new load is the most appropriate method to prevent the Company from automatically
recovering too much from the Company s customers under the PCA. Using a marginal
cost-based load growth adjustment allows the PCA to achieve its intended purposes, and
preserves the prudency review of other costs incurred by the Company to serve new load
growth for general rate proceedings. The Commission can best evaluate the prudency of
load growth costs in a general rate case, before they are charged to customers.
The Company claims in its Application that there is a "mismatch" caused in using
the marginal approach for the load growth adjustment because it collects costs at the
embedded rate. However, new loads are served by the marginal units in the Company
resource stack. These resources are higher cost resources and push up the power supply
costs at a greater rate than the average of all the Company s resources. This increment is
then reflected in higher power supply costs at the end of the PCA period. It is not a
mismatch, then, to use the Company s marginal fuel costs to offset these higher power
supply expenses incurred to serve load growth. Contrary to the Company s position, it is
important for the load growth adjustment to be based on marginal costs of serving new
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load, so that it can prevent the Company s automatic recouping of those marginal costs
without the appropriate prudence review.
The Commission established the PCA to account only for annual changes in power
costs, caused primarily by stream flow variations. The Commission has clearly stated
however, that other costs that may be associated with serving additional load should be
adjudicated in a general rate case and not through the PCA mechanism. I agree with the
Commission s original position on this issue. The PCA should not become a mechanism
through which Idaho Power can automatically recover the costs it incurs in serving new
growth. Those costs should be reviewed in a general rate proceeding.
ARE THERE ANY OTHER PROBLEMS RAISED
ALLOWING THE PCA TO BE USED BY IDAHO POWER TO RECOVER
COSTS ASSOCIATED WITH LOAD GROWTH?
Yes. The PCA moves on a very fast track. It is typically filed in late
April or early May, with an effective date of June I st. There is not enough time to do a
thorough prudency review in that short of a time. We would, in effect, have to turn each
PCA into a general rate case, which would defeat the purpose of a PCA.
WHAT IS THE CURRENT LOAD GROWTH ADJUSTMENT
RATE?
The current load growth adjustment rate is $16.84 per MWh.
WHAT VALUE FOR THE LOAD GROWTH ADJUSTMENT
RATE ARE OTHER PARTIES TO THIS PROCEEDING PROPOSING?
A. Idaho Power is proposing that it be decreased to $6.81 per MWh. In the last
general rate case that was fully presented to the Commission (IPC-03-13), Commission
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Staff advocated that it should be raised to $29.41 per MWh. The Staffs position has
likely changed to reflect higher current marginal costs of serving new load.
WHAT VALUE OF LOAD GROWTH ADJUSTMENT ARE YOU
ADVOCATING?
As stated above, I believe the marginal approach, which is consistent
with the Commission s orders, is the correct method to use. Staff, in its calculation, uses
the AURORA power supply model and increases loads 10MWa for each hour of the year
and then compares that to fuel costs for the base amount and finds the incremental fuel
costs. I do not have the AURORA model available and cannot verify its algorithms or
input assumptions. However, there are several proxies that can be found that indicate
marginal fuel costs for Idaho Power.
COULD YOU PLEASE OUTLINE THOSE PROXY MEASURES
THAT COULD BE USED AS ESTIMATES FOR MARGINAL FUEL COSTS FOR
IDAHO POWER?
There are three that come immediately to mind. First, one could use the
marginal cost study that the Company uses in general rate cases for rate design, which
finds marginal fuel costs. Second, the AURORA model is used to calculate PURP A rates
paid to Qualifying Facilities (QFs). The energy portion ofthe current PURP A rate can be
used because it represents marginal fuel costs for the Company. Third, the Company
fuel costs of the Company s newest resource, Bennett Mountain, could be used under the
assumption that its latest resource is its marginal unit.
Reading (Di)
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COULD YOU PROVIDE THE VALUES FOR EACH OF THESE
PROXY MEASURES OF MARGINAL OR INCREMENTAL FUEL COSTS FOR
IDAHO POWER?
The Company provided its 2005 Marginal Cost Study in Case IPC-05-
28 (Brilz workpapers). On Schedule I of that study the Company lists "Marginal Energy
Cost at Service Level: Power Supply" with an annual value of $40.96 per MWh.
According to the text of the document, the Company s marginal cost analysis follows the
concept and design from the National Economic Research Association (NERA) with
input values primarily from their 2004 IRP.
The energy portion ofthe current QF rates were set in IPC-04-25. The adjustable
portion of that rate for Idaho Power was set at $36.42 per MWh. This value is derived by
using the cost of a surrogate avoided plant - in this case a gas combined cycle combustion
turbine. The Commission has found this type of plant to be the Company s avoided
resource. Therefore its fuel costs are a reasonable proxy for marginal fuel for the
Company.
F or costs of Bennett Mountain, the Commission could refer to page 403 of Idaho
Power s 2005 FERC Form I , which lists the costs and output for its Bennett Mountain
plant over the course of2005. Line 12 shows generation from the facility of 56 222 000
Kwh and line 20 lists the fuel expense at $2 744 349. Dividing output by fuel expense
yields 4.881 cents per Kwh or $48.81 per MWh. Since Bennett Mountain is the last
resource brought on line by Idaho Power, it is its marginal unit and its fuel costs are the
Company s marginal fuel cost.
Reading (Di)
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Marginal fuel costs found for these three proxies are relatively close and range
from $36.42 to $48.81 per MWh. They are, of course, very different from the $6.
advocated by the Company based on an embedded approach. What is clear is that the
Company s marginal fuel costs to serve new load centers around $40 per MWh. Without
the use of the AURORA model, I would recommend the use of the Company s latest
marginal cost study that yields $40.96 per MWh as the value to be used for the load
growth adjustment. It is based on an accepted marginal cost methodology and adjusts for
line losses. Any of the proxies or the results of the AURORA model would be
acceptable. The important decision is that a marginal approach be used for estimating the
value of the load growth adjustment.
YOU STATED ABOVE THAT THE COMMISSION'S STAFF HAS
CALCULATED THE LOAD GROWTH ADJUSTMENT BY RUNNING AURORA
WITH A LOAD INCREASE OF 10 AVERAGE MW FOR EVERY HOUR. DO
YOU KNOW WHAT THIS APPROACH YIELDS?
The Commission Staff asked Idaho Power to perform an AURORA
model run with the same 10 aMW load increase. (Response to Request No., First
Production Request of Staff). The results indicate power supply costs $3 578 900 higher
than the base amount filed in the Company s last rate case (IPC-05-, Exhibit 20).
This means the marginal cost of power supply for the Company is $40.86 per MWh.
(3578900/87600). This value is essentially the same level as that found in the Company
marginal cost study that I recommended to use as the load growth adjustment above.
Reading (Di)
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VISTA ALSO HAS A POWER COST ADJUSTMENT
MECHANISM. DO YOU KNOW IF THEY USE A LOAD GROWTH
ADJUSTMENT, AND IF IT IS SET ON A MARGINAL ENERGY COST BASIS?
The Commission does use the marginal cost of generation in adjusting for
load growth in Avista s power cost adjustment. According to page 46 of the
Commission s Order No. 29602 in Case No. A VU-04-, the current level is $36.
dollars per MWh.
DO YOU HAVE ANY ADDITIONAL COMMENTS FOR THE
COMMISSION THAT DEAL WITH THE LOAD GROWTH ADJUSTMENT?
Yes. The load growth adjustment is a "two-edged sword.That is
when loads are growing, the adjustment reduces the level of the PCA surcharge.
Conversely, when loads decrease, the load growth adjustment will increase the PCA rate
over what it would otherwise be. The load growth adjustment is comprised of two
components: 1) the estimate of fuel value, and 2) the change in loads. The Company is
advocating a significant lowering of the value of the load growth adjustment. Should the
Company embark on an aggressive conservation program it potentially could reduce load
growth. In that case a high load growth adjustment value would tend to increase the PCA
surcharge and allow the Company to charge higher rates. At a minimum, load growth
could be moderated and the impact of the load growth adjustment would be lessened.
This fact logically fits with the marginal approach originally approved by the
Commission. To the extent that the Company can avoid using its higher cost units, the
greater the savings in power supply costs, and therefore a smaller offset is needed.
Reading (Di)
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DOES THIS CONCLUDE YOUR TESTIMONY?
Yes, it does.
Reading (Di)
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Present position
Education
Professional
and business
history
Don C. Reacting Exhibit No. 201
IPC - E-O6-
ICIP
Don C. Reading
Consulting Economist with 8en Johnson Associates, Inc.
, Economics - Utah State University
, Economics - University of Oregon
Ph., Economics - Utah State University
Idaho Public Utilities Commission:
1981-86 Economist/Director of Policy and Administration
Teaching:
1980-81 Associate Professor, University of Hawaii-Hilo
1970-80 Associate and Assistant Professor, Idaho State University
1968-70 Assistant Professor, Middle Tennessee State University
Dr. Reading provides expert testimony concerning economic and
regulatory issues. He has testified on more than 25 occasions before
utility regulatory commissions in Alaska, California, Colorado, the District
of Columbia, Idaho , Nevada, Texas, Utah , and Washington.
His areas of expertise include demand forecasting, long-range planning,
price elasticity, marginal pricing, production-simulation modeling, and
econometric modeling. He has also provided expert testimony in cases
concerning loss of income resulting from wrongful death, injury, or
employment discrimination.
Dr. Reading has more than 30 years experience in the field of economics.
He has participated in the development of indices reflecting economic
trends, GNP growth rates, foreign exchange markets, the money supply,
stockmarket levels, and inflation. He has analyzed such public policy
issues as the minimum wage, federal spending and taxation, and
import/export balances. Dr. Reading is one of four economists providing
yearly forecasts of statewide personal income to the State of Idaho for
purposes of establishing state personal income tax rates.
Dr. Reading s areas of expertise in the field of energy include demand
forecasting, long-range planning, price elasticity, marginal and average
cost pricing, production-simulation modeling, and econometric modeling.
Among his recent cases was an electric rate design analysis for the
Industrial Customers of Idaho Power.
While at Idaho State University, Dr. Reading performed demographic
studies using a cohort/survival model and several economic impact
Don C. Reacting Exhibit No. 201
IPC - E-O6-
ICIP
studies using input/output analysis. He has also provided expert
testimony in cases concerning loss of income resulting from wrongful
death, injury, or employment discrimination.
Among Dr. Reading s current projects are a FERC hydropower
relicensing study (for the Skokomish Indian Tribe) and an analysis of
Northern States Power s North Dakota rate design proposals affecting
large industrial customers (for J.R. Simplot Company). Dr. Reading has
also recently completed an analysis for the Idaho Governor s Office of the
impact on the Northwest Power Grid of various plans to increase salmon
runs in the Columbia River Basin.
Publications
The Economic Impact of Steel head Fishing and the Return of Salmon
Fishing in Idaho, Idaho Fish and Wildlife Foundation, September, 1997.
Cost Savings from Nuclear Regulatory Reform, Southern Economic
Journal , March , 1997, with R. Canterbery and B. Johnson.
A Visitor Analysis for a Birds of Prey Public Attraction, Peregrine Fund
Inc., November, 1988.
Investigation of a Capitalization Rate for Idaho Hydroelectric Projects
Idaho State Tax Commission , June , 1988.
Post-PURPA Views " In Proceedings of the NARUC Biennial Regulatory
Conference, 1983.
An Input-Output Analysis of the Impact from Proposed Mining in the
Challis Area (with R. Davies). Public Policy Research Center, Idaho State
University, February 1980.
Phosphate and Southeast: A Socio Economic Analysis (with J. Eyre, et
al). Government Research Institute of Idaho State University and the
Southeast Idaho Council of Governments, August 1975.
Estimating General Fund Revenues of the State of Idaho (with S.
Ghazanfar and D. Holley). Center for Business and Economic Research
Boise State University, June 1975.
A Note on the Distribution of Federal Expenditures: An Interstate
Comparison, 1933-1939 and 1961-1965." In The American Economist
Vol. XVIII , No.2 (Fall 1974), pp. 125-128.
New Deal Activity and the States , 1933-1939." In Journal of Economic
History, Vol. XXXIII (December 1973), pp. 792-810.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 14th day of September, 2006, a true and correct copy
of the DIRECT TESTIMONY OF DR. DON READING ON BEHALF OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER was served as noted to:
Jean Jewell
Idaho Public Utilities Commission
472 West Washington Street
Post Office Box 83720
Boise, Idaho 83720-0074
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Barton L. Kline
Monica B. Moen
Idaho Power Company
PO Box 70
Boise, Idaho 83707
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Gregory W. Said
Director, Revenue Requirement
Idaho Power Company
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Boise, ID 83707-0070
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Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
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William M. Eddie
Advocates for the West
PO Box 1612
Boise, ID 83701
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Nancy Hirsh
NW Energy Coalition
219 First Ave South, Suite 100
Seattle, W A 98104
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Lawrence A. Gollomp
Assistant General Counsel
United States Department of Energy
1000 Independence Ave., SW
Washington, DC 20585
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Dale Swan
Exeter Associates, Inc.
5565 Sterret Place, Suite 310
Columbia, MD 21044
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Signed:~!I,
R. Thompson