20081024Vaughn Direct.pdf

BEFORE THE RECEIVED
2808 OCT 24 PH~: 47
IDAHO PUBLIC UTILITIES COMØJ§~i~l1c
UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO.IPC-E-08-10
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE )
TO ELECTRIC CUSTOMERS IN THE STATE)OF IDAHO. )
)
)
)
DIRECT TESTIMONY OF CECILY VAUGHN
IDAHO PUBLIC UTILITIES COMMISSION
OCTOBER 24, 2008
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Cecily Vaughn. My business address
4 is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission (Commission) as an auditor in the Utilities
8 Division.
9 Q.What is your educational and experience
10 background?
11 A.I graduated from Washington State University in
12 1974 with a Bachelors of Science degree in Veterinary
13 Science; I received my degree as a Doctor of Veterinary
14 Medicine at the same time. I practiced as a veterinarian
15 in the State of Washington until approximately 1987. From
16 1993 until 1996 I attended the College of Business and
17 Economics at the University of Arkansas in Fayetteville,
18 Arkansas. From 1996 until 1997 I studied at the College
19 of Business at Boise State University with an emphasis in
20 accounting. I passed the Uniform CPA exam in the fall of
21 1997; I am currently a licensed CPA in the State of Idaho.
22 I was employed as a financial analyst by Hewlett
23 Packard from 1998 until 2000. In this position I provided
24 sole financial support for the HP test lab located in
25 Boise, a cost center with an annual budget in excess of
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (D i) 1
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1 $50 million. I was solely responsible for coordinating
2 the semi-annual budgeting process, for developing and
3 implementing the allocation system used to distribute
4 costs to multiple profit centers, and for ensuring that
5 costs incurred were appropriate and met budgetary goals.
6 During this time I also served as inventory analyst for
7 the Personal LaserJet Division, a $2 billion per year
8 profit center. In this role, I was responsible for
9 accurate valuation of worldwide inventory and for removal
10 of intracorporate profit included in inventory value.
11 From 2000 until 2003 I was employed as Grants
12 Accountant (Financial Specialist) for the Center for
13 Geophysical Investigation of the Shallow Subsurface at
14 Boise State University; I was promoted to Senior Financial
15 Specialist in 2002. In this role, I was responsible for
16 all aspects of grant accounting for the Center, including
17 budgeting, submission, and ensuring that grant funds were
18 expended and accounted for in accordance with funding
19 agency regulations. I also assisted in the preparation of
20 the BSU F&A (Facilities and Administration) request used
21 to set the overhead rate applied to all Federal Grants
22 awarded the University.
23 I have been employed by the Commission as an
24 auditor since June 2007. I attended the annual regulatory
25 studies program sponsored by the National Association of
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 2
STAFF
1 Regulatory Utilities Commissioners (NARUC) at Michigan
2 State University in August 2007.
3 SUMY
4 Q.Would you please summarize Staff's
5 recommendations in those areas of the rate case that you
6 personally reviewed?
7 A.Staff recommends use of a 2008 test year based
8 on adjustments to a 2007 base year. Staff's
9 recommendations in the areas I personally reviewed with
10 the effect on the revenue requirement are as follows:
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(1) Idaho Power Company proposed using a 2008
forecast test year for this rate case. To
develop this test year, the Company
escalated 2007 expenditures for Operations
and Maintenance (O&M) acti vi ty based upon a
calculated 5-year growth rate. However, it
is Staff's position that the forecast O&M
is overstated and should be reduced. The
Company requested an increase to O&M
expense of $15,985,407. Staff recommends
that O&M expense be escalated by
$1,750,020, thus decreasing both expense
and revenue requirement by $14,235,387.
(2) In its forecast test year, Idaho Power
Company requested an increase of $6,617,514
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for Plant Materials and Supplies. Staff
recommends maintaining the 2007 base year
level and removing this escalated amount
from rate base. This decreases revenue
requirement by $780,024.
(3) In this rate case, Idaho Power Company
proposed including a portion of the
Construction Work in Progress (CWIP)
associated with the Hells Canyon
Relicensing Proj ect in rates. Staff agrees
that there is explicit evidence showing
that including the annual carrying charge
on CWIP in rates serves the public
interest. However, Staff believes that the
amount to be included in rates should be
reduced by $2,881,849.
(4) As a result of a series of FERC settlements
related to the 2003 billing, Idaho Power
Company received a credit in the amount of
$3,266,010. Staff recommends amortizing
this credit over five years, thus
decreasing the annual revenue requirement
by $653,202.
(5) Based on an audit of P-card expenditures,
Staff recommends reducing the 2007 base
CASE NO. IPC-E-08-10
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year expenses and revenue requirement by
$884,787 to remove expenditures that are
either excessive or that do not directly
benefit the customer.
Q.How were you able to determine the revenue
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6 requirement effect of each of Staff's recommendations?
A.I determined what accounts in the rate case
8 would be changed by each adjustment. Using the
9 Jurisdictional Separation Study (JSS) and Revenue
10 Requirement Model, I then determined the effect on revenue
11 requirement resulting from each adjustment.
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Q.Are you sponsoring any additional testimony?
A.Yes. I am sponsoring testimony that summarizes
14 the adjustments recommended by all Staff witnesses. In
15 addition, I am sponsoring testimony that describes the
16 Jurisdictional Separation Study, a model that develops the
17 Idaho revenue deficiency as well as the revenue increase
18 needed to meet that deficiency. The JSS shows an Idaho
19 Revenue Deficiency of $9,681,345 and results in an Idaho
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20 required revenue increase of 1.44%
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Q.Are you sponsoring any exhibits?
23 127.
A.Yes, I am sponsoring Exhibit Nos. 119 through
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24 COST ESCATION OF OPERATIONS AN MAINTENANCE EXPENSES
Q.Please summarize the method used by Idaho Power
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1 to escalate 2007 O&M costs to develop the 2008 test year.
2 A.Idaho Power developed Compound Annual Growth
3 Rates (CAGR) that it applied to specific FERC O&M "account
4 groupings" . These account groupings are (1) Steam Power
5 Production (Accounts 500-515), (2) Hydro Power Production
6 (Accounts 535 - 545), (3) Other Power Production (Accounts
7 546-557), (4) Transmission (Accounts 560-574), (5)
8 Distribution (Accounts 580-598), Customer Accounting,
9 Service, and Selling (Accounts 901- 917 excluding DSM), and
10 Administrative and General (Accounts 920-935). A
11 different CAGR was calculated and applied to each account
12 grouping and was applied to all accounts within that
13 grouping with the exception of Accounts 501 and 547
14 (Fuel), 555.1 and 555.2 (Purchased Power), 565
15 (Transmission of Electricity by Others), 924 (Property
16 Insurance), and 928.101 (FERC Administrative &
17 Miscellaneous Expenses) .
18 Q.How did you evaluate the reasonableness of this
19 escalation methodology?
20 A.I evaluated the escalation as follows:(1) I
21 looked at the accounts escalated to determine if
22 escalation of the specific accounts was reasonable; (2) I
23 looked at the development of the CAGR to determine if the
24 methodology was reasonable and tested the model using data
25 supplied by the Company; (3) I evaluated the data provided'
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C . (D i) 6
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1 by the Company and determined which account groups showed
2 a consistent trend and developed a reasonable escalation
3 amount for those accounts.
4 Q.Did you have any concerns regarding escalation
5 of specific accounts or account groupings?
6 A.I had two maj or concerns regarding the
7 escalation of specific accounts and account groupings.
8 First, labor is included in many different
9 accounts in all account groupings. However, labor is also
10 escalated via the payroll annualization/structured salary
11 adjustment (SSA) as described by Ms. Smith in her direct
12 testimony at page 29, lines 12-17. Thus labor costs are
13 escalated by two different methods in the Company's case.
14 I believe it is inappropriate to escalate labor costs
15 using the CAGR when 2008 labor costs are more directly
16 escalated elsewhere. Payroll annualization and SSA has
17 been addressed previously by Staff witness Leckie in his
18 direct testimony.
19 Second, General and Administrative (G&A)
20 Accounts 920-935 are increased using as-year CAGR of
21 9 .41 % . However, when the data used by the Company to
22 develop the CAGR for G&A expenses are examined, it is
23 apparent that G&A expense is essentially flat until 2006
24 with an average G&A expense of $73,500,068 for the period
25 2004-2006. However, G&A Expense in 2007 is equal to
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 7
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1 $91,097,520, an increase of $17,597,452 from the 2004-2006
2 average expense. This data is shown in Exhibit No. 119,
3 Columns 3 - 6, lines 72 -77. This increase is coincident
4 with IDACORP divestiture of multiple subsidiaries. This
5 divestiture resulted in reallocation of more corporate
6 expenses to Idaho Power Company. Staff believes it is
7 unreasonable to further escalate G&A expense when it is
8 apparent that the growth in G&A is the result of one-time
9 corporate divestitures.
10 Q.Please describe how the Company developed its
11 escalation model?
12 A.Yes. Exhibit No. 119 was provided by the
13 Company in response to Audit Request No. 53 and shows the
14 data used by the Company to develop its CAGR. This data
15 shows financial data organized by account group and by
16 cost element (Labor, Materials, Purchased Services,
17 Accounting Entries, and Other Expenses). This data is
18 provided for the years 2003-2007. The CAGR formula used
19 to analyze this data is shown in Exhibit No. 120. An
20 example of how the formula is applied is shown in Exhibit
21 No. 120 as well.
22 Q.Do you have any concerns regarding the method
23 used by the Company to develop the CAGR escalation model?
24 A.Yes. I have two maj or concerns regarding the
25 method used by the Company to develop its escalation
CASE NO. IPC-E-08-10
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1 methodology.
2 First, it is apparent from Exhibit No. 120 that
3 the formula applied to develop the CAGR is developed from
4 only two data points, the beginning and ending values.
5 There are an infinite number of formulas that can be used
6 to describe the relationship between two data points.
7 Choosing a Compound Annual Growth Rate to escalate
8 expenses is an arbitrary choice on the part of the
9 Company. From a mathematical modeling standpoint, the
10 CAGR is no more valid than any other escalation
11 methodology such as average growth rate.
12 Second, the Company did not test its model
13 against actual data. As stated by Ms. Smith in her
14 testimony at page 22, lines 17 - 18, the model as used
15 "smoothes out uneven amounts within these years."
16 However, it is apparent from casual inspection of the
17 data, that there is considerable variation in expenses
18 year-to-year. For example, Materials Expense in Hydro
19 Production (Exhibit No. 119, line 15, Columns 2 - 10) swings
20 from $1.6 million in 2004 to $2.3 million in 2005 to $2.8
21 million in 2006 to $2.6 million in 2007. The 5-year CAGR
22 shows a growth of 15.25% in this category, but it is
23 obvious from the actual data that there is no consistent
24 trend in growth.
25 Q.How did you evaluate the data to determine a
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 9
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1 reasonable increase in O&M expense?
2 A.In consultation with Staff witness Carlock I
3 determined that the following method was most appropriate
4 to escalate 2007 O&M expense to develop the 2008 test
5 year. First I consolidated the data used by the Company
6 as shown in Exhibit No. 119 to eliminate labor and all
7 Administrative and General Expense. For the purpose of
8 this analysis, I combined Steam, Hydro, and Other Power
9 Generation to evaluate expense growth. This consolidated
10 data is shown in Exhibit No. 121.
11 I then examined the cost elements Materials,
12 Purchased Services, and Other Expenses for each account
13 group and determined whether year-to-year trending showed
14 consistent growth or whether there was no consistent
15 pattern. My determination is shown in Exhibit No. 121,
16 Column 12. The two cost elements that showed consistent
17 growth were Power Generation Other Expense and
18 Distribution Other Expense. In each case, I believe a
19 modest 5% growth escalation is reasonable because the
20 Company has some discretion over Other Expense spending.
21 Using this factor, the total gross escalation is
22 $2,876,561 (Exhibit No. 121, Column 12, line 42).
23 "Accounting Entries" is a cost element that
24 represents intracompany expense transfers and includes
25 such items as Amortization Expense. This expense category
CASE NO. IPC-E-08-10
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1 is not directly related to any growth factors and any
2 change in the G&A account group does not appear to be
3 related to subsidiary di vesti ture by IDACORP. In order to
4 address this cost element group, I summed the total
5 Accounting Entries Expense for the years 2003 through
6 2007, averaged 3 years of year-to-year change, and
7 reflected this in the gross escalation. By accounting
8 convention, in this case the average Accounting Entries
9 adjustment to O&M escalation reduces the escalation
10 amount. (See Exhibit No. 122). As a result of these
11 calculations, the net escalation Staff believes is
12 reasonable and recommends be used to develop the 2008 test
13 year is calculated to be $1,750,020.
14 PLAT MATERIALS AN SUPPLIES (RATE BAE-WORKING CAITAL)
15 Q.Please summarize the method used by Idaho Power
16 to escalate 2007 Materials and Supplies to develop the
17 2008 test year.
18 A.Account 154 (Plant Materials and Supplies) is
19 the inventory of materials used for the construction,
20 operation, and maintenance of the entire utility plant
21 operated by Idaho Power. Account 163 is a clearing
22 account used to capitalize the expenses that are directly
23 related to inventory/storeroom maintenance. In its
24 development of the 2008 test year, the Company escalated
25 Account 154 using a 3-year CAGR equal to 16.38% and
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 11
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1 escalated Account 163 using a 3 -year CAGR equal to 4.31%.
2 (See Smith Exhibit No. 34, page 15.) The total increase
3 in rate base using this methodology is equal to
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4 $6,617,514.
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Q.DO you agree with this escalation?
A.No. I believe that Plant Materials and Supplies
7 (including the portion due to stockroom management) is
8 dependent upon current conditions for which there is no
9 accurate predictor. Thus I believe that the Company's
10 proj ected increase cannot be considered known and
11 measurable with any degree of certainty. Further, I
12 believe that adequate planning, ordering, and inventory
13 management will allow inventory levels to be maintained at
14 2007 levels. Therefore, I recommend removing the
15 $6,617,514 escalation from rate base, thus decreasing
16 revenue requirement by $780,024.
18
1 7 AFC ON THE HELLS CAYON RELICENSING PROJECT
Q.Please describe the Company's proposal to
19 include the current AFUDC portion of CWIP relative to the
20 Hells Canyon relicensing proj ect.
21 A.The Company has requested recovery of the
22 currently accruing AFUDC for the Hells Canyon relicensing
23 proj ect as part of this rate case. AFUDC for this proj ect
24 has accrued since 1999, but the Company is only asking to
25 include the AFUDC that is forecast to accrue in 2009. In
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 12
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1 large part, Staff agrees with the Company's proposal set
2 forth in direct testimony by Ms. Miller (Miller direct
3 testimony at page 3, lines 1-5)
4 "The purpose of my testimony is to
request that the Allowance for Funds5 Used During Construction ("AFUDC")
component of Construction Work in6 Progress ("CWIP") for the Hells Canyon
relicensing project be included in base7 rates."
8 This potential inclusion of CWIP/AFUDC in base rates is an
9 option the Commission may utilize based on a recent change
lOin Idaho Code.
11 In 1984 Idaho Legislature enacted Idaho Code §
12 61-502A to read
13 "Except upon its finding of an extreme
emergency, the (Public Utili ties)14 Commission is hereby prohibited in any
order issued after the effective date of15 this act, from setting rates for any
utili ty that grants a return on16 construction work in progress... or
property held for future use and which17 is not currently used and useful in
providing utility service."18
However, in 2006 this section was amended to read
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20 "Except upon its explicit finding that
the public interest will be served
thereby, the Commission is herebyprohibi ted in order issued after the
effective date of this act, from setting
rates for any utility that grants a
return on construction work in progress
or property held for future use and
which is not currently used and useful
in providing utility service." (Emphasis
indicates amended language.)
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Construction Work in Progress (CWIP) including
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 13
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1 AFUDC may be considered in the determination of rates upon
2 a finding that the public interest will be served. Staff
3 believes that this case provides an appropriate
4 opportunity where the Commission can find that the public
5 interest will be served by the inclusion of the currently
6 accruing AFUDC on the Hells Canyon relicensing proj ect.
7 Staff agrees with the Company's concern that
8 AFUDC related to the Hells Canyon relicensing proj ect is
9 growing at an alarming rate. If AFUDC is allowed to
10 accrue using normal regulatory accounting procedures and
11 assuming no additional expenses are incurred during the
12 relicensing proj ect, the direct costs for the proj ect
13 would equal $67,682,931 and the AFUDC would equal
14 $42,703,648 by the end of 2009. By the end of 2012, the
15 direct costs of relicensing would still be $67,682,931 and
16 the AFUDC would have grown to $69,188,894. This growth in
17 AFUDC is clearly demonstrated in Exhibit No. 123. Staff
18 believes that this enormous growth in AFUDC provides the
19 basis for an explicit finding that it is in the public
20 interest to include AFUDC in base rates using the current
21 annual AFUDC amount and thereby prevent the further
22 accumulation of AFUDC accruing on AFUDC.
23 Q.Did Staff adjust the amount of AFUDC to be
24 included in based rates?
25 A.Yes. Staff calculated the amount of AFUDC to be
CASE NO. IPC-E-08-10
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1 included in base rates as follows: (1) First, the actual
2 AFUDC monthly rates were applied sequentially to the prior
3 month's ending CWIP balance. For example, the January
4 2008 AFUDC rate of 6.6520% was applied to the known and
5 measurable December 2007 CWIP balance of $95,642,535
6 resulting in the January 2008 ending CWIP balance of
7 $96,148,803. The February AFUDC rate of 5.5920% was then
8 applied to the January 2008 ending CWIP balance to arrive
9 at the February 2008 ending CWIP balance. The AFUDC rates
10 for January through August of 2008 were supplied by the
11 Company in response to Audit Request No. 86(d); the rate
12 for September through December of 2008 was estimated using
13 the average rate for the period January through August of
14 2008.(2) Second, the December 2008 AFUDC of $396,191 was
15 mul tiplied by twelve in order to forecast the AFUDC for
16 2009. The forecast AFUDC for 2009 was determined to be
17 $4,754,292. This resulted in an adjustment of $2,881,849
18 and an equivalent decrease in revenue requirement. See
19 Exhibit No. 124.
20 Q.Does Staff recommend any additional
21 modifications to the Company's proposal?
22 A.Yes. Staff proposes the following to limit
23 escalation of AFUDC related to the Hells Canyon
24 relicensing proj ect.
25 (1) The Company proposes accounting for AFUDC
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1 amounts recovered in base rates on the Hells Canyon
2 relicensing project as an Account 254 Regulatory
3 Liability.(See Miller direct testimony at page 13, lines
4 3-13.) For financial accounting purposes, AFUDC will
5 continue to accrue as CWIP using normal accounting
6 procedures. Once the Hells Canyon relicensing proj ect is
7 capitalized in rate base, the regulatory liability will
8 reduce the total amount of CWIP that is moved to electric
9 plant in service.
10 Staff agrees with the Company's proposal to
11 account for the funds related to recovery of AFUDC as a
12 Regulatory Liability. Additionally, Staff believes these
13 funds should accrue interest at the same rate as the AFUDC
14 booked as CWIP for financial accounting purposes. This
15 will prevent further compounding of AFUDC on the
16 accumulated proj ect costs. Accounting detail is shown in
1 7 the workpapers.
18 (2) Staff believes that including AFUDC in base
19 rates should be limited to the current rate case. Even
20 though compounding of AFUDC on accumulated project costs
21 will effectively cease December 2008, this new mechanism
22 for inclusion of AFUDC in base rates must be examined.
23 The FERC license on Hells Canyon may be issued as soon as
24 January of 2009 and the final accounting will be examined
25 in the next case. If the license has not been awarded,
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1 the Regulatory Liability and accounting records for the
2 CWIP and Regulatory Liability accounts must still be
3 examined to correct any f laws in the methodology proposed
4 in this case.
5 Q.Does Staff have any further recommendations
6 concerning overall cost control related to the Hells
7 Canyon relicensing proj ect?
8 A.Yes. Staff believes it is in the best interest
9 of customers to control the total cost of the Hells Canyon
10 relicensing proj ect ~ If FERC grants a permanent license
11 in January 2009, costs will be finalized as soon as the
12 Hells Canyon relicensing proj ect is placed in rate base.
13 Inclusion of the current AFUDC amount in base rates
14 provides the Company with cash flow at a grossed-up level.
15 With the additional cash flow, the Company has less of an
16 incentive to push for completion of the relicensing. To
17 make sure the incentive for completion remains as strong
18 as it was before this case, Staff recommends AFUDC stop at
19 December 2009. All AFUDC funding recovered in rates will
20 continue to be booked as a Regulatory Liability to offset
21 Hells Canyon relicensing CWIP once the proj ect is placed
22 in rate base. Idaho Power may file a separate case to
23 request the Hells Canyon relicensing proj ect be evaluated
24 for ongoing rate treatment. This filing should provide
25 sufficient documentation and review of expenditures for
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 17
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1 prudence prior to placing the proj ect in rate base.
2 Q.Why should the Commission consider allowing the
3 Hells Canyon relicensing proj ect to be placed in base
4 rates before a permanent license is granted by the FERC?
5 A.Although there are limited situations where
6 public is served by placing CWIP in rate base, the Hells
7 Canyon relicensing proj ect is different from other
8 construction proj ects for several reasons. First,
9 "proj ect completion" is determined when the FERC grants a
10 permanent license. Because of the large number of
11 stakeholders involved in relicensing and because of the
12 ever-shifting political environment, project completion is
13 largely beyond the Company's direct control. A permanent
14 license could be granted as early as January 2009 or it
15 could be delayed for many years. Second, it is unlikely
16 that the permanent license will not be granted. At the
17 present time, Idaho Power is operating the Hells Canyon
18 dam complex under annual licensing. Because the Hells
19 Canyon complex is fully operational and power generation
20 is not curtailed, Staff argues that the relicensing
21 investment is essentially used and useful at the present
22 time, even in the absence of a permanent license.
23 FERC CREDIT ADJUSTMNT
24 Q.Will you please explain the adjustment to
25 revenue requirement related to the FERC credit?
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1 A.In 2006, Idaho Power Company received a series
2 of credits from a settlement involving both FERC
3 administration and Other Federal Agency (OFA) charges.
4 Based on data received from Idaho Power Company in
5 response to Audit Request Nos. 133 and 134 made during
6 general rate case IPC-E-07-08, it was determined that the
7 total amount of the credits equalled to $3,266,010. Since
8 Idaho Power accrued these fees beginning in 2003, they
9 were included in rates paid by the customer in both the
10 2003 and 2005 rate cases. Therefore, I believe that the
11 customer should receive benefit from the credit received
12 by Idaho Power. I believe that this credit should be
13 amortized over a five-year period since this approximates
14 the timeframe during which Idaho Power over-accrued
15 FERC/OFA fees. This results in a negative adjustment to
16 regulatory fee expense of $653,202, thus decreasing
17 revenue requirement by $653,202.
18 ACCOUNTS PAYABLE ONE CA (P-CA) ADJUSTMNT
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20 Q. Will you please describe Exhibit No. 125?
21 A. Exhibit No. 125 lists amounts by FERC account
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that should be moved below the line for ratemaking
23
purposes. The total adjustment is $884,787 and results in
24 a revenue requirement decrease of $884,787.
25 Q. How did you arrive at this adjustment?
A. In the spring of 2008, Staff conducted an
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1 extensive audit of expenditures charged to Accounts
2 Payable One Cards (P-cards) by Idaho Power employees.
3 Q.How are P-cards used by Idaho Power employees?
4 A.The Company uses P-cards issued to employees to
5 manage the purchase and reimbursement of relatively small,
6 business-related expenses. As of June 30, 2007, the
7 Company employed 1977 individuals; 1818 individuals (92%)
8 of these individuals were issued P-cards. In 2007, the
9 total amount of employee P-card expenditures was
10 approximately equal to $11,212,016. Each month,
11 individual employees reconcile their P-card expenditures
12 by entering a justification for each expenditure on-line
13 in "PassPort" and enclosing receipts or other supporting
14 documentation in a reconciliation envelope. These
15 envelopes are filed alphabetically by employee each month;
16 approximately 1500 P-card reconciliations are filed each
17 month.
18 Q.What was the objective of Staff's audit of Idaho
19 Power employee P-cards?
20 A.The objectives of the Staff audit were to
21 examine receipts for appropriate detail, to evaluate cash
22 control, and to determine whether those expenditures are
23 appropriately the responsibility of Idaho Power's
24 . customers. This audit also allowed Staff to examine the
25 processes used to track P-card expenditures and to ensure
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1 that expenditures were booked to the appropriate accounts
2 for ratemaking purposes. The audit allowed Staff to
3 evaluate Company policies that govern P-card expenditures
4 and to determine whether the expenditures were made for
5 prudent and reasonable business purposes that directly
6 benefit the customer.
7 Q.How did Staff plan and conduct the audit?
8 A.The P-card audit conducted during the audit
9 associated with general rate case IPC-E-07-08 was limited
10 by time and resources. In order to fully evaluate the
11 propriety of P-card expenditures for ratemaking purposes,
12 a more extensive audit was employed for the purposes of
13 the current rate case. The audit was conducted as
14 follows:
15 (1) Approximately 75 envelopes were audited for
16 each month of 2007. The envelopes were chosen by
17 assigning each envelope a number from 1-1500
18 (approximately); the 75 envelopes were chosen by
19 generating 75 random numbers using Microsoft Excel ~.
20 (2) Each envelope was examined for original
21 supporting documentation, adequate matching of on-line
22 (Passport) justification with the documentation contained
23 in the envelope, and to ensure that there was appropriate
24 approval of expenditures by a third party.
25 (3) The Company provided a Microsoft Excel ~
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 21
STAFF
1 list of all P-card expenditures that included FERC
2 account, vendor, and business justification for each
3 expenditure. A line-by-line examination of all
4 expenditures was performed by Commission Staff. Each
5 expenditure was classified by Staff as Gifts/Awards,
6 Restaurant, Cell Phone, Coffee/Water, Donations,
7 Political, SB IPC, or "ok"; other expenditure
8 classifications were considered acceptable for the purpose
9 of this audit. "Gifts/Awards" included parties,
10 celebrations, greeting cards, gifts, and awards.
11 "Restaurant" included in-state restaurant meals, food and
12 related items purchased in grocery stores, and treats for
13 Company staff meetings; out-of -state meal purchases and
14 expenditures clearly identified as "per diem" were classed
15 as "ok." "Cell phone" included monthly cell phone fees as
16 well as cell phone accessories. "Coffee/water" included
17 bottled water purchased for office locations, breakroom
18 coffee supplies, and local newspaper subscriptions; food
19 purchases for cafeteria resale were not included.
20 "Donations" and "Political" included various charitable
21 donations and other expenditures that should have been
22 moved below the line for ratemaking purposes. USB IPC"
23 included expenditures similar to those removed by the
24 Company subsequent to its "keyword" search as described in
25 Ms. Smith's direct testimony at pages 14 - 15 and detailed
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 22
STAFF
1 in Company Exhibi t 30, pages 2 - 9.
2 It should be noted that the Company removed
3 $195,563 in memberships and donations and $18,675 in other
4 expenditures from the 2007 base year. Staff made every
5 attempt to avoid duplication of these exclusions in its
6 audit of P-card expenditures.
7 It should also be noted that the classification
8 system used by Staff is purposely broad; as a result, some
9 expenditures were arbitrarily assigned to one category
10 rather than another. For example a celebration dinner may
11 have been assigned to the "restaurant" category rather
12 than "Gifts/Awards". Because the individual transactions
13 were small, the impact of any discrepancy in expenditure
14 classification is immaterial.
15 I believe this audit addressed concerns
16 expressed by the Company in the prior rate case -
17 specifically (1) sample size, (2) selection methodology,
18 (3) incomplete evaluation of findings, (4)
19 monthly/seasonal variation, and (5) weighting percentage
20 of expenditures moved below the line based on total dollar
21 value audited.
22 Q.Please describe Exhibit No. 125.
23 A.Exhibi t No. 125 consists of two pages and lists
24 expenditures by FERC account and by expense
25 classification. Columns 1-8 list the expense
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 23
STAFF
1 classifications used by Staff; line 58 shows the amounts
2 for each classification that should be moved below the
3 line for ratemaking purposes. These amounts are (1)
4 $247,339 for Gifts/Awards, (2) $236,274 for restaurant
5 expenditures, (3) $306,475 for cell phone related
6 expenditures, (4) $61,729 for bottled water, coffee, and
7 newspapers, (5) $17,606 for charitable donations, (6)
8 $7,999 for political activity, and (7) $7,366 for
9 expenditures that should have been removed by the Company
10 keyword search. The total amount that I believe should be
11 moved below the line is $884,787. The individual
12 expenditures are provided electronically in the
13 workpapers.
14 Q.What criteria were used by Staff to classify
15 expenditures as "Gifts/Awards" as shown in Column 1?
16 A.Vendor and business justification were the
17 criteria used to identify items classified as
18 Gifts/Awards. Expenditures classified as Gifts/Awards
19 included Christmas parties, gift certificates, greeting
20 cards, team celebrations, and flowers. Specific examples
21 include a $390 retirement gift, $200 in gift cards as an
22 appreciation gift, and $1800 for an adult Christmas party.
23 The total of all expenditures classified as Gifts/Awards
24 totals $247,339. I believe that these expenditures,
25 though allowable as traditional business expenditures, do
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 24
STAFF
1 not benefit the customer and therefore 100% of the
2 expenditures for Gifts/Awards should be moved below the
3 line for ratemaking purposes. A complete list of
4 expenditures classified as "Gifts/Awards" is shown in the
5 workpapers .
6 Q.What criteria were used by Staff to classify
7 expenditures as "Restaurant" as shown in Column 2?
8 A.Vendor and business justification were the
9 criteria used to identify expenditures classified as
10 "Restaurant." Expenditures included purchases made at
11 coffee shops, restaurants, and grocery stores located in
12 southern Idaho and western Oregon; similar purchases made
13 outside these areas were considered to be travel-related
14 and therefore were considered "ok." Cash advances clearly
15 identified as per diem and purchases for cafeteria resale
16 were also excluded from the "Restaurant" category.
17 Expenditures excluded by the Company were also excluded
18 from this category. Restaurant expenditures totaled
19 $472,547; $236,274 or 50% was moved below the line for
20 ratemaking purposes.
21 Q.Why did Staff move only 50% of the expenditures
22 classified as Restaurant below the line?
23 A.The total number of accounting entries exceeded
24 150,000 rows; 17,787 lines of data were classified as
25 "Restaurant" expenditures. Because of this large amount
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 25
STAFF
1 of data, it was clearly impossible for Staff to review all
2 supporting documentation and to determine whether a given
3 expenditure should be moved below the line for ratemaking
4 purposes. However, I do believe that the total amount of
5 expenditures classified as "Restaurant" is excessive. Of
6 course, many of these "Restaurant" expenditures were
7 incurred in the course of in-state travel and reasonably
8 incurred business meals such as those related to fire
9 suppression. The 50% of all expenditures that Staff
10 allowed as reasonable O&M expense provides for these
11 reasonable and prudent business expenditures. However,
12 Staff also believes that many of the expenditures were
13 nei ther a reasonable nor necessary expense for a regulated
14 utility. Worrisome examples include $41.64 at EImers
15 Pancake House for a team meeting, $53.05 described as
16 "meet with contractor", $10.89 with another employee
17 justified as "employment review stuff", and $34.43
18 "coffee/cookies for meeting" . Staff does not believe it
19 is necessary for customers to provide food for meetings,
20 to pay for a restaurant meal for two Company employees, or
21 to entertain a contractor when the Company is not
22 competing for business with another supplier of power.
23 Therefore, I moved 50% of all expenditures classified as
24 "Restaurant" below the line to eliminate expenditures that
25 are believed to be excessive.
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 26
STAFF
1 I do not contend that any of these restaurant-
2 type expenditures are violations of Company policy; in
3 fact, Company policy permits meal reimbursement if Company
4 business is conducted during the meal. However, I believe
5 that Company policy is overly permissive regarding
6 expenditures for restaurant meals and other food provided
7 for its employees. Since the Company has put forth a cost
8 containment initiative in the current rate case as filed
9 (see Smith direct testimony at pages 29-30), I believe the
10 Company should consider tightening its policy regarding
11 food-related expense rather than continually increasing
12 rates. Cost containment is discussed further in Staff
13 witness Joe Leckie's testimony.
14 Q.What criteria were used by Staff to classify
15 expenditures as "Cell Phone" shown in Column 3?
16 A.Vendor and business justification were the
17 criteria used to identify expenditures classified as "Cell
18 Phone." Expenditures included purchases for monthly
19 charges from known providers such as Verizon and
20 AT&T/Cingular, as well as expenditures for cell phone
21 holsters, headsets and similar accessories. Staff did not
22 include any employee reimbursement for personal cell phone
23 charges in this total. The total amount of "Cell Phone"
24 O&M expense was $539,959; I believe this amount is
25
CASE NO. IPC-E-08-1010/24/08 VAUGHN, c. (Di) 27
STAFF
2
1 excessive and moved $306,475 below the line for ratemaking
purposes.
3 Q.Please discuss your rationale for this
4 adjustment.
5 A.The total amount of "Cell Phone" expense charged
6 to P-cards was $793,855. Of this amount, $539,959 was
7 allocated to O&M expense and the rest was allocated to
8 construction or other accounts. I believe this cell
9 phone-related expense to be excessive for two reasons.
10 (1) The total expenditure of $793,855 was calculated to
11 pay for an estimated 1,300 cell phones ($793,855 divided
12 by 12 months divided by $50 per month); in other words,
13 the Company provides cell phones for an estimated 66% of
14 employees (1300 cell phones/2000 employees). I believe it
15 is excessive to provide cell phones for this many
16 employees.(2) $145,981 (27%) of the total O&M cell phone
17 expense is charged directly to A&G (FERC account 921, A&G
18 Office Supplies and Expense). I believe it is excessive
19 to incur this expense since most A&G employees are
20 employed at Company central headquarters.
21 To adj ust for this apparent excess, I removed
22 75% of the cell phone expense charged to A&G and 50% of
23 all remaining cell phone expense. I estimated $233,484
24 (43%) of the original $539,959 to be reasonable and
25 prudent O&M expense.
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (D i) 28
STAFF
1 I recognize that cell phones are an important
2 aspect of every-day business communication. I also
3 recognize that, given the wide-spread and often remote
4 work areas of Company employees, reasonable cell phone
5 communication expense should be included in rates. I am
6 concerned that cell phone charges may be greater than
7 necessary because rates, providers, and calling plans vary
8 widely among employees . Given the large total expense
9 incurred by the Company for cell phone-related costs and
10 because the Company stated in testimony the importance of
11 cost containment, I believe the Company should investigate
12 a cell phone practice that reduces cost and is more
13 equitable for the customer.
14 Q.What criteria were used by Staff to classify
15 expenditures shown in Column 4-7 of Exhibit No. 125?
16 A.Column 4 lists expenditures for bottled water,
17 coffee, newspapers, and other items that Staff considers
18 to be luxury items that do not directly benefit the
19 customer. The total amount classified as Coffee/Water is
20 $61,729. Although expenditure for these items are
21 generally allowed for business purposes, I believe these
22 expenses should be moved below the line for ratemaking
23 purposes since they do not directly benefit the customer.
24 Column 5 lists Donations totaling $17,606.
25 Column 6 lists various expenditures related to political
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 29
STAFF
1 activity and lobbying in the amount of $7,999. These
2 expenses are traditionally moved below the line for
3 ratemaking purposes. These expenditures were coded to the
4 wrong expense account and were adjusted as a result of
5 Staff audit of all 2007 P-card expenditures.
6 Column 7 lists a number of expenditures that
7 were similar in nature to "keyword" adjustments made by
8 the Company. The total of these adjustments is $7,366.
9 Q.Please summarize the impact of the adjustment to
10 O&M expense resulting from the P-card audit.
11 A.The total of all O&M expenditures (FERC accounts
12 500 through 935, excluding DSM and General Advertising)
13 made using Company P-cards was equal to $6,585,793 in
14 2007. As a result of Staff's P-card audit, $884,787
15 (13.43%) was moved below the line for ratemaking purposes;
16 additional expense of approximately $273,489 (4.15%) was
17 removed by the Company. After removing these recommended
18 Staff adjustments plus the Company adjustments, $5,699,390
19 in P-card purchases remain included by Staff as O&M
20 expense in the calculation of the Company's revenue
21 requirement.
22 Q.Did Staff observe adequate accounting controls
23 during its audit of P-card reconciliation?
24 A.During its audit of Company P-card
25 reconciliation practices, Staff learned that the Company
CASE NO. IPC-E-08-1010/24/08 VAUGHN, c. (Di) 30
STAFF
1 makes every effort at the accounting level to ensure that
2 appropriate documentation and approval is provided for
3 every expenditure, particularly for cash advances.
4 In addition, although there is a Company policy
5 suggesting pre-approval in the case of questionable
6 expenditures, Staff found no documentation supporting such
7 pre-approval attached to the P-card reconciliation. For
8 most purchases, it is my belief that the system is based
9 on approval after-the-fact. As a practical matter, I
10 believe it is much easier for an employee to provide
11 documentation after-the-fact to justify an expenditure
12 than it is to obtain prior approval for the expenditure.
13 Q.Do you have any additional concerns that are
14 related to P-card expenditures?
15 A.Yes. I have several specific areas of concern
16 related to the extensive use of P-cards at Idaho Power
17 Company.
18 First, the Company seems to have minimal
19 interest in effective cost containment in certain areas.
20 The amount spent on Gifts/Awards and food-related expense
21 is excessive. Additionally, the policy regarding meal and
22 other receipts seems lax. Receipts are not required for
23 meals costing less than $75 paid for by P-card or for
24 meals paid for with cash costing less than $25. Non-
25 itemized receipts, e.g. duplicate credit card receipts,
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 31
STAFF
1 are acceptable as a receipt with some written notation of
2 purpose. There is no evidence that this is an abuse of
3 Company policy in these areas because these expenditures
4 are either explicitly allowed in the Company handbook or
5 implicitly allowed due to supervisor approval. I believe
6 Gifts/Awards and Restaurant-type expenses offer fertile
7 ground for the Company to tighten policy and practice
8 effective cost containment.
9 Second, P-cards seem to be used in lieu of
10 standard business purchasing practices. For example,
11 office supplies are purchased with P-cards rather than
12 through a general Company account and/or rate that is
13 negotiated at the Company level by a qualified purchasing
14 professional. In addition, Cell Phone fees, phones, and
15 accessories are purchased and paid for by individuals
16 using Company P-cards. If the current magnitude of cell
17 phone expense is truly a Company necessity, a Company
18 level contract should be professionally negotiated with a
19 cell phone service provider. I believe it is possible
20 that using established purchasing practices for large
21 Company-wide purchase contracts could result in
22 significant cost containment.
23 Third, it is possible for P-cards to be used for
24 personal expenses. Further, P- cards can be used for cash
25 advances without pre-approval, thus allowing employees
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (D i) 32
STAFF
1 direct access to the most liquid of Company assets: cash.
2 It is evidence of poor cash management if an employee can
3 use his P-card for personal expenses or a cash advance
4 similar to a "payday loan". Although the Company
5 reconciles documentation for all cash advances, this
6 practice is essentially the equivalent of giving any
7 employee with a P-card unfettered access to a petty cash
8 fund of $5000 or more. I believe this exposes the Company
9 to unnecessary financial risk that could be addressed by
10 modifying the policies and practices related to P-card
11 use.
12 Q.In its audit, did Staff find any direct evidence
13 of employee abuse of the P-card system?
14 A.No. However, the widespread use of P-cards and
15 the ability for an employee to take cash withdrawals to
16 self-reimburse for expenditures prior to approval opens
17 the door to the possibility of employee abuse. It should
18 be noted that there are three conditions typically present
19 when examples of the type of employee abuse described
20 above have occurred: (1) motivation, (2) opportunity, and
21 (3) an attitude that rationalizes such abusive behavior.
22 Although motivation is an individual factor, the Idaho
23 Power P-card practices in place provide the opportunity
24 for excessive spending using Company P-cards. Further,
25 the widespread use of P-cards for Gifts/Awards, meals, and
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 33
STAFF
1 other expenditures that do not directly benefit the
2 customer certainly enables or creates an environment where
3 an employee could easily rationalize and/or justify
4 excessive spending behavior.
5 The Company has stated that a P-card review is
6 scheduled as part of its ongoing policy review. These
7 areas of Staff concern should be considered for
8 modification in the review process. I believe that if the
9 Company is truly committed to cost containment,
10 modification of policies and practices related to P-card
11 usage is clearly indicated. Staff witness Joe Leckie
12 addresses cost containment by the Company in his
13 testimony.
14 STAFF ADJUSTMNT SUMY AN REVENU REQUIRENT
15
16
17
18
19
20
21
22
23
24
25
Q.Please describe the method by which Idaho Power
developed its forecast test year.
A.As described at length in Ms . Smith's direct
testimony, Idaho Power developed its 2008 test year based
on 2007 historical data in a series of sequential steps.
(1) 2007 actual data was modified by routine regulatory
and normalization adjustments to develop the 2007 base
year.(2) Various 2007 base year accounts were escalated
using various escalation methods to develop the 2008 base
year.(3) The 2008 forecast test year was finally
developed by adding various normalizing and annualizing
CASE NO. IPC-E-08-10
10/24/08
VAUGHN, C. (Di) 34
STAFF
1 factors to the 2008 base year data. The model for the
2 development of the historical test year is shown in the
3 electronic workpapers provided with this testimony.
4 Q.Please explain how Staff audited and made
6
5 adjustments to the Company forecast test year.
A.The Company developed its 2008 test year using
7 the Jurisdictional Separation Study model (JSS). Because
8 of the multi-step method used by the Company to develop
9 its revenue requirement, Staff audited and adjusted the
10 JSS in two phases in order to develop Staff's recommended
11 revenue requirement. First, Staff audited the 2007 base
12 year data and made adjustments that were used to develop
13 the 2007 base year. Second, Staff tested the various
14 escalation factors as well as the various forecast data
15 supplied and made separate adjustments to the 2008 base
16 year in the JSS. The various adjustments are described
17 previously in testimony.
19
18 Sumary of Adjustments
20
Q.Please explain Exhibit No. 126.
Exhibi t No. 126 illustrates my calculation ofA.
21 the revenue requirement and rate increase and compares
22 Staff's case to the case filed by Idaho Power. Staff's
23 revenue requirement is based on an Idaho rate base of
24 $2,087,973,882, total operating revenues of $816,477,779
25 and total operating expenses of $656,100,873 for the Idaho
CASE NO. IPC-E-08-10
10/24/08
VAUGHN, C. (Di) 35
STAFF
1 jurisdiction. Column 3 shows Staff's calculated results
2 for the total system. Column 3, line 39, shows a system
3 revenue deficiency of $27,579,373; Column 3, line 41,
4 shows a system revenue requirement of $737,651,947; and
5 Column 3, line 42, shows a required system increase in
6 revenues of 3.88%. Column 4 shows Staff's calculated
7 revenue deficiency, revenue requirement, and required rate
8 increase for the Idaho jurisdiction. Column 4, line 39,
9 shows an Idaho revenue deficiency of $9,681,345; Column 4,
10 line 40, shows an Idaho revenue requirement of
11 $682,850,886; and Column 4, line 41, shows an Idaho
12 required rate increase of 1.44%.
13 Q.Please explain Exhibit No. 127.
14 A.Exhibit No. 127 summarizes the adjustments made
15 to the Company's 2008 forecast test year to obtain the
16 final numbers included in Staff's revenue requirement.
17 Lines 1-16 outline the proposed rate base on which the
18 Company should earn a return. Column 1 represents the 13-
19 month average rate base presented by the Company in its
20 case. Column 2, line 7 shows a decrease in Allowance for
21 Accumulated Depreciation. Column 3, line 13 adjusts
22 working capital for escalated Materials and Supplies.
23 Staff witness Joe Leckie is the primary rate base witness
24 and the adjustment to Allowance for Accumulated
25 Depreciation is discussed in greater detail in his
CASE NO. IPC-E-08-10
10/24/08 VAUGHN, C. (D i) 36
STAFF
1 testimony. I am the primary witness addressing escalation
2 factors and the adjustment to Materials and Supplies as
3 discussed previously in my testimony.
4 Q.What adjustments were made to the test year O&M
5 expenses?
6 A.The Company made a number of adj ustments to
7 develop the 2007 regulatory base year. These are the
8 standard Commission adjustments arising from previous
9 orders. In addition, the Company made a series of
10 annualizing adjustments as well as adjustments reflecting
11 known and measurable revenues and expenses that affect
12 2008 and 2009. Except as specifically noted in testimony,
13 Staff agrees with the Company on these adjustments. The
14 sum total of these adjustments is reflected on Exhibit No.
15 127, Column 1, lines 17-34; Column 1, lines 17-34
16 summarizes net income components as presented by the
17 Company's case as filed.
18 Q.Did Staff make additional adjustments to the
19 Company's case as filed.
20 A.Yes. For ease of presentation, Staff
21 adjustments to both the 2007 base year and to the 2008
22 test year are combined. Combination of these two
23 adjustment components did not impact the final revenue
24 requirement.
25 Q.Please describe the adjustments shown in Column
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 37
STAFF
2
1 2 of Exhibit No. 127?
A.Adjustments shown in Column 2 include
3 adjustments to forecast 2008 revenues, to salary expense,
4 and to depreciation expense. Staff witness Joe Leckie
5 discusses these adjustments in his testimony.
6
7
Q.What adjustments are made to revenues?
A.The Company reduced 2007 Miscellaneous Service
8 Revenues by 13.99% in its development of the 2008 test
9 year. Staff witness Joe Leckie removed this reduction,
10 thus increasing revenues by $566,667. This adjustment is
12
11 discussed in his testimony.
13
Q.What adjustments are made to O&M expense?
A.Staff witness Joe Leckie removed a total of
14 $7,872,605 from O&M expenses for payroll expense,
15 incentives, attorney fees and interest on directors' fees.
16 These adjustments are discussed in great detail in Mr.
18
17 Leckie's testimony.
20
19 3.
Q.Please describe the adj ustments shown in Column
A.The adjustments to Operations and Maintenance
21 expense were made by me and are summarized in Column 3.
22 In total these adjustments reduce O&M expense by
24
23 $15,774,714.
25
Q.Please describe these adj ustments .
A.These adjustments consist of $14,236,725 related
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (D i) 38
STAFF
1 to reducing O&M expenses that were escalated in
2 forecasting the 2008 test year; $653,202 is due to
3 amortization of a credit that related to overbilling by
4 FERC; and $884,787 due to moving certain P-card
5 expendi tures below the line for ratemaking purposes.
6 These adjustments are discussed previously in detail in my
7 testimony.
8
10
9 4 of Exhibit No. 127.
Q.Please describe the adj ustments shown in Column
A.Staff witness John Nobbs has removed $666,950 of
11 miscellaneous administrative expenses from O&M expense.
12 Mr. Nobbs' adjustments are discussed in detail in his
14
13 testimony.
16
15 5 of Exhibit No. 127.
Q.Please describe the adjustments shown in Column
A.Adjustments to O&M Expense shown in Column 5 are
17 the power supply adjustments. Staff witness Rick Sterling
18 discusses the normalizing of power supply expenses and
19 Aurora modeling in his testimony.
20 Q.Please describe the adj ustment shown on Exhibit
22
21 No. 127, lines 33-34, Column 3.
A.The Company requested that a portion of the
23 AFUDC related to the Hells Canyon relicensing proj ect be
24 included in base rates. The Company showed this AFUDC as
25 a direct adjustment to revenue requirement. I adjusted
CASE NO. IPC-E-08-1010/24/08 VAUGHN, C. (Di) 39
STAFF
1 the amount of AFUDC included in rates by $2,881,849; this
2 adjustment is shown in Column 3, line 34.
4
3 CAPITAL STRUCTUR AN COST OF CAITAL
Q.Please summarize the capital structure and cost
6
5 of capital.
A.The capital structure of Idaho Power reflected
7 in the Staff's revenue requirement consists of
8 approximately 51% debt and 49% common equity. Staff uses
9 an overall cost of capital of 8.057% to calculate the
10 Company's revenue requirement. This amount is based on a
11 cost of debt of 5.927%, and a return on equity of 10.25%
12 as mentioned previously. Staff witness Carlock addresses
13 these items.
14 Q.Does this conclude your direct testimony in this
16
15 proceeding?
17
18
19
20
21
22
23
24
25
A.Yes, it does.
CASE NO. IPC-E-08-10
10/24/08
VAUGHN, C. (D i) 40
STAFF
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Case No. IPC-E-08-10
C. Vaughn, Staff
10/24/08
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Case No. IPC-E-08-10
C. Vaughn, Staff
10/24/08 Page 1 of 2
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~ ,§ e(::i e:ai :i :i ¡¡ 'õ :i Q. :gGlQ1'2 ()oi c.co 0 c: I I (\ "0 i Q) C Case No. IPC-E-08-10i:,,ca.c:I' e:Q e:s:ii .s I' I' ai e( I':S '"e:~.~~~o's,::'õ u U co ~ ~gg~'"Q)
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Idaho Power Company
P-Card Adjustments
IPC-E-08-10
,--IPUC Expense Category
(1)(2)(3)(4)(5)(6)(7)(8)f---
FERC Gifts Coffee
Account Awards Restaurant Cell Phone Water Donations Political SBIPC Total
(1)500 $31 $120 $151-,--~----------
(2)535 $6,319 $14,002 $8,338 $30 $189 $62 $28,940
(3)536 $299 $869 $988 $116 $92 $2,365
(4)537 $2,309 $22,311 $10,412 $199 $105 $1,015 $36,351
(5)538 $471 $480 $1,292 $154 $2,397
(6)539 $11,008 $8,828 $16,632 $628 $1,022 $273 $38,391
(7)541 $695 $2,858 $1,839 $33 $500 $5,925
(8)542 $362 $656 $1,223 $84 $2,325--~t--
(9)543 $131 $131------~-----~-_._-_.-.._--------~--1---------
(10)544 $406 $1,695 $119 1 $2,220---_.._.-------"..._---+~------ --------,-
------ =--$47I--=----=:---------
I-----~~
(11)545 $2,296 $2,2941 $5,145 $9,782------ ....._- ._._---~----,.-.-.-,- '--------'-, -,- - --,---,-,-+-------,--,--,..,"'------,----
(12)546 $106 $479 $878 $207 $1,6701----,,-- --
(B)548 $90 $339 $1,908 $2,337--_.---
(14)549 $277 $1,738 $46 $231 $2,293
(15)552 $63 -$85 -$22,-,----f---
(16)553 $190 $190
(17)554 $36 $195 $231
(18)557 $47 $309 $428 $1,151 $188 $2,123
(19)560 $5,172 $5,989 $7,341 $3,429 $277 $17 $50 $22,273
(20)561 $235 $520 $1,249 $52 $2,057
(21)562 $2,783 $2,426 $7,092 $2,394 $78 $178 $14,951
(22)563 $141 $774 $2,066 $17 $2,998-,
(23)566 $2,651 $1,474 $768 $69 $22 $4,984
(24)568 $1,182 $703 $216 $4 $144 $2,248
(25)569 $238 $151 $1,802 $2,190----
(26)570 $2,113 $2,367 $2,220 $314 $124 $16 $7,154
(27)571 $13 $3,526 $866 $11 $4,417
(28)580 $14,964 $13,598 $8,053 $4,379 $122 $46 $827 $41,989
(29)581 $126 $1,014 $643 $1,783
(30)582 $2,192 $4,294 $4,910 $66 $60 $11,520
(31)583 $491 $22,903 $2,668 $4 $563 $26,629--,._~~-----,
(32)584 $189 $5,558 $35 $193 $5,976,--------
(33)585 $5 $5,-,','-----_.._---r-------,--
(34)586 $5,4871 $2,466 $11,340 $445,$58 $19,795
(35)587 $i,423r--$3:910 $3,941 -------1 $22 $192 $9,498$111
Exhibit No. 125
Case No. IPC-E-08-10
C. Vaughn, Staff
10/24/08 Page 1 of 2
Idaho Power Company
P-Card Adjustments
IPC-E-08-10
------ f--(1)(2)--_..(3)-----(4)(5)(6)(7)(8)
FERC Gifts Coffee
Account Awards Restaurant Cell Phone Water Donations Political S81PC Total
(36)588 $31,517 $21,899 $22,954 $12,863 $183 $663 $90,078
(37)590 $226 $151 $6 $383
(38)592 $3,504 $2,646 $5,768 $1,327 $93 $77 $13,415
(39)593 $1,619 $4,409 $4,310 $305 $37 $303 $10,983
(40)594 $299 $2,917 $3,043 $256 $6,515
(41)595 $12 $12
(42)596 $27 $0 $4 $31- ..._--_..~--,--,-,..
(43)597 $1,027 $774 $374 $833, !$3,009~~-.,----_.._._......._-_.---_._-
----t--------T~----~rm-'--- --
--,-~------~~-
(44)598 $20 , !$0 $21,_,m_~- ......,,--- ---~~--~---~~--------- --~------
(45)901 $3301 $389 ___~~_1-~$1,246 ~$2,025
(46)902 ""--$6:06or-~458 $17,738 $857 $123'$53 $28,288- --_....-~.._._._.-----~---- --~--------,
(47)903 $11,651 $2,769 $12,646 $1,251 $367 $24 $28,708
(48)907 $2,699 $1,722 $314 $139 $11 $4,884
(49)908 $6,905 $9,918 $10,824 $783 $4,575 $86 $253 $33,345
(50)910 $1,016 $1,536 $2,234 $478 $5,265
(51)921 $70,074 $49,656 $112,132 $11,472 $7,441 $3,687 $1,309 $255,770
(52)923 $1,142 $90 $1,232
(53)924 $498 $242 $273 $1,013-
(54)925 $76 $167 $133 $377--~---
(55)926 ___$44,73?l~j459 $14,472 ,$1311 $503 $60,302,-,---'
(56)930 $~-M $127 $422 $1,409 $4,153 $6,634
(57)935 $455, $2,694 $8,583 $2,303 $194 $14,230
Grand i
(58)Total $247,339 $236,274 $306,475 $61,729 $17,606 $7,999 $7,366 $884,787
Exhibit No. 125
Case No. IPC-E-08-10
C. Vaughn, Staff
10/24/08 Page 2 of 2
Idaho Power Company
Summary of Revenue Requirement
IPC.E.08.10
(1)(2)(3)(4)
IDAHO POWER IPUCSTAFF
RATE BASE System Idaho System Idaho
Electric Plant in Service:
(1)Intangible Plant 52,688,392 49,329,350 52,688,392 49,329,350
(2)Production Plant 1,717,540,443 1,632,332,243 1,717,540,443 1,632,332,243
(3)Transmission Plant 748,808,817 635,774,871 748,808,817 635,774,871
(4)Distribution Plant 1,211,361,073 1,138,670,034 1,211,361,073 1,138,670,034
(5)General Plant 244,433,778 226,426,590 244,433,778 226,426,590
(6)Total Electric Plant in Service 3.974,832,504 3,682,533,088 3,974,832,504 3,682,533,088
(7)Less: Accumulated Depreciation 1,622,092,878 1,508,811,671 1,621,357,284 1,508,128,065
(8)Less: Amortization of Other Plant 18,760,605 17,564,561 18,760,605 17,564,561
(9)Net Electric Plant in Service 2,333,979,020 2,156,156,856 2,334,714,614 2,156,840,462
(10)Less: Customer Adv for Construction (25,864,547)(25,825,992)(25,864,547)(25,825,992)
(11)Less: Aceum Deferred Income Taxes (197,764,597)( 183,195,480)(197,764,597)( 183,195,480)
(12)Add: Plant Held for Future Use 1,824,928 1,705,126 1,824,928 1,705,126
(13)Add: Working Capital 64,689,305 60,113,857 58,071,791 54,005,119
(14)Add: Conservation - Other Deferred Progr 6,242,295 6,078,983 6,242,295 6,078,983
(15)Add: Subsidiary Rate Base 82,675,160 78,365,663 82,675,160 78,365,663
(16)TOTAL COMBINED RATE BASE 2,265,781,563 2,093,399,014 2,259,899,644 2,087,973,882
IDAHO POWER IPUC STAFF
NET INCOME System Idaho System Idaho
Operating Revenues:
(17)Sales Revenues 816,258,286 778,983,386 822,616,428 785,010,105
(18)Other Operating Revenues 39,878,362 30,908,600 40,445,029 31,467,673
(19)Total Operating Revenues 856,136,648 809,891,986 863,061,457 816,477,779
Operating Expenses:
(20)Operation & Maintenance Expenses 561,090,864 522,734,309 531,904,088 495,616,167
(21)Depreciation Expenses 98,414,708 91,344,227 96,943,520 89,976,868
(22)Amortization of Limited Term Plant 7,313,778 6,847,503 7,313,778 6,847,503
(23)Taxes Other Than Income 20,084,333 18,157,046 20,084,333 18,157,046
(24)Regulatory Debits/Credits
(25)Provision For Deferred Income Taxes (12,251,171)(13,385,776)(12,251,171)(12,783,906)
(26)Investment Tax Credit Adjustment 2,567,366 2,805,135 2,567,366 2,679,006
(27)Federal Income Taxes 17,446,663 19,062,433 29,771,934 31,066,549
(28)State Income Taxes (3,351,124)(3,661,478)(983,409)(1,026,172)
(29)Total Operating Expenses 715,817,760 670,674,951 699,852,781 656,100,873
(30)Operating Income 140,318,888 139,217,035 163,208,676 160,376,906
(31)Add: IERCO Operating Income 6,828,651 6,472,703 6,828,651 6,472,703
(32)Consolidated Operating Income 147,147,539 145,689,738 170,037,327 166,849,610
(33)Rate of Return as filed 6,49%6,96%7,52%7,99%
(34)Proposed Rate of Return 8,5500%8,5500%8,0570%8,0570%
(35)Earnings Deficiency 46,576,785 33,295,877 12,041,916 1,377,640
(36)Add: Construction Work in Progress 7,636,142 7,257,308 4,754,292 4.518,429
(37)Earnings Deficiency w/CWIP 54,212,927 40,553,186 16,796,208 5,896,069
(38)Net.to-Gross Tax Multiplier 1,642 1,642 1,642 1,642
(39)Revenue Deficiency 89,017,625 66,588,331 27,579,3731 9,681,3451
(40)Firm Jurisdictional Revenue 710,072,574 673,169,540 710,072,574 673,169,540
(41)REVENUE REQUIREMENT 799,090,199 739,757,872 737,651,947 682,850,886
3.88%1 1.44%1(42)Percentage Increase Required 12.54%9.89%
NET POWER SUPPLY COSTS 0..
(43)Acct. 447/Surplus Sales 110,210,425 104,465,634 116,568,567 110,492,354 i00
(44)Acc!. 501/Fuel-Thermal Plants 133,418,084 126,463,579 133,454,723 126,498,308 0
(45)Acc!. 547/Fuel-Other 7,086,867 6,717,460 6,125,177 5,805,898 \0 i ~~ ~
(46)Ace!. 555/Non.Firm Purchases 61,178,040 57,989,095 57,231,921 54,248,670 N i ....U r:(47)Sub- Total NPSC Less CSPP 91,472,566 86,704,499 80,243,254 76,060,522 . i: ~(48)Ace!. 555/CSPP Purchases 63,269,889 59,978,985 63,269,889 59,978,985 0_ .ê
(49)Total Power Supply Costs 154,742,455 146,683,484 143,513,143 136,039,507 Z 0 00.. b. 0... Z ;:.... ~ o:... Q) ;:.. r. ~~ ~ . 0~UU..
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,
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 24TH DAY OF OCTOBER 2008,
SERVED THE FOREGOING DIRECT TESTIMONY OF CECILY VAUGHN, IN CASE
NO. IPC-E-08-1O, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
BARTON L KLINE
LISA D NORDSTROM
DONOV AN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: bkline(fidahopower.com
Inordstrom(fidahopower .com
dwalker(fidahopower .com
PETER J RICHARDSON
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
E-MAIL: peter(frichardsonandolear.com
RANDALL C BUDGE
ERIC LOLSEN
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204-1391
E-MAIL: rcb(fracinelaw.net
elo(fracinelaw.net
MICHAEL L KURTZ ESQ
KURT J BOEHM ESQ
BOEHM KURTZ & LOWRY
36 E SEVENTH ST STE 1510
CINCINATI OH 45202
E-MAIL: mkurz(fBKLlawfnn.com
kboehm(fBKLI awfinn. com
BRAD M PURDY
ATTORNEY AT LAW
2019 N 17TH ST
BOISE ID 83702
E-MAIL: bmpurdy(fhotmaiL.com
JOHNRGALE
VP - REGULATORY AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rgale(fidahopower.com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreading(fmindspring.com
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
E-MAIL: yanel(fattbi.com
KEVIN HIGGINS
ENERGY STRATEGIES LLC
PARKS IDE TOWERS
215 S STATE ST STE 200
SAL T LAKE CITY UT 841 1 1
E-MAIL: khiggins(ßenergystrat.com
LOTH COOKE
ARTHUR PERRY BRUDER
UNITED STATE DEPT OF ENERGY
1000 INDEPENDENCE AVE SW
WASHINGTON DC 20585
E-MAIL: lot.cooke(ßhq.doe.gov
arthur. bruder(fhq.doe. gOY
CERTIFICATE OF SERVICE
DWIGHT ETHERIDGE
EXETER ASSOCIATES INC
5565 STERRTT PLACE, SUITE 310
COLUMBIA MD 21044
E-MAIL: detheridge(ßexeterassociates.com
DENNIS E PESEAU, Ph.D.
UTILITY RESOURCES INC
1500 LIBERTY STREET SE, SUITE 250
SALEM OR 97302
E-MAIL: dpeseau(ßexcite.com
CONLEY E WARD
MICHAEL C CREAMER
GIVENS PURSLEY LLP
601 WBANNOCKST
PO BOX 2720
BOISE ID 83701-2720
E-MAIL: cew(ßgivenspursley.com
KEN MILLER
CLEAN ENERGY PROGRAM DIRECTOR
SNAKE RIVER ALLIANCE
POBOX 1731
BOISE ID 83701
E-MAIL: kmiler(ßsnakeriverallance.org
I~~~~
SECRETARY
CERTIFICATE OF SERVICE