20070611L Keen Direct.pdf

, ' - ~: ,~." '::
roo
::- :, ~;' ,,
' I
: ::,
i I:
. '' '; .:, ..: :
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC SERVICE
TO ELECTRIC CUSTOMERS IN THE STATEOF IDAHO.
CASE NO. IPC-O7-
IDAHO POWER COMPANY
DIRECT TESTIMONY
J. LAMONT KEEN
Please state your name and business address.
My name is J. LaMont Keen and my business
address is 1221 West Idaho Street, Boise, Idaho 83702.
What is your position at Idaho Power Company?
I am the President and Chief Executive
Officer of Idaho Power Company.
What is your educational background?
I graduated magna cum laude in 1974 from the
College of Idaho in Caldwell , Idaho now called Albertson
College of Idaho, receiving a Bachelor of Business
Administration Degree in Accounting.In 1994, I completed
the Advanced Management Program at the Harvard Graduate
School of Business.I have also attended many utility
management-training programs, including the Stone & Webster
Utili ty Management Development Program , the University of
Idaho Public Utilities Executive I s Course and the Edison
Electric Institute Executive Leadership Program.
please outline your business experience.
I have worked in the electric utility
industry at Idaho Power Company for over 33 years, the last
19 years as an officer of the Company.I joined the Company
in 1974 and advanced through several accounting, analyst and
management positions.In July 1988 I was promoted to
Controller.In November 1991 I was appointed vice President
of Finance and Chief Financial Officer and served in that
LAMONT KEEN, DI
Idaho Power Company
capacity until March of 1999 when I was also given
responsibili ty for all of the administrative areas of the
Company as Senior Vice President of Administration and Chief
Financial Officer.In March of 2002, I was appointed
President and Chief Operating Officer where I had
responsibility for the Company s operating units.In July
of 2004 I was elected to the Board of Directors of IDACORP
Inc. and Idaho Power Company and on November 17 , 2005 was
appointed President and Chief Executive Officer of Idaho
Power Company.On July 1 , 2006 I also became President and
Chief Executive Officer of IDACORP in addition to my duties
wi th Idaho Power Company. I am also a Board Member of the
Edison Electric Institute and a Board Member and Chairman
Elect of the Western Energy Insti tute.
What are your duties as President and Chief
Executive Officer of Idaho Power Company?
I am responsible for policy and strategic
oversight of all utility operations including power supply,
delivery, administration and finance, as well as legal and
compliance acti vi ties.
What is the purpose of your testimony in this
proceeding?
My purpose is to provide the Idaho Public
utili ties Commission (Commission) wi th a general overview of
Idaho Power s operating and financial status and to urge
LAMONT KEEN, DI
Idaho Power Company
that the Commission utilize a forecast test year in this
proceeding to determine Idaho Power s revenue requirement.
Please comment on customer growth and the
need for investment in the Company s system.
Idaho Power added more than 31,000 new
customers in the past two calendar years, and the Company
continues to experience significant customer growth in 2007
although at a somewhat slower pace.While fluctuations over
time in customer growth and consumption are reasonable to
expect for planning purposes the Company estimates growth
to average 2 percent annually over the next 20 years.Last
summer the Company exceeded its previous record peak load of
963 megawatts many times before setting a new all-time
system peak of 3,084 megawatts on July 24.This clearly
shows that the Company must continue its efforts to find
new, reliable and environmentally responsible sources of
energy.Serving these new customers requires infrastructure
expendi tures to connect and meet their electric energy needs
as well as more employees, vehicles and other resources to
operate and maintain the new facili ties and systems.
Addi tional investment is also required to
serve the Company s existing customers as well. The Company
must make investments in, and is experiencing rising costs
associated with, preserving the Company s existing power
plants and transmission and distribution infrastructure.
LAMONT KEEN, DI
Idaho Power Company
Looking at the near-term future, investment over the next
several years will be substantial.
What are the Company s plans for additional
resources in the face of the load growth you have described?
The most recently acknowledged plan by the
Idaho Commission, the 2006 Integrated Resource Plan (IRP),
identifies two proj ects that carryover from the Company
2004 IRP.Those two proj ects are the expansion of the
Company s Shoshone Falls hydro plant from 12.5 MW to 62.5 MW
and a new 170 MW gas-fired power plant near Mountain Home,
Idaho.The near-term action plan calls for continued
expansion of the Company demand side management (DSM)
acti vi ties.In addition , in the near-term , the 2006 IRP
calls for 100 MW of wind, completion of the 250 MW Borah-
West transmission upgrade and 50 MW of a geothermal resource
beginning in 2009.The 2006 IRP near-term action plan also
includes initiating the McNary-Boise transmission upgrade,
continued evaluation and selection of a coal-fired resource
and assessment of Combined Heat and Power Public Utility
Regulatory Policy Act resources.
You have mentioned continued expansion of the
Company s DSM activities, would you please elaborate.
Idaho Power continues to work with the Energy
Efficiency Advisory Group which is comprised of customers,
DSM advocacy groups and Public Utili ties Commission Staff
LAMONT KEEN, DI
Idaho Power Company
representatives from Idaho and Oregon in developing demand-
side management programs.Our portfolio of energy
efficiency programs and services is extensive and includes
programs for all four of our major retail customer groups -
residential, commercial , irrigation and industrial.With
the Commission s approval this spring of both the Fixed Cost
Adjustment rate mechanism and the Demand Side Management
Incentive pilot Program , I expect the Company s energy
efficiency efforts to accelerate.
Do demands on Idaho Power s distribution
system continue to grow every year?
Yes.Idaho Power continues to meet the
considerable load and customer growth in its service area by
expanding its system and by reinvesting in existing
infrastructure.Successful management of both the expansion
and the continued maintenance and operation of the
distribution system depends upon the attentiveness and
skills of our experienced workforce.
What are some of the proj ects helping to meet
thi s growth?
During 2006 and 2007, Idaho Power will add
600 miles of new distribution lines and make a similar
investment in reconstructing existing distribution lines.
The Company will add 10 new distribution substations and
LAMONT KEEN, DI
Idaho Power Company
will improve other existing distribution substations.
These new capacity additions, while necessary
to keep pace with growth, continue to add more expensive
marginal-cost capacity to a low, inexpensive embedded-cost
These new facilities also add to the size of thesystem.
infrastructure we must operate and maintain going forward.
Has Idaho Power Company also invested in
transmission facilities since the beginning of 2006?
Idaho Power has continued to invest inYes.
backbone transmission facili ties both to serve load and to
improve service reliability.These include several
backbone transmission projects: Nampa 230/138 kV
Transformer and 230 kV Line Tap; Boise Bench 230/138 kV
Transformer Upgrade; Horseflat 230/138 kV Substation; and
Borah West upgrades. The Borah West upgrades are scheduled
for completion in May of 2007.
Are there any recent developments in the
region that would have a bearing on future levels of
transmission investment by Idaho Power?
Yes.On May 18, 2007 Idaho Power announced
the signing of a Memorandum of Understanding with
PacifiCorp under which the companies would pursue
development of new high voltage transmission lines from
Wyoming across southern Idaho.The companies anticipate
that various segments of the proj ect under consideration
LAMONT KEEN, DI
Idaho Power Company
would be completed between 2012 and 2014, and would be
designed to meet growth in customers ' demand for
electrici ty and increased electrical transmission capacity
across southern Idaho.The Memorandum of Understanding
will serve as a cornerstone for the two companies to
jointly study the development of the major transmission
proj ects necessary to meet each company s needs.
Are the geographic areas where Idaho Power
customer growth is occurring similar to the areas described
in prior rate cases?
As I have testified in priorYes.
proceedings, a significant portion of the Company s load
growth continues to occur in the Treasure Valley area.The
next 10 to 25 years will require ongoing transmission
system and substation improvements in this area.The
Treasure Valley Electric Plan Community Advisory Committee
created to assist us in addressing the area s long term
electric needs is working well.The roster of this
advisory committee includes members of the public, mayors,
planning/zoning commissioners, city planners, and business
representatives.This effort is designed to engage the
community in advising Idaho Power in the development of a
25-year blueprint for the electrical system in the Treasure
Valley.
What does the continued record growth mean to
LAMONT KEEN, DI
Idaho Power Company
the level of the Company s expenditures?
Both operation and maintenance and capital
expendi tures have increased in order to enable us to serve
our growing customer base and to reinforce our system
reliabili ty.
Does the Company proj ect that it will be
required to continue to make substantial infrastructure
investments over the next three years?
Yes.The Company s latest forecast shows
construction budgets of approximately $266 million in 2008
and $815 million for 2008 through 2010 combined.
Expendi tures of this magnitude will enable the Company to
develop new resources and sustain those the Company already
has, and to build and upgrade transmission and distribution
systems required to serve the Company s customers.
Can the Company internally generate the
necessary funds to sustain this construction plan?
No.The Company will be required to go to
the capi tal markets to obtain a significant portion of the
necessary funds.
Please describe the Company s financial
performance over the last four years.
The Company has failed to earn its authorized
rate of return over each of the last four years and it is
not likely it will earn its authorized rate of return in the
LAMONT KEEN, DI
Idaho Power Company
year 2007.
Why do you believe Idaho Power has been
unable to earn its authorized rate of return?
The Company s embedded costs to serve
existing customers are very low, partially reflecting the
age of the Company s existing generation resources and other
infrastructure.Consequently, when the Company makes
addi tional investments either to serve new customers or to
increase reliability and service to existing customers, its
incremental costs are much higher than its embedded costs.
The Company cannot absorb this cost differential, and as a
resul t , average costs unavoidably increase when the
Company s incremental costs are added to its existing or
This in turn necessitates increases in theembedded costs.
Company s prices or rates.If the Company is required to
base its prices or rates on historical costs, and is
precluded from taking into account the higher incremental
costs the Company will actually experience,the Company wi
not attain its authorized rate of return.
In your opinion , based on current conditions,
is it reasonable for the Commission to determine the rates
charged by Idaho Power Company using historical data?
No.Although I recognize that the rate of
return authorized by the Commission is not a guarantee of
any level of revenues or return Idaho Power Company is
LAMONT KEEN, DI
Idaho Power Company
entitled to a reasonable expectation that it can earn its
authorized rate of return.Use of historical data to
determine a utility s revenue requirement may be a fair and
accurate method during non-inflationary times and/or for a
utility whose incremental costs are close to its embedded
It is not fair nor reasonable to determinecosts.
utility s revenue requirement based on historical data in a
period when prices are increasing or the utili ty ' s embedded
costs are far below the utility s incremental costs.In my
opinion, the use of historical data will inadequately
demonstrate the present revenue requirement of Idaho Power
Company and use of a forecast test year to set Idaho Power
rates is not only reasonable but necessary.
If the Commission issues an order suspending
the rates requested by the Commission in this filing until
late 2007, still using 2007 test year data, will the Company
earn the return that the Commission determines is the
Company s allowed rate of return?
No.If that occurs , the rates that will
actually be in effect for the year 2008 will be based on
2007 costs.As a result, it is highly unlikely that the
Company will earn the return authorized by the Commission.
Why is timely rate relief important to Idaho
Power and its customers?
Timely rate relief is necessary to maintain
LAMONT KEEN, DI
Idaho Power Company
the credit rating agencies and the overall investment
community s confidence in Idaho Power s ability to meet its
financial obligations and earn a fair return on its
investments.This is especially important to our customers
during a period of heavy capital investment requiring
significant external funding, as the Company is experiencing
Wi thout this confidence , the overall cost of acquiringnow.
capi tal will be higher and access to needed capital may even
be limi ted.This ultimately results in higher rates for
Idaho Power cus tomers .It is also important to provide the
equi ty inves tors in Idaho Power the opportuni ty to earn a
fair return on their investment in the Company.
Does this conclude your testimony?
Yes , it does.
LAMONT KEEN, DI
Idaho Power Company