20071210Stockton direct.pdf

BEFORE THE
2fJU7DFC. 10 pM 3- · rt: 34
IDAHO PUBLIC UTiliTIES COMMISSIQN.I. ¡OA.HOP; i lie
u I.LiTlES C' 118SI01\,
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-07-8
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE )
IN THE STATE OF IDAHO. )
)
)
)
)
DIRECT TESTIMONY OF KATHY STOCKTON
IDAHO PUBLIC UTILITIES COMMISSION
DECEMBER 10, 2007
1 Q.Please state your name and business address?
2 A.My name is Kathy Stockton. My business address
3 is 472 West Washington Street, Boise, Idaho.
4 Q.By whom are you employed and in what capacity?
5 A.I am employed as a Senior Audi tor by the Idaho
6 Public Utilities Commission.
7 Q.Please describe your educational background and
8 professional experience.
9 A.I received a Bachelor of Business Administration,
10 emphasis in Accounting, from Boise State University in
11 December 1992. Following graduation I was employed by the
12 Idaho State Tax Commission, first as a Tax Enforcement
13 Technician, then as a Tax Auditor, and finally as a Senior
14 Tax Auditor in the Fuels Tax area. I accepted employment
15 with the Idaho Public Utilities Commission Staff in July of
16 1995. I attended the National Association of Regulated
17 Utili ties Commissioners Annual Regulatory Studies program
18 at Michigan State University. I also attend meetings of
19 NARUC's Staff Subcommittee on Accounting and Finance.
20 While at the Commission I have audited a number of
21 utilities including water, electric, gas and telephone
22 utilities and provided comments and testimony in a number
23 of cases that dealt with general rates, surcharges,
24 accounting issues, and other regulatory issues. I have
25 previously presented testimony before this Commission.
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 1
STAFF
1 Q.What is the purpose of your testimony?
2 A.The purpose of my testimony is to present Staff's
3 test year, rate base, and adjustments to rate base.
4 My testimony describes the proposed calculation
5 of test year rate base and annualizing/proforma plant
6 adj ustments and explains the rationale supporting Staff's
7 position. My testimony further describes the adjustments
8 proposed by Staff as a result of this position.
9 Staff's adjustments include standard adjustments
10 for ratemaking purposes, Commission ordered adjustments,
11 and Staff adjustments for post-test year plant additions.
12 With the exception of the capitalized pension adjustment
13 presented and discussed by Staff witness English, my
14 testimony presents all the adjustments to rate base in
15 Staff's case.
16 Q.Are you sponsoring any exhibits?
17 A.Yes. I have three exhibits, numbered 103 - 105.
18 They are more fully explained in the testimony that
19 follows.
20 Q.Please summarize your testimony.
21 A.My testimony presents Staff's rate base. Staff
22 proposes an historical test year consistent with past
23 Commission orders, of July 1, 2006 through June 30, 2007
24 based on actual financial data. Staff proposes a 13-month
25 average system rate base of $1,953,800,830 after all Staff
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 2
STAFF
1 adjustments. Staff begins its rate base calculation with
2 the thirteen-month average rate base, based on historical
3 actual financial data, of $1,918,622,849. Staff proposes
4 reductions to this initial rate base calculation for
5 standard and Commission ordered adjustments of $15, 055, 6~2.
6 Staff then proposes an adjustment to rate base to reflect
7 the adj ustment associated with capitalized pension expense
8 of $5,833,205. Staff witness English further discusses
9 this adjustment. Finally, Staff proposed to add
10 $55,328,321 to rate base to reflect annualized and
11 proformed plant in service additions. In an effort to
12 reduce regulatory lag on critical infrastructure, Staff's
13 additions to rate base in this case go beyond Staff's
14 proposals in prior Idaho Power rate cases.
15 Test Year
16 Q.What is the test year and why is it so important?
17 A.The test year is the period in which expenses are
18 compared to revenues. The test year is a twelve-month
19 period used for measuring costs, loads and revenues. It
20 can be any 12 -month period. Typically, an historical
21 calendar year is used; in this case the Company is using a
22 future or forecast test year.
23 Q.What are the advantages of using an historical
24 test year?
25 A.An historical test year utilizes the actual
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 3
STAFF
1 experience of the utility for an actual period. The test
2 year incorporates the actual facilities incorporated in the
3 plant in service, the actual costs, and the actual
4 revenues. When an historical test year is used, there are
5 usually proforma adjustments - known and measurable changes
6 for things like new facilities or proj ects that are known
7 to come online after the test year, and the amount of cost
8 for the new facilities or projects is measurable; also
9 known and measurable increased fuel and labor costs may be
10 added.
11 Q.Are there other adjustments to the historical
12 test year?
13 A.Yes. The test year data may be adjusted for
14 things like weather. This type of adjustment is known as
15 "normalization." Normalization is a restating adjustment
16 taking out non-representative data, most often used for
17 adj usting for unusual weather.
18 Another type of adjustment typically made to the
19 test year is an annualizing adjustment. For instance, if
20 major plant refurbishment takes place during the test year,
21 and this refurbishment increases the amount of power that
22 can be produced or decreases the amount of operation and
23 maintenance expenses, an adj ustment is made to include the
24 investment in rate base and reflect the increase in power
25 production or decrease in expenses as if the plant
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 4
STAFF
1 refurbishment were in effect for the entire test year.
2 Q.What is the basis for a forecast test year?
3 A.The forecast test year goes beyond what is
4 currently "known and measurable" and attempts to predict
5 the future including plant facilities and expenses. The
6 forecast test year attempts to estimate the economic
7 environment in which the utility will operate when the
8 rates are in place.
9 Q.Are there advantages of using an historical test
10 year?
11 A.Yes. The biggest advantage in using an
12 historical test year is that actual expenditures can be
13 audited and evaluated to determine if they are reasonable.
14 Q.What type of test year is Staff proposing?
15 A.Staff is proposing to use an historical test
16 year.
17 Q.How does this differ from the test year proposed
18 by the Company?
19 A.The Company is proposing to use calendar year
20 2007 as its test year, using a forecast methodology.
21 Q.Has the Commission expressed a preference for an
22 historical test year?
23 A.Yes, most recently, in Order No. 30342, Case No.
24 SWS-W-06-01, the Commission stated,
25 As this Commission has previously expressed,
our policy when setting utility rates is to
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 5
STAFF
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utilize an historic test year that can be
verified by audit of actual numbers prior to
placing new rates into effect. Consequently,
in this case, we find that an historic test
year, utilizing actual numbers from 2005 and2006, wi th some known and measurable
adjustments, to be proper.
(Order No. 30342, page 8) .
In Order No. 29838, Case No. UWI-W-04-4, the
Commission states,
To make clear the Commission's preference
for future cases, we direct United Water to
file future rate cases utilizing a 13 -month
average rate base methodology. To
facili tate an adequate review, Company data
should be provided in time to incorporate
the information in the prefiled testimony of
Staff and other parties. This will
facilitate the hearing and decision
processes by having similar time periods and
information for the Staff and intervenor
prefiled testimony, the company's rebuttal,
and at the hearing. Using recent, actual
data for the hearing will reduce if noteliminate the need to argue over forecasts.
To this end, the Commission suggests rate
cases be filed with no more than six months
of forecast data. Not only will data be
known and measurable by the time other
parties prefile testimony and for the
hearing, it will be more convenient and
administratively easier for all parties.
Q.What test year is Staff proposing?
A.Staff is proposing an historical test year,
22 based on the months of July 2006 through June 2007.
23 This is the basis for Staff's proposed Revenue
24 Requirement.
25
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 6
STAFF
1 Rate Base
2 Q.Please describe what is meant by the term "rate
3 base."
4 A.Essentially the rate base is the capital
5 investment the Company has made. The Company is given the
6 opportunity to earn a reasonable rate of return upon this
7 capital investment. In general, the rate base formula is
8 the original cost of plant, less the accumulated
9 depreciation; plus or minus other adjustments to rate base
10 such as customer deposits, working capital, disallowed
11 investments, and other adjustments made on a case by case
12 basis.
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Q.How did Staff derive the rate base in this case?
A.Rate base levels for a test year are
15 traditionally based on a thirteen-month average. Staff
16 started with the actual system financial information for
17 the months of June 2006 through June 2007 to calculate a
18 thirteen-month average rate base for all plant in service
19 investment. Each plant in service proj ect, regardless of
20 size, is included in Staff's thirteen-month average rate
21 base. Staff then made annualizing and proforma adjustments
22 for known and measurable plant additions placed in service
23 through December 31, 2007. Staff begins with a 13-month
24 average system rate base of $1,918,622,849 as shown on
25 Staff Exhibit No. 103. This is the starting point for
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 7
STAFF
1 Staff's rate base adj ustments.
2 Q.How does the historical rate base that Staff is
3 using compare to the Company's forecasted rate base?
4 A.Staff used a different test year with actual
5 financial data and known and measurable adjustments. The
6 Company used forecasted data. Therefore, the rate base
7 calculations are not transparently comparable. The ending
8 date of Staff's test year is June 30, 2007, while the
9 Company's test year ends December 31, 2007. Due to the
10 forecasting method used by the Company, the Company's rate
11 base cannot be broken down on a month-by-month basis as can
12 the Staff's rate base. The most important component in the
13 rate base calculation is plant-in-service, and that can be
14 determined on a month-by-month basis using Staff's rate
15 base.
16 Q.How does Staff's plant in service amount based on
17 actual investment figures as of June 30, 2007 compare with
18 the Company's June 30, 2007 forecasted plant in service
19 amount?
20 A.The Company's forecasted plant in service is
21 $32,355,201 greater than the actual June 30, 2007 plant in
22 service. Staff believes this difference is significant in
23 evaluating the validity of the Company forecast. To put
24 this in perspective, the Company's forecast has plant in
25 service growing by 2.6% from the end of 2006 through
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 8
STAFF
1 June 30, 2007 when in actuality, it grew by only 1.7%.
2 Staff Reductions to Rate Base
3 Q.What adjustments did Staff make to rate base that
4 have traditionally or recently been ordered by the
5 Commission?
6 A.Stàff made several adjustments to rate base that
7 have traditionally been accepted by the Commission. The
8 two traditional adj ustments are to working capital and
9 Plant Held for Future Use.
10 Q.Please describe working capital.
11 A.Working capital refers to the funds a business
12 requires for day-to-day operations, for example, for
13 financing the conversion of raw materials into a finished
14 product, which the Company sells. Among the most important
15 items of working capital are levels of inventory and cash.
16 For ratemaking purposes, some level of working capital is
17 usually included in rate base. This working capital
18 allowance represents items that are investor supplied, in
19 that the Company has purchased these items using sources of
20 funds supported by the investors. When the working capital
21 allowance is investor supplied, the Company is enti~led to
22 earn a return on the investment in inventory until such
23 time as the inventory is converted to plant in service.
24 For utilities, the working capital allowance usually
25 includes materials & supplies, and fuel stock such as coal.
CASE NO. IPC-E-07-8
12/10/07 STOCKTON, K. (Di) 9
STAFF
1 In certain instances, the Company may have pre-
2 paid items such as insurance policy premiums or a cash
3 working capital requirement. Cash working capital refers
4 to the cash a business requires for day-to-day operations.
5 If the cash working capital is provided by a source other
6 than investors, then the cash working capital amount would
7 not be included in rate base. Other sources may include
8 customer deposits, advances for construction, deferred
9 taxes or other deferrals. Customers should not be required
10 to pay a return on a rate base item that is not investor
11 funded. In that situation, the cash working capital
12 component of the working capital allowance would not be
13 included in rate base.
14 Q.What has the Company included in rate base for
15 its working capital allowance?
16 A.The Company, in its working capital allowance
17 calculation, includes Fuel Inventory, and Materials &
18 Supplies. The Company does not include a working cash
19 allowance and has made an adjustment removing prepaid .
20 items. Staff, using the balance sheet method, determined
21 that the working cash allowance was not supplied by
22 investors and therefore confirmed that no working cash
23 allowance would be included in the rate base working
24 capital allowance.
25 Q.What are the two adjustments Staff has made to
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 10
STAFF
1 the working capital allowance?
2 A.The first adjustment removes the prepaid items
3 from the working capital included in rate base. The second
4 adjustment aligns fuel stock used to determine working
5 capital with the fuel stock used in the power supply model.
6 Q.Please describe the first working capital
7 adj ustment .
8 A. Staff made an adjustment to remove the prepaid
9 items. These include ad valorem taxes, insurance, pension
10 expense, prepaid retiree benefits and other miscellaneous
11 prepayments. These prepaid items are traditionally not
12 included in rate base when investors did not supply the
l3 capital for the prepayments. The Company also made an
14 adjustment to remove these prepaid items from rate base and
15 Staff's adjustment to account for prepaid items results
16 from using a 13 -month average to calculate rate base. This
17 adjustment reduces system rate base by $10,676,356 and is
18 shown on Staff Exhibit No. 104 as Adjustment 1.
19 Q.What is the second adjustment that Staff made to
20 the working capital allowance?
21 A.Staff's second adjustment is to fuel inventory to
22 reflect the normalized operating criteria resulting in
23 required coal inventories. Staff's adjustment reflects the
24 required coal inventories of 250,000 tons at Bridger,
25 180,000 tons at Valmy and 47,000 tons at Boardman. Company
CASE NO. IPC-E-07-812/10/07
STOCKTON, K. (Di) 11
STAFF
1 witness Said provided Company witness Schwendiman with a
2 similar adjustment. Staff's adjustment is calculated using
3 a 13 -month average to appropriately reflect the normalized
4 amount of fuel inventory in rate base. This adjustment
5 reduces system rate base by $1,328,680 and is shown on
6 Staff Exhibit No. 104 as Adjustment 2.
7 Q.What is the adjustment for Plant Held for Future
8 Use?
9 A.Staff made the standard adjustment to remove
10 Plant Held for Future Use. This adjustment is typically
11 made because the plant in question is not used and useful.
12 The Company made a similar adjustment. This adjustment
13 reduces system rate base by $2,860,979 and is shown on
14 Staff Exhibit No. 104 as Adjustment 3.
15 Q.What other adjustments did Staff make?
16 A.Consistent with past Commission orders, Staff
17 made an adjustment in rate base to reflect the disallowance
18 of obsolete plant from Idaho Energy Resources Company
19 (IERCO) and an adjustment to reflect the removal of the
20 Prairie Power Acquisition Adjustment.
21 Q.Please explain the rate base adj ustment related
22 to IERCO.
23 A.IERCO' s purpose is to mine coal for the Jim
24 Bridger power plant. Idaho Power owns a third of the Jim
25 Bridger power plant as well as IERCO. In Case No.
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 12
STAFF
1 IPC-E- 03 - 13, the Commission found that the rate base for
2 IERCO be reduced for equipment no longer used and useful.
3 The assets identified were a dragline and bulk lube system,
4 the dragline monitoring and fire system for the dragline,
5 two buckets, a power shovel, a lowboy tractor and a Ford
6 truck. Staff's adjustment reduces system rate base by
7 $85,531 and is shown on Staff Exhibit No. 104 as Adjustment8 4.
9 The dragline has since been sold and IERCO
10 realized a gain on the sale of the dragline of
11 approximately one million dollars. This gain was recorded
12 as a reduction of maintenance expense on the mine's books.
13 This treatment of the gain gives the ratepayers the benefit
14 of the gain.
15 Q.Please explain the Prairie Power Acquisition
16 Adjustment.
17 A.In 1992, Idaho Power purchased the assets of
18 Prairie Power Cooperative, Inc. Because the total asset
19 purchased exceeded the liabilities that Idaho Power
20 assumed, the net difference resulted in a credit or a
21 negative electric plant acquisition adjustment. The
22 Company proposed to net the acquisition adjustment with
23 certain costs pertaining to the acquisition and that the
24 remaining acquisition adjustment be amortized over 240
25 months. This adjustment removes from rate base the effects
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 13
STAFF
1 of the negative electric plant acquisition adjustment.
2 This adjustment is also made by the Company. Staff's
3 adjustment reduces system rate base by $104,146 and is
4 shown on Staff Exhibit No. 104 as Adjustment 5.
5 Q.Are there other traditional or previously ordered
6 adj ustments from past cases?
7 A.No. These adjustments are consistent with those
8 made by the Company in its filing, except that they are
9 applied to a different test year. These common rate base
10 adjustments must be made prior to moving to the next step
11 in the ratemaking process.
12 Q.What is the total of all the reductions to rate
13 base that you are proposing?
14 A.The reductions to system rate base that I propose
15 are $15,055,692. Including the pension adjustments
16 proposed by Staff witness English of $5,833,205, Staff
17 reductions to system rate base total $20,888,897.
18 Staff Additions to Rate Base
19 Q.Did Staff have additions to rate base to include
20 known and measurable plant additions?
21 A.Yes Staff made adjustments to rate base to
22 annualize plant added during the test year and pro form the
23 test year to include plant that will be in service by
24 December 31, 2007. Staff'~ additions are calculated on
25 Staff Exhibit No. 105, page 2, and incorporated in rate
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 14
STAFF
1 base on Staff Exhibit No. 104 as Adjustment 6. The net
2 effect of Staff's annualizing and proforming adjustments is
3 an increase in test year system rate base of $55,328,321,
4 including the adjustments to accumulated depreciation and
5 deferred income taxes associated with the rate base
6 additions.
7 Q.What criteria did Staff use for annualizing plant
8 addi tions that were placed in service during the test year?
9 A.Staff annualized major plant additions that were
10 included in the power supply model, or had a final cost of
11 $2 million or more. A complete list of the maj or
12 generation, transmission, and distribution proj ects that
13 Staff included is shown on Staff Exhibit No. 105, page 1.
14 The $2 million threshold is the amount the Company used on
15 Company Exhibit No. 18 to annualize plant investments. It
16 is also the proj ect dollar amount that must be approved by
1 7 the Board of Directors of Idaho Power Company before the
18 project moves forward.
19 Q.What criteria did Staff use for plant additions
20 occurring after June 30, 2007?
21 A.Staff used the following set of criteria for
22 major plant additions that the Company identified would be
23 in service by December 31,2007. Projects with an in
24 service date during the second half of 2007 and a final
25 cost over $2 mi~lion system-wide were proformed into rate
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 15
STAFF
1 base, weighted by the number of months that it would be in
2 service by December 2007. For example, if a project is
3 estimated to be in service in November 2007, Staff included
4 that project as if it were included in rate base for two
5 months: November and December 2007. The amount included
6 in rate base would be two twelfths of the final cost.
7 Staff proposes to annualize all proj ects that are
8 power supply related. This approach will match the
9 revenues and expenses for the power supply model. No
10 proj ects fell into this category.
11 Staf.f also proposes to annualize proj ects that
12 are estimated to come online after June 30, 2007 and before
13 the end of the calendar year that the Company has
14 identified as being revenue producing or expense reducing.
15 The Company identified revenue associated with the Star
16 Operations Center. Therefore, this plant is annualized as
17 if it were in rate base for the entire year, although it is
18 estimated to be placed in service in December 2007.
19 Although not shown on Staff Exhibit No. 104, this
20 adjustment also has a corresponding increase in revenues of
21 $370,387, the amount that the Company identified as being
22 the revenue producing benefit of including this item in
23 rate base. The increased revenue is reflected in the
24 overall revenue shown in Staff witness English's Exhibit
25 Nos. 112 and 113.
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 16
STAFF
1 Q.How does Staff's proposal for 2007 plant
2 additions compare to the Company's case?.
3 A.Staff's proposal includes all of the same major
4 plant additions that are included in the Company's case.
5 However, because the Company uses a forecast test year and
6 the Staff uses an historical test year adjusted for known
7 and measurable changes, the rate base calculations are not
8 readily comparable. The Company annualizes all major plant
9 additions to rate base, while Commission Staff annualizes
10 some adjustments and proforms others based the criteria
11 described above.
12 The proforma Staff adjustments incorporate those
13 proj ects weighted by the number of months the plant would
14 be in service during 2007. The annualizing Staff
15 adjustments incorporate those projects as if they were in
16 service for the entire test year. Additionally, the
17 associated depreciation and tax effects of this adjustment
18 were calculated and included in Staff's proposed revenue
19 requirement. After incorporating the effects of
20 accumulated depreciation and deferred tax on rate base, the
21 annualized and proformed post test year adjustments
22 increase Staff test year system rate base by $55,328,321
23 and are shown on Staff Exhibit No. 104 as Adjustment 7.
24 Q.Why has Staff annualized additions occurring
25 within the test year and proformed plant additions
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 17
STAFF
1 occurring after the test year but in service by the end of
2 December 2007?
3 A.In previous cases, Staff has rarely annualized
4 maj or plant additions occurring during the test year, nor
5 has it added post-test year plant additions in rate base at
6 more than one thirteenth of the final cost. In this case,
7 Staff annualized critical infrastructure investment within
8 the test year and proformed for investments outside of the
9 test year based on a weighted online date rather than
LO 1/13th of actual cost. Staff's adjustments include these
11 proj ects at a greater amount than if Staff had used the
l2 methodology argued in previous Idaho Power rate cases.
13 Staff believes the expanded treatment of plant additions
14 helps reduce regulatory lag, allows an earlier return on
15 critical infrastructure investment and more fully matches
16 rate base with revenues and expenses.
17 Q.Did Staff make any other additions to rate base?
18 A.Yes. Staff includes the substation property
19 included in Plant Held for Future Use identified by the
20 Company in its filing. Idaho Code §61-502A was modified to
21 allow the Commission to set rates that includes a return on
22 property held for future use if the Commission finds that
23 allowing a return on the plant held for future use is in
24 the public interest. The Company has identified property
25 that it purchased for future substations. Staff has
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 18
STAFF
1 reviewed the supporting documentation for these substations
2 and supports the Company in its request to include this
3 substation property in rate base. Staff notes that
4 property values in the state of Idaho continue to increase.
5 Staff believes that it is in the public interest to include
6 these types of investments in rate base when the Company is
7 able to procure property necessary for anticipated growth
8 and the cost for these properties when purchased is lower
9 than the estimated cost in a market when the property is
10 needed. The property included in rate base for this case
11 fits this criteria as the current market value overall is
12 greater than the purchase price.
13 Staff's adjustment mirrors the Company's
14 adjustment made by Company witness Said. If it is
15 determined that the property will not be placed in service
16 in the future, Staff recommends that all proceeds the
17 Company receives when the property is sold or exchanged be
18 reinvested to benefit customers. The final ratemaking
19 treatment should be determined on a case-by-case basis upon
20 disposal of the property.
21 Audi t Concerns
22 Q.Do you have any final thoughts on the rate case?
23 A.Yes. In auditing the rate base accounts, Staff
24 found it very difficult to perform an adequate audit to
25 identify prudently incurred costs that are recoverable
CASE NO. IPC-E-07-812/10/07 STOCKTON, K. (Di) 19
STAFF
1 through the ratemaking process. It is critical that the
2 audi t trail, electronic and/or paper, be easily accessible
3 to verify all capitalized costs.
4 In an audit, Staff applies the following five
5 principles: existence, completeness, valuation, rights and
6 obligations, and presentation and disclosure. The
7 existence principle is the persuasive evidence of the
8 existence of the tangible or intangible asset or liability.
9 In order to support the completeness principle, the auditor
10 obtains sufficient, competent evidence that transactions
'11 that should be recorded have been recorded. The valuation
12 principle is whether the assets, liability, revenues, and
13 expense components have been included in the financial
14 statements and the books and records of the Company at
15 appropriate amounts. The rights and obligations principle
16 is whether the assets are the rights of the entity and the
17 liabilities are the obligations of the entity at a given
18 date. And finally, the reporting and disclosure principle
19 is whether particular components of the financial
20 statements are properly classified, described, and
21 disclosed. Staff had difficulty in applying these
22 principles while auditing the rate base components in this
23 case.
24 For example, Staff selected several projects for
25 in-depth audit, yet continually had to narrow the focus of
CASE NO. IPC-E-07-8
12/10/07 STOCKTON, K. (Di) 20
STAFF
1 the audit in order to gain access to any source documents
2 in a timely manner. The source document is the initial
3 input to the accounting process and serves as obj ecti ve
4 evidence of the transaction, serving as part of the audit
5 trail should the Company need to prove that a transaction
6 occurred. Staff found it difficult to obtain the necessary
7 documentation from the Company in a timely manner, and this
8 is unacceptable.
9 A rate case based on a forecast test year does
10 not provide the necessary objective evidence of
11 transactions that allows the Staff to succes~fully audit
12 Company operations.
13 Q.Does this conclude your direct testimony in this
14 proceeding?
15 A.Yes, it does.
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CASE NO. IPC-E-07-812/10/07
STOCKTON, K. (Di) 21
STAFF
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Case No. IPC-E-07-8
K. Stockton, Staff
12/1 0/07 Page 1 of 2
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 10TH DAY OF DECEMBER 2007,
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