20061023Weiss rebuttal.pdf

William M. Eddie (ISB #5800)
ADVOCATES FOR THE WEST
610 SW Alder St., Suite 910
Portland, OR 97205
Ph: [phone]
Fax: [phone]
RECEIVED
2006 OCT 20 PM 5: 00
IDAI-iO F'UdtIC;
UTILITIES CONlhiJiSSIOi'4
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.
REBUTTAL TESTIMONY OF
STEVEN D. WEISS
ON BEHALF OF NW ENERGY COALITION
IPC-06-
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Steven Weiss. I am employed by the NW Energy Coalition
Coalition ), 219 First Ave. South, Suite 100, Seattle, W A 98104.
HAVE YOU TESTIFIED BEFORE IN THIS PROCEEDING?
Yes. I provided direct testimony.
WHAT IS THE SUBJECT OF YOUR REBUTTAL?
I will respond to the direct testimony of Mr. Reading (Industrial Customers of Idaho
Power, or "ICIP") and Mr. Hessing of the Commission Staff who address the
testimony of Mr. Said (Idaho Power).
WHAT ARE THE POSITIONS OF THESE PARTIES?
Mr. Reading and Mr. Hessing take similar positions in this docket: that the lmld
growth adjustment should continue to be based on the marginal cost of power. Mr.
Said, on the other hand, believes that the adjustment should be based on the
embedded cost of serving load, because to do otherwise unfairly penalizes the
Company. Mr. Reading summarizes the issue at the page 2 (line 22) through page 3
(line 1) of his direct testimony: "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 an average basis.
WHAT ARE THE UNDERLYING REASONS FOR THEIR POSITIONS?
Staff and ICIP make a strong case that the Commission s intent of the load growth
adjustment was to limit the PCA such that it allows the recovery of unpredictable
changes in power supply costs between rate cases due to variations in hydro output
Weiss, Di-Reb
NW Energy Coalition
and fuel costs incurred to serve existing loads. Their position is that the PCA-related
costs of load growth however, should be absorbed by the Company until those costs
are included in the base rates through a general rate case. To accomplish this goal
Staff and ICIP assert the load growth adjustment must be based on marginal costs, so
that the costs of load growth are completely removed from the PCA and therefore not
recovered by the Company.
Mr. Said, for Idaho Power, also makes a strong case that whatever the intent
of the original PCA, the Company should not be penalized" . . . for serving new
customer loads while at the same time the Company has an obligation to serve those
customers." (page 11 , lines 19-21) He continues that
, "
Just as the Company has no
discretion with regard to QF pricing, the Company also has no discretion not to serve
new customer loads." To accomplish this goal, he argues that the Company should
recover all (subject to 90%/10% sharing per the PCA) ofthe incremental power costs
of serving new load, so the load growth adjustment should include only the embedded
power cost in the rate.
WHAT IS YOUR VIEW OF THESE TWO POSITIONS?
I see these positions as bookends. If adopted, the Staff/ICIP proposal to set the
adjustment at today' s true marginal costs (in the range of $40IMWh) - probably
would result in Idaho Power losing money as a result of load growth, while the
Company s position-probably-would result in a windfall of revenues above actual
costs.
WHAT IS YOUR CONCERN WITH THE COMMISSION CHOOSING ONE OF
THESE TWO POSITIONS?
Weiss, Di-Reb
NW Energy Coalition
First, there is an equity concern. The mechanism should strive to be neutral and not
unjustly benefit either customers or shareholders. But the Commission is well-aware
of this issue. My second concern was the subject of my direct testimony where I
stressed that
In periodic rate cases , a review of revenue and cost levels occurs, and rates
determined such that the utility can earn that rate of return. But just as
important an element of regulation is how the rate structure, and any trackers
affects the Company between rate cases. (p. 3)
In other words, the Commission s treatment of the load growth adjustment will likely
affect the Company s attitude toward load growth-and thus its attitude toward
conservation. This concern, in my opinion, should be an important criterion for the
Commission s consideration because the Company s attitude toward conservation
should not be addressed obliquely through a complex component of an annual rate
adjuster.
IN THE QUESTION BEFORE LAST, WHY DID YOU EMPHASIZE THE WORD
PROBABL Y"
Because whether load growth benefits or harms the Company is an empirical matter
not a theoretical one, and it depends upon a number of facts. As I explained in detail
in my direct testimony, new load creates both new revenues and new costs. It is not
always readily visible whether the new revenues outweigh the new costs. The only
way that can be determined is by ascertaining the incremental costs and revenues of
the new load. And generally speaking, the incremental costs are usually different
than the amounts embedded in rates.
ARE THERE OTHER COMPLICATIONS?
Weiss, Di-Reb
NW Energy Coalition
Yes. For one thing, the incremental costs of load growth are different for new load
from an existing customer versus new load from a new customer. For example
according to Idaho Power s response to production requests in this case, the
incremental fixed costs of serving new customers added between the Company s two
most recent rate cases are much higher than the fixed costs per existing customer in
the rate cases. In the IPC-03-13 and -05-28 rate cases, the Company indicates that
total fixed costs per existing customer were about $395/customer and $422/customer
respectively. The incremental fixed costs of serving customers added to the system
between rate cases is about $791/customer, according to the Company s response.
See Exhibit 303 (Idaho Power response to production requests). The incremental
costs of serving load growth caused by a new customer are higher than the costs for
serving an existing customer due to a number of factors, including line extensions, a
new meter, etc. Second, the incremental costs are customer-specific (or at least class-
specific). Third, Idaho Power s line extension policy will also affect how much
revenue new customers provide. Finally, the incremental revenues received from
additional load may be adjusted depending upon the outcome of IPC-04-
(evaluating disincentives to conservation programs).
WHAT CAN YOU CONCLUDE FROM THESE COMPLICATIONS?
Together, these factors do not make it obvious whether any particular KWh of new
load will benefit or hurt the Company s bottom line without further analysis.
Therefore, it is not clear what the Company s incentives will be regarding load
growth of any particular customer class, or between existing and new customers.
Weiss, Di-Reb
NW Energy Coalition
WHAT PRINCIPLES , THEREFORE, DO YOU BELIEVE THE COMMISSION
SHOULD ADHERE TO IN DETERMINING THIS ISSUE?
It is the Coalition s opinion that:
(1)The Commission should not use the PCA to set conservation policy, because
IPC-04-15 case is addressing that issue precisely. In other words, the
Commission should not attempt to set the growth adjustment mechanism too
high (towards the Staffs bookend) as a substitute for a comprehensive
conservation policy.
(2)The correct policy position in this case, when taken together with the outcome
in IPC-04-, should be one where the Company is neutral toward load
growth, neither harmed nor benefited.
Following these principles would be consistent with the goal of decoupling: to
remove the incentive to promote load growth.
HOW WOULD YOU RECOMMEND THE COMMISSION PROCEED?
I would recommend a two-step process. First, the Commission should decide what
goal it is attempting to pursue in this proceeding. The Staff/ICIP position is that
power costs incurred to serve load growth should not be dealt with in the PCA at all
but should only be addressed via general rate cases. This position is certainly in line
with the original intent of the PCA. However, it has the serious unintended
consequence of failing to address the incentive or disincentive that policy would give
the Company between rate cases. With regard to Idaho Power s position, the
Commission should decide whether the Company should recover power costs
incurred to serve load growth on the same basis as it recovers power costs incurred to
Weiss, Di-Reb
NW Energy Coalition
serve system loads reviewed in the most recent rate case. These competing positions
each could potentially undermine the intent of the IPC- E-04-15 docket, by creating
incentives that decoupling should neutralize.
The third choice is one that the Coalition recommends. It is that the combined
outcome of this proceeding and IPC-04-15 should result in rate designs that, as
close as possible, make the Company neutral toward changes in load.
WHAT WOULD BE THE SECOND STEP?
Implementation. Assuming that the Commission chose the third option, above, the
Commission would require the Company to develop class-specific incremental net
revenues (net of incremental costs) received from new loads. Each class would have
at least two results: (1) net revenues due to new load from existing customers, and
(2) net revenues due to new load from new customers. In developing these numbers
the Company would have to take into account both the outcome of the decoupling
docket, and its line extension policies. These incremental net revenues would then
become the load growth adjustments the Company would use in calculating its PCA.
I provided examples of this calculation in my direct testimony. The result would be a
. mechanism that would recover neither too much nor too little revenue through the
PCA, and therefore neither benefit nor harm the Company. This, in my opinion is the
only result that would be consistent with a rate design policy of ensuring the
Company s neutrality toward changing loads and changing customer numbers.
DOES THIS CONCLUDE YOUR TESTIMONY?
Yes.
Weiss, Di-Reb
NW Energy Coalition
BARTON L. KLINE 15B #'1526
LISA D. NORDSTROM ISB #5733
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Phone: [phone]
FAX: [phone]
bkline(g) idahopower.com
mmoen lS! idahopower.com
Attorneys for Idaho Power Company
Express Mail Address
1221 West Idaho Street
Boise, Idaho 83702
j'
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
. IDAHO POWER COMPANY FOR
MODIFICATION OFTHE LOAD
GROWTH ADJUSTMENT RATE WITHIN THE POWER COST
ADJUSTMENT METHODOLOGY
CASE NO. IPC-O6-
IDAHO POWER COMPANY'
RESPONSE TO THE SECOND
PRODUCTION REQUEST OF NW
ENERGY COALITION
COMES NOW, Idaho Power Company ("Idaho Power" or "the Company") and, in
response to the Second Production Request of NW' Energy Coalition to Idaho Power
Company dated September 29, 2006, herewith submits the following information:
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION REQUEST
OF NW ENERGY COALITION - 1
EXHIBIT
~V?
Thursday, October 19, 2006 (2).max
REQUEST FOR PRODUCTION NO. 11:
Please provide actual-or in their absence, bestestimates-of the average fixed
costs per customer that the Company incurs to serve new customers for each of the three
(3) most recent years that are available. Please break down these costs by customer
class for each class that would be affected by the PCA mechanism at issue in this docket.
RESPONSE TO REQUEST FOR PRODUCTION NO. 11:
Actual fixed costs by customer class are not determined on a regular basis. The
Company s best estimate of the average fixed costs per customer would be derived by
completing a cost-of-service study. The cost-of-service study is one part of the
analyses completed in preparing for a general rate case. The information from the
cost-of-service studies for the Company s two most recent general rate cases, IPC-
03-13 and IPC-O5-, will provide the Company s "best estimate" for the fixed costs per
customer in the most recent years.
The table below shows the number of customers and the class fixed costs for
each of the last two general rate case filings. The difference between the two rate
cases would be the Company s best estimate of the average fixed costs per customer
thatthe Company incurs to serve new customers in recent years.
Residential
Customers
Class Fixed Costs
IPC-E-O3-13 IPC-E-05-28 Change
334,917 359,802 24 885
$132 442,770 $152,131 314 $19,688,544
Incremental Fixed Cost per New Customer $791.
Small Commercial
Customers
Class Fixed Costs
IPC-E-O3-13 IPC-O5-28 Change
33,618 34,310 692
$11 545 342 $13,435,685 $1 890 344
Incremental Fixed Cost per New Customer $2 731.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION REQUEST
OF NW ENERGY COALITION - 2
Thursday, October 19, 2006 (2).max
Large Commercial IPC-E-D3-13 IPC-E-OS-28 Change
Customers 213 587 374
Class Fixed Costs $45,408,759 $56,109,964 $10,701 205
Incremental Fixed Cost per New Customer $28,612.
Industrial IPC-E-O3-13 IPC-E-O5-Change
Customers 116 116
Class Fixed Costs $17.611,901 $22 696 177 $5,084 276
Incremental FIxed Cost per New Customer N/A
Irrigation IPC-E-O3-IPC-E-05-Change
Customers 14,737 15,085 348
Class Fixed Costs $52 606,270 $51 362 375 ($1 243,896)
Incremental Fixed Cost per New Customer ($3,574.41)
Total Company IPC-E-O3-13 IPC-E-O5-28 Change
Customers 400,601 426 899 26,299
Class Fixed Costs $259.615,042 $295,735,516 $36,120,473
Incremental Fixed Cost per New Customer 373.
These computations are based on net investment after customer contributions in
aid of construction.
The response to this request was prepared by Mike Youngblood, Pricing Analyst
...-.
, Idaho Power Company, in consultation with Lisa D. Nordstrom, Attorney II , Idaho
Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION REQUEST
OF NW ENERGY COALITION - 3
Thursday, October 19, 2006 (2).max
REQUEST FOR PRODUCTION NO. 12:
Please provide the same Information requested in the previous question net of any
line extension revenues. In calculating the line extension revenues per customer per
year, assume an appropriate amortization time period.
RESPONSE TO REQUEST FOR PRODUCTION NO. 12:
The question references line extension revenues which the Company believes is
a reference to customer contributions in aid of construction. Such contributions are
direct offsets to investment for ratemaking purposes. Please see Response to Request
for Production No. 11.
The response to this request was prepared by Mike Youngblood, Pricing Analyst
, Idaho Power Company, in consultation with Lisa D. Nordstrom, Attorney II, Idaho
.... "
Power Company.
DATED this /,2.day of October, 2006, at Boise, Idaho.
fl7J;~
USA D. NaRDS ROM
Attomey for Idaho Power Company
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION REQUEST
OF NW ENERGY COALITION. 4
Thursday, October 19, 2006 (2),max
CERTIFICATE OF SERVICE
I hereby certify that on this 20TH day of October 2006 , true and correct copies of
the REBUTTAL TESTIMONY OF STEVEN WEISS were delivered to the following
persons via U.S. Mail:
Commission Secretary (nine copies provided)
Idaho Public Utilities Commission
427 W. Washington St.
Boise ID 83702-5983
Bart Kline
Monica Moen
Idaho Power Company
O. Box 70
Boise ID 83707-0070
Greg Said
Idaho Power Company
O. Box 70
Boise ID 83707-0070
Lawrence A. Gollomp
Assistant General Counsel
United States Department of Energy
1000 Independence Ave., SW
Washington, DC 20585
Peter Richardson
Richardson & O'Leary
515 N. 27th St
Boise ID 83702
Dale Swan
Exeter Associates, Inc.
5565 Sterret Place, Suite 310
Columbia, MD 21044