20080627Gale direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AN CHAGES FOR ELECTRIC SERVICE.
CASE NO. IPC-E-08-10
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
JOHN R. GALE
1 Q.Please state your name and business address.
2 A.My name is John R. Gale and my business
3 address is 1221 West Idaho Street, Boise, Idaho.
4 Q.By whom are you employed and in what
5 capacity?
6 A.I am employed by Idaho Power Company ("the
7 Company") as the Vice President of Regulatory Affairs.
8 Q.Please describe your educational background
9 and business affiliations.
10 A.I received a BBA in 1975 and an MBA in 1981
11 from Boise State University. I maintain a close
12 affiliation with the university and serve on the College of
13 Business and Economics' Advisory Council and on the Board
14 of Directors of the Alumni Association. I have also
15 attended the Public Utilities Executive Course at the
16 University of Idaho and am now on the faculty of that
17 program covering "Regulation and Ratemaking."
18 I am an active member of the Edison Electric
19 Institute's Rates and Regulatory Affairs Committee, which
20 is the committee that is concerned primarily with
21 regulatory issues and ratemaking methods. I am the current
22 Chair of this committee.
23 Q.Please describe your work experience.
GALE, DI 1
Idaho Power Company
1 A.From 1976 to 1983, I was employed by the
2 State of Idaho primarily as an analyst in the Department of
3 EmploYment. In October 1983, I accepted a position at
4 Idaho Power Company as a Rate Analyst in the Rate
5 Department. I initially worked on rate design, tariff
6 administration, and line extension issues. In March 1990,
7 I was assigned to the Company's Meridian District Office
8 where I held the position of Meridian Manager, which was a
9 one-year cross training position established to provide
10 corporate employees with an extensive field experience. I
11 returned to the Rate Department in March 1991 and in June,
12 I was promoted to Manager of Rates. In July 1997, I was
13 named General Manager of Pricing and Regulatory Services.
14 In March 2001, I was promoted to Vice President of
15 Regulatory Affairs, my current position.
16 As Vice President of Regulatory Affairs, I oversee
17 and direct the activities of the Pricing and Regulatory
18 Services Department. These acti vi ties include the
19 development of jurisdictional revenue requirements, the
20 oversight of the Company's rate adjustment mechanisms, the
21 preparation of class cost-of-service studies, the
22 preparation of rate design analyses, and the administration
23 of tariffs and customer contracts. In my current position,
24 I have the primary responsibility for policy matters
GAE, Dr 2
Idaho Power Company
1 related to the economic regulation of Idaho Power Company.
2 I have testified frequently before the Idaho Public
3 Utilities Commission ("the Commission") on a variety of
4 rate and regulatory matters. I have also testified before
5 or submitted direct testimony to the regulatory commissions
6 in Nevada and Oregon, the Federal Energy Regulatory
7 Commission ("FERC"), the Bonneville Power Administration,
8 and the United States Senate Committee on Energy and
9 Natural Resources.
10 Q.What it the purpose of your testimony in
11 this matter?
12 A.I will provide an overview of the Company's
13 case, describe the approach to the test year, discuss the
14 rate case treatment of a number of developing issues, and
15 provide the policy basis for the recommended spread of the
16 revenue requirement to customer classes and special
17 contract customers, as well as the approach to the
18 Company's rate design proposals.
19 CAE OVERVIEW
20 Q.What role did you play in the preparation of
21 the general rate case?
22 A.My role in the preparation of the general
23 rate case was to oversee, manage, and coordinate the filing
24 and to make the policy decisions related to regulatory
GALE, DI 3
Idaho Power Company
1 matters in consultation with Mr. LaMont Keen, our Company's
2 President and Chief Executive Officer, along with other
3 senior officers within Idaho Power.
4 Q.What was your level of involvement with the
5 preparation of the testimony and exhibits presented by the
6 other Company witnesses?
7 A.I discussed the content and preparation of
8 the witnesses' testimony and exhibits with Ms. Maggie Brilz
9 (former Director of Pricing), Mr. Greg Said (Manager of
10 Revenue Requirement), and Mr. Barton Kline (Senior
11 Regulatory Attorney), as well as Ms. Lisa Nordstrom and Mr.
12 Donovan Walker (Regulatory Attorneys) .
13 Q.Please provide an overview of the Company's
14 general rate case filing.
15 A.The Company begins the presentation of its
16 case with Mr. LaMont Keen the Chief Executive Officer of
17 the Company. He addresses Idaho Power's current financial
18 and operating situation and need for general rate relief.
19 My testimony is next and covers the regulatory policy
20 matters related to the development of the general rate
21 case.
22 Ms. Maggie Brilz, Manager of Customer Service, and
23 Ms. Theresa Drake, Manager of Customer Relations and Energy
24 Efficiency, cover a number of customer issues in their
GAE, DI 4
Idaho Power Company
1 testimony. Ms. Brilz focuses on customer service
2 activities, including call center operations, metering,
3 siting, and reliability. Ms. Drake describes the Company's
4 advancements in energy efficiency and customer relations
5 acti vi ties.
6 The next witness is Mr. William Avera, who has been
7 retained by the Company as its return on equity ("ROE")
8 expert. Mr. Avera also performed this function for Idaho
9 Power in the last four general rate cases in Idaho and has
10 also testified on the Company's behalf before the Oregon
11 Public Utility Commission and the FERC. Mr. Avera
12 discusses risk factors relevant to Idaho Power Company,
13 performs calculations of ROE appropriate for the Company
14 using standard financial methodologies, and recommends a
15 reasonable ROE range appropriate for Idaho Power. In this
16 proceeding, Mr. Avera's ROE range is from 10.8 to 11.8
17 percent.
18 Mr. Steven Keen, Idaho Power Company's Vice
19 President and Treasurer, builds on Mr. Avera's
20 recommendations by more specifically addressing the
21 relevant risk factors impacting the Company. Mr. Keen
22 selects an 11.25 percent ROE point estimate as the
23 appropriate cost of equity, supports the cost of Idaho
24 Power's long-term debt, and includes the long-term debt and
GAE, DI 5
Idaho Power Company
1 the 11.25 percent ROE in the test year capital structure to
2 derive the Company's proposed overall rate of return.
3 Ms. Lori Smith, the Company's Vice President of
4 Corporate Planning and Chief Risk Officer, next testifies
5 to the actual 2007 financial results with standard
6 ratemaking adjustments. Ms. Smith describes the
7 development and application of the methodologies used to
8 prepare the 2008 test year and the system adjustments to
9 the test year data associated with deductions to certain
10 expenses not allowed in rates, annualizing adjustments to
11 expenses and rate base, and other adjustments to revenues,
12 expenses, and rate base related primarily to past
13 Commission orders.
14 Ms. Catherine Miller, Director of Strategic
15 Analysis, presents testimony in support of the inclusion in
16 rates of $7.6 million of the Construction Work in Progress
17 ("CWIP") associated with the financing of the Hells Canyon
18 Relicensing.
19 Mr. Said provides the normalized net power supply
20 expenses for the test year and addresses the requisite
21 changes to the Company's Power Cost Adjustment ("PCA") as a
22 result of changing the normalized net power supply expenses
23 in Idaho Power Company's base rates. Additionally, Mr.
24 Said supports the calculation of offsetting revenues
GALE, DI 6
Idaho Power Company
1 associated with the annualizing adjustments made to the
2 test year.
3 Ms. Celeste Schwendiman, a Senior Pricing Analyst,
4 incorporates Ms. Smith's financial data, Mr. Steven Keen's
5 overall rate of return recommendation, Mr. Said's
6 normalized net power supply expenses, and Ms. Miller's CWIP
7 amount, along with other necessary inputs and prepares the
8 jurisdictional separation study ("JSS"). The JSS, as its
9 name states, separates system values for rate base,
10 revenues, and expenses for each state and the federal
11 jurisdiction through an assignment and allocation process
12 that is described in detail in Ms. Schwendiman's testimony.
13 One result of the JSS is the Idaho retail jurisdictional
14 revenue requirement, which is the Company's best
15 representation of its expected annual cost to serve its
16 Idaho retail customers. The 2008 Idaho jurisdictional
17 revenue requirement is $739,757,826. In order to obtain
18 this amount, Idaho's annual retail revenues will need to
19 increase by $66,588,286 million or 9.89 percent.
20 Mr. Timothy Tatum, a Senior Pricing Analyst, uses
21 the Idaho retail jurisdictional output from the JSS as
22 developed by Ms. Schwendiman and further separates costs by
23 customer class and special contract in preparing three
24 class cost-of-service studies. One of the studies prepared
GALE, DI 7
Idaho Power Company
1 by Mr. Tatum presents the approach most similar to that
2 used by the Company and approved by the Commission in Idaho
3 Power's 2003 general rate case proceeding, Case No. IPC-E-
4 03-13. A second study modifies the 2003 approach by
5 classifying PURPA and purchased power expenses as demand-
6 or energy-related in the same manner as generation plant is
7 classified. Finally, Mr. Tatum's third study further
8 modifies the historical approach in a manner that allocates
9 the costs of the Company's generation peaking facilities
10 differently that its base-load resources. Of these three
11 studies, Mr. Tatum recommends the approach termed
12 "3CP/12CP" be used as the appropriate starting point for
13 rate spread (the process of spreading the Idaho
14 jurisdictional revenue requirement to the customer classes
15 and special contract customers) and rate design (the
16 ultimate calculation of rates for customers) .
17 Ms. Courtney Waites, a Pricing Analyst, and Ms.
18 Darlene Nemnich and Ms. Jeannette Bowman, both Senior
19 Pricing Analysts, support the Company's proposed price
20 changes to the customer classes that are consistent with
21 the Company's ratemaking objectives and that recover the
22 Company's Idaho revenue requirement. Primarily, Ms.
23 Waites supports residential rate design, Ms. Nemnich covers
24 commercial and industrial pricing, and Ms. Bowman supports
GALE, DI 8
Idaho Power Company
1 irrigation rate proposals.
2 THE TEST YEA
3 Q.What is the Company's test year?
4 A.The test year is the 12 months ending
5 December 31, 2008.
6 Q.Please describe Idaho Power's approach to
7 the determination of its test year in recent proceedings.
8 A.In both 2003 and 2005, Idaho Power filed for
9 general rate relief on test years that combined six months
10 of actual information with six months of forecast
11 information. This approach is commonly referred to a
12 "split test year." The 2007 general rate base was filed as
13 a full 12-month forecasted test year.
14 Q.What was the resolution of the test year
15 question in the last general rate case, Case No. IPC-E-07-
16 08?
17 A.The Company proposed a 2007 test year based
18 upon forecast data, while Staff and others proposed a
19 historical test year with adjustments. The issue was not
20 definitively resolved in the case. However, the parties to
21 the case did reach a settlement and signed a Stipulation
22 that addressed the test year issue. Provision 6 (c) of the
23 Stipulation stated:
GALE, DI 9
Idaho Power Company
1 Forecasted T~st Years: The Parties agree
2 to participate in a good faith discussion
3 regarding a test year methodology that
4 balances the auditing concerns of the
5 Staff and the Intervenors with the need
6 for timely rate relief expressed by the
7 Company. The Parties agree to discuss
8 methodologies that include both a twelve
9 month period that can be audited, and10 techniques to adjust the auditable data so11 that it would accurately represent the
12 costs and revenues the Company will13 experience during the future period of14 time in which the rates would be in15 effect.
1617 The Stipulation was ultimately approved by the
18 Commission.
19 Q.What transpired at the test year workshop?
20 A.Idaho Power put forth a straw man proposal
21 for developing its test year in its next general rate case.
22 The Company outlined an approach that would start with
23 actual 12-month results that would include typical and
24 traditional ratemaking adjustments consistent with past
25 Company methods and Commission orders. The 2007 actual
26 information would then be transformed into 2008 results
27 through the use of methodologies appropriate for that
28 particular revenue, expense, or asset classification. The
29 Company would support the types of methods used and their
30 application in much the same way that the Company is
31 responsible for supporting a variety of different
32 allocation methods in its cost models. Parties to the
GALE, DI 10
Idaho Power Company
1 workshop expressed their desire that the Company not just
2 use one blanket methodology to escalate all costs and that
3 all known aspects (positive and negative) of adjustments be
4 included in developing the test year. Idaho Power agreed
5 with these recommendations. The workshop did not attempt
6 to prescriptively address methods prior to the next general
7 rate case.
8 Q.Has the Company prepared its test year in
9 this proceeding consistent with input received in the
10 workshop?
11 A.Yes, it has. The Company started with
12 actual 2007 results adjusted for typical and traditional
13 ratemaking adjustments, and then adjusted the data to 2008
14 levels based upon a númber of methodologies appropriate for
15 each of the revenue, expense, or asset classifications.
16 The Company included additional 2008 adjustments associated
17 with the inclusion of CWIP and targeted cost reductions
18 implemented by Company management in response to current
19 financial circumstances.
20 Q.How does the test year approach address the
21 past concerns raised by the Company, the Commission Staff
22 and other parties to the Stipulation?
23 A.The Company's proposed 2008 test year begins
24 from a 2007 foundation of actual information. One primary
GALE, DI 11
Idaho Power Company
1 concern expressed by the Commission Staff regarding the
2 Company's test year in the last general rate case was that
3 there was no actual auditable information to review and
4 there was discomfort in reviewing only forecasted data and
5 methods. The Company's approach this time provides an
6 actual audi table base for review, while at the same time
7 adjusting the historic information into a more current time
8 period.
9 Q.What attributes should be considered when
10 selecting a test year?
11 A.In practice, in every rate case, a test year
12 must be selected. Whether the test year selected is
13 historical, future, or some hybrid, the most important
14 attribute of the selected test year should be that it
15 accurately reflects the best expectation of the cost of
16 service that will prevail when the rates will be in effect.
17 Idaho Power has developed a test year consistent
18 with protocol discussed by the Company and the parties
19 during workshop. The test year consistently applies
20 assumptions and uses trends across all aspects of the
21 revenue requirement. I am confident that in this instance,
22 the Company-proposed test year is a reasonable
23 representation of 2008 cost of service and appropriate for
24 setting rates in 2009.
GALE, DI 12
Idaho Power Company
1 Q.Are the methods used to develop the test
2 year common in determining revenue requirement?
3 A.Yes. The Company proposed methods for
4 developing the test year are similar to methods used by
5 numerous states since at least the 1970s. Idaho is
6 surrounded by states, including Oregon, California, Utah,
7 and Wyoming that authorize their Commissions to adopt
8 future test years to determine representative levels of
9 revenues, expenses, rate base, and capital structure.
10 Accordingly, many utilities in these states are filing rate
11 proceedings with future test years. The Oregon Commission
12 has, for many years, viewed the future test year as the
13 appropriate choice of test year. The Utah legislature has
14 recently amended existing legislation and statutorily
15 mandates that the Utah Commission give serious
16 consideration to the adoption of the very same type of
17 future test year period that Idaho Power is proposing in
18 the instant case. PacifiCorp uses the future test year in
19 Oregon, Utah, and Wyoming to establish jurisdictional
20 revenue requirement.
21 Commissions and policy makers throughout the
22 country, and particularly in the West, are increasingly
23 recognizing that in an era of heavy construction, future
24 test years are necessary to allow utilities a reasonable
GALE, DI 13
Idaho Power Company
1 opportuni ty to earn their authorized rate of return.
2 Currently over 20 states allow for the use of forward or
3 hybrid designed test years. Utili ties that operate in a
4 period of rapid expansion and rate base growth will
5 chronically under-earn if test years are historical in
6 nature and fail to synchronize the matching of expenses and
7 revenues.
8 Q.Beside the concern of confiscation of
9 shareholder assets associated with under-earning, are there
10 other pragmatic implications?
11 A.Yes. Under-earning is sYmptomatic of cash
12 outflow recovery risk. When cash outflows are allowed to
13 materially outpace authorized cash inflows, significant
14 recovery risk exists. Recovery risk creates the potential
15 for write-downs and therefore has severe credit rating
16 implications. If the Company's cash- from-operations to
17 debt ratio declines from its current low teen range to a
18 single digit, it is likely that the Company's credit rating
19 will fall below industry average. Ultimately reduced
20 credit ratings increases financing costs and puts
21 additional pressure on already rising customer rates.
22 Q.Is the Commission accustomed to analyzing
23 forward looking cost and revenue conditions?
GALE, DI 14
Idaho Power Company
1 A.Yes. The first to come to mind is the PCA
2 mechanism. Since 1993, the Company has been seeking and
3 obtaining interim adj ustments to its power supply costs
4 based, in part, upon a forecast component. The
5 administration of these filings has come to be quite
6 routine. The PCA is a consensus mechanism which recognizes
7 that in the case of one of the single largest expenses for
8 the Company, costs incurred in the past are not the best
9 predictor of what is reasonable or required for the future.
10 Regardless of which test year is adopted, the
11 ratemaking process is inherently prospective and requires
12 reliance upon proj ections. Whether the test year is
13 completely historical or based totally on future results,
14 the ratemaking process requires an informed determination
15 of what conditions will prevail in the future. Idaho Power
16 has used its best financial and operational information to
17 construct its forecast test year.
18 Q.Why is moving away from the use of a
19 historical test year important?
20 A.Ultimately, Idaho Power needs a test year
21 approach that is both timely and reflective of the costs
22 that the Company can reasonably expect to incur going
23 forward. An historical test year is by definition not
24 timely and may not be a reflection of costs going forward.
GAE, DI 15
Idaho Power Company
1 As an example of how actual costs might not be reflective
2 of reasonably expected ongoing costs, one could look at
3 Idaho Power's actual net power supply costs for almost any
4 one year and conclude that - although the dollars may
5 represent what actually occurred that year - it would not
6 be appropriate for setting future rates. Similarly, a test
7 year based on a reasonable forecast may be more indicati ve
8 of the costs the Company will be experiencing during the
9 time rates are in place.
10 Q.Why is regulatory lag such a critical issue
11 to Idaho Power at this time?
12 A.To begin with, I would like to reiterate
13 that it is important to more parties than just Idaho Power.
14 As Mr. Steven Keen notes in his testimony, it is also
15 extremely important to those who invest and lend money to
16 the Company. From the Company's standpoint, during periods
17 of escalating costs where marginal costs are higher than
18 average costs, new rates are already inadequate by the time
19 they go into place. If this situation continues for a
20 prolonged period of time, the Company will be denied a
21 reasonable opportunity to earn its authorized rate of
22 return.
23 Q.Is regulatory lag always .harmful to a
24 utility?
GALE, DI 16
Idaho Power Company
1 A.No. The impact of regulatory lag is
2 dependent upon the situation - if costs are not going up
3 faster than rates, then the utility is not harmed and may
4 even be helped by lag. Unfortunately, Idaho Power is not
5 in that situation and will not likely be for the
6 foreseeable future. Using the split test year approach
7 pursued in the 2003 and 2005 general rate cases, Idaho
8 Power rates trailed the start of the cost period they were
9 intended to reflect by 17 months. And even the 2007
10 forecast test year in the Company's last general rate case
11 resulted in rates implemented 14 months after the proposed
12 cost period began.
13 RATE CASE TRETMNT OF DEVELOPING ISSUES
14 Q.You have described the approach Idaho Power
15 used in developing the 2008 test year. Were there other
16 developing regulatory issues that were considered for
17 inclusion in the test year?
18 A.Yes. These issues included: (1) the
19 treatment of CWIP, (2) the procurement and deploYment of
20 Advanced Metering Infrastructure ("AMI"), (3) the handling
21 of ongoing costs related to energy efficiency and demand
22 response activities, and (4) the 2008 cost reductions
23 implemented in response to the Company's deteriorating
24 financial situation.
GALE, DI 17
Idaho Power Company
1 Q.Please describe the Company's approach to
2 CWIP in this proceeding.
3 A.Legislative changes enacted in 2006 give the
4 Commission the authority to consider a return on Plant Held
5 for Future Use and CWIP in current rates. In Idaho Power's
6 2007 general rate case, the Company proposed some specific
7 investments in Plant Held for Future Use for inclusion in
8 rate base. In this current case, the Company is proposing
9 the inclusion of a modest level of CWIP in current rates.
10 This is the first time the Company has made such a proposal
11 since the change in legislation. While I discuss the
12 policy implications in my testimony, Ms. Catie Miller's
13 testimony is solely devoted to supporting the accounting
14 treatment associated with the CWIP addition.
15 Q.Does Idaho Power envision seeking recovery
16 of other investments through CWIP in the future?
17 A.Yes. Idaho Power is experiencing a cycle of
18 heavy infrastructure investment needed to address
19 reliability, customer growth, peak demand growth, and aging
20 plant and equipment. The Company's aging hydroelectric and
21 thermal facilities require continuing upgrades and
22 component replacement. In addition, costs related to
23 relicensing hydroelectric facilities and complying with the
24 new licenses are substantial. Continuing load growth also
GALE, DI 18
Idaho Power Company
1 requires that the Company add to its transmission system
2 and distribution facilities to provide new service and to
3 maintain reliability. As a result, Idaho Power expects to
4 spend approximately $900 million in construction
5 expenditures from 2008 to 2010 which excludes any estimated
6 expenditures for a nominal 250-MW combined cycle combustion
7 turbine expected to be operational in mid-2012, the Gateway
8 West transmission project expected to be in service between
9 2012 and 2014, and the proposed Hemingway-Boardman Line
10 that could be in service as early as 2012. The excluded
11 proj ects and their estimated costs are currently under
12 review by the Company.
13 The Company has not made a combined investment of
14 this magnitude since it built the Hells Canyon Complex in
15 the 1950s and will need to rely on both internal and
16 external sources to fund it. Idaho Power envisions seeking
17 the Commission' approval to recover CWIP in rate base on a
18 project-by-project basis, and is hopeful that the
19 Commission and its customers will partner with the Company
20 using CWIP to ensure Idaho Power has the requisite funds to
21 invest in future construction.
22 Q.AMI is another activity that has rate
23 recovery implications. What are Idaho Power's plans
24 related to AMI deploYment across its system?
GALE, DI 19
Idaho Power Company
1 A.Idaho Power has been assessing the value
2 that AMI could bring to its customers for a number of
3 years. Information regarding AMI's potential for our
4 system has been provided to the Commission formally through
5 compliance reports and informally through various meetings
6 with the Commission Staff. As noted in the Company's AMI
7 compliance report dated August 31, 2007, Idaho Power plans
8 a three-year deploYment of AMI across its entire system
9 beginning in 2009. Ideally, the Company would include the
10 revenue requirement impacts of the first year of the
11 deploYment in the current rate filing ¡however, due to
12 timing of the vendor Request for Proposals and the ultimate
13 awarding of contracts, the Company was unable to have cost
14 information in time for the general rate case filing, so
15 the AMI costs have not been included in this request.
16 Q.Why is AMI cost recovery important to Idaho
17 Power?
18 A.AMI implementation will bring customer
19 operational benefits and provide a foundation for customer
20 information, programs, and dynamic pricing. For these
21 reasons, Idaho Power finds it reasonable to pursue full
22 implementation of AMI staged over three years. However,
23 the significant customer and economic growth that the
24 Company has been experiencing requires continued
GALE, DI 20
Idaho Power Company
1 investments in infrastructure to connect and meet the
2 energy needs of these customers. Additionally, there is an
3 ongoing need to replace existing infrastructure to continue
4 to reliably serve existing loads. Although AMI will
5 provide benefits to customers, it is not an investment that
6 is necessary for Idaho Power to fulfill its obligation to
7 meet new and existing service requirements. Accordingly,
8 Commission support of AMI cost recovery is an important
9 factor in the Company proceeding with implementation.
10 Q.What are your plans to address AMI cost
11 recovery outside the general rate case?
12 A.Once cost information is known later this
13 summer, the Company will bring a separate filing before the
14 Commission to address the cost recovery aspects of AMI.
15 The Company will propose a parallel cost recovery track to
16 the general rate case and attempt to time the AMI rate
17 adjustments to coincide with the results from the general
18 rate case.
19 Q.How is energy efficiency currently funded at
20 Idaho Power?
21 A.The Company's energy efficiency activities
22 are primarily funded through our Energy Efficiency Rider,
23 Schedule 91, which applies a fixed percent of each
24 customer's bill to be used for purposes of energy
GALE, DI 21
Idaho Power Company
1 efficiency and demand response. The Commission in its
2 Order No. 30560 recently authorized an increase in the
3 percentage applied to retail customer bills from 1.5
4 percent to 2.5 percent. This change became effective on
5 June 1, 2008.
6 Q.Is the Company proposing to transfer any of
7 the ongoing costs of funding energy efficiency activities
8 in this rate filing?
9 A.No. While one could make an argument for
10 including an ongoing amount of expenses in base rates, the
11 Company decided not to do so in this rate proceeding in
12 part to not add more pressure to the general rate filing
13 and in part to allow more time to assess the regulatory
14 model most appropriate for energy efficiency.
15 Q.What is the implication for energy
16 efficiency funding going forward?
17 A.The Company presently plans to spend more on
18 energy efficiency activities than the Energy Efficiency
19 Rider is forecast to collect. Eventually, if Idaho Power
20 is to invest in conservation, demand response, and energy
21 efficiency at the level it envisions, the Company will have
22 to raise the rider amount again or find alternative funding
23 methods.
GALE, DI 22
Idaho Power Company
1 Q.Please discuss the rate adjustment related
2 to the 2008 cost reductions.
3 A.As discussed in Ms. Smith's testimony, Idaho
4 Power implemented a cost containment effort that identified
5 $3,834,000 in estimated cost reduction to other operations
6 and maintenance expenses. Because these cost reductions
7 were a direct resul t of the Company managing through the
8 current financial situation and not reductions that can be
9 sustained over time, there is a reasonable argument that
10 they should not be deducted from the cost of service,
11 a. k. a. the revenue requirement. However, following much
12 discussion at the senior level, the Company decided it was
13 appropriate to include their impact because these
14 reductions were known at the time of the filing.
15 RATE SPRE AN RATE DESIGN
16 Q.What has been Idaho Power's policy with
17 regard to rate spread and rate design proposals?
18 A.Idaho Power has consistently advocated for
19 the principle that rate spread among the customer classes
20 and for component pricing within the customer classes
21 should be primarily cost-based. Accordingly, the Company's
22 ratemaking proposals have traditionally advocated movement
23 toward cost-of-service results which assign costs to those
24 customers that cause the Company to incur the costs.
GALE, DI 23
Idaho Power Company
1 Q.Do the Company's proposals in this case
2 strictly adhere to that objective?
3 A.No. The Company realizes that there are
4 often other ratemaking objectives, such as rate stability,
5 ability to pay, and rate shock, which the Commission may
6 consider in making its determination. However, the Company
7 believes that the best starting point for Commission
8 deliberations is an economic one. Nevertheless, since some
9 ratemaking situations may cause abrupt change, Idaho Power
10 has traditionally proposed some limits to the movement
11 toward cost-of-service. The specifics of the Company's
12 proposed rate spread and an exhibit delineating the target
13 revenue requirement for each customer class are contained
14 in Mr. Tatum's testimony.
15 Q.What guidance did you provide Mr. Tatum
16 regarding cost of service constraints applied to the rate
17 spread ultimately recommended?
18 A.First, I discussed the three Class Cost of
19 Service Studies prepared for this case with Mr. Tatum and
20 agreed with his conclusion that the 3CP/12CP Class Cost of
21 Service Study was the preferred starting point in this
22 proceeding to develop the recommended rate spread.
23 However, this method when applied without constraints, does
24 show a significant impact to a number of customer classes
GAE, DI 24
Idaho Power Company
1 and contract customers. Given recent rate pressures and
2 the somewhat subj ective nature of cost allocation and year-
3 to-year cost components, I asked Mr. Tatum to run several
4 rate mitigation scenarios to look at the impacts of
5 constraining the rate increase at different levels. After
6 this review, the Company chose to impose a 15 percent cap
7 on any change to a customer class or special contract
8 customer. This level allowed rate movement of no more than
9 approximately one and a half times the average rate change,
10 while not dramatically impacting the remaining classes that
11 had to make up the shortfall.
12 Q.How has Idaho Power addressed the cost-based
13 objective in its rate design proposals?
14 A.In the Company's last several general rate
15 cases, this obj ecti ve has been met by the implementation of
16 seasonal rates for all metered service schedules, tiered
17 summer rates for Residential and Small Commercial
18 customers, mandatory time-of-use rates for Large Power
19 Service customers, and two-tiered blocked rates for Large
20 General Service Customers taking secondary service. In
21 addition, this objective has been met by the implementation
22 of rates that reflect a greater emphasis on the demand and
23 customer components.
GALE, DI 25
Idaho Power Company
1 Q.Are there any other policy obj ecti ves
2 regarding rate design?
3 A.Yes. The Company is committed to providing
4 customers cost-based price signals which encourage the wise
5 and efficient use of energy. As such, I have directed the
6 three pricing analysts sponsoring testimony in this case to
7 design cost-based rate proposals that encourage increased
8 energy efficiency among the Company's Residential, Large
9 General Service, and Irrigation customer groups. Ms.
10 Waites is sponsoring testimony and exhibits supporting
11 tiered rates for Residential customers in both the summer
12 and non-summer season. Ms. Nemnich is sponsoring testimony
13 and exhibits supporting the implementation of mandatory
14 time-of-use rates for Large General Service customers
15 taking service at both the Primary and Transmission Service
16 Levels. Finally, Ms. Bowman is sponsoring testimony and
17 exhibits supporting the implementation of load-factor
18 pricing for Irrigation customers.
19 Q.Is there another issue regarding the
20 development of the revenue requirement, the class cost of
21 service studies, and the rate design that you would like to
22 call to the attention of the Commission and the other
23 parties to this proceeding?
GALE, DI 26
Idaho Power Company
1 A.Yes. The Company has prepared its case
2 using forecasted retail revenues that corresponded to those
3 that were filed in Case No. IPC-E-08-01, which was the case
4 seeking rate recovery for the costs of the Danskin
5 Combustion Turbine that came on line this spring. In Order
6 No. 30559, the Commission excluded a relatively small part
7 of the investment from inclusion in rates ($422,000).
8 Idaho Power has not included this small impact in this
9 filing because of the time required to reprocess all the
10 analyses and studies to match the revenue. Since the
11 impact of not making the change is to overstate revenues
12 slightly, customers benefit from this decision.
13 Q.Is it your opinion that the granting of the
14 rate relief proposed by the Company is in the public
15 interest?
16 A.Yes. The proposed rates will allow Idaho
17 Power to continue providing safe, reliable service at
18 reasonable rates while maintaining its financial health.
19 Q.Does this conclude your testimony?
20 A.Yes, it does.
GALE, DI 27
Idaho Power Company