20080805Gale Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
A CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY TO
INSTALL ADVANCED METERING
INFRASTRUCTURE ("AMI") TECHNOLOGY
THROUGHOUT ITS SERVICE TERRITORY
CASE NO. IPC-E-08-16
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 activities 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
GALE, DI 2
Idaho Power Company
1 related to the economic regulation of Idaho Power Company.
2 I have testified frequently before the Idaho Public
3 Utili ties 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 Nat'Lral Resources.
10 Q.What it the purpose of your testimony in
11 this matter?
12 A.My testimony will cover regulatory policy
13 issues related to deployment of Advanced Metering
14 Infrastructure ("AMI") on Idaho Power Company's system.
15 These issues include: (1) the decision to pursue a
16 Certificate of Public Convenience and Necessity ("CPCN")
17 for the AMI investment, (2) a discussion of the past
18 interaction, reports, and Commission orders on the subj ect,
19 (3) the desired regulatory treatment of an AMI investment,
20 and (4) the importance of Commission support of AMI cost
21 recovery on the timing of Company investments in AMI.
22 Q.Please provide an overview of the Company's
23 AMI filing.
GALE, DI 3
Idaho Power Company
1 A.In addition to my policy testimony described
2 above, Mr. Mark Heintzelman, a Delivery Services Leader in
3 the Metering Department, will describe the Company's AMI
4 plans from a technical operations perspective and the
5 contracts that the Company has entered into to implement
6 the planned AMI deploYment. Ms. Courtney Waites, a Pricing
7 Analyst, will provide the potential regulatory impacts of
8 the AMI deploYment including the Company's commitment
9 estimate and revenue requirement impacts for 2009.
10 Q.What is the Company requesting of the
11 Commission in its AMI application?
12 A.Idaho Power is requesting that the IPUC
13 issue a CPCN for the three-year deploYment of its planned
14 AMI investment beginning in 2009. We are asking the
15 Commission to make a positive determination on the AMI
16 investment based upon the operating benefits that AMI will
17 provide, the Company's commitment estimate for the total
18 project, and the potential future benefits that AMI offers
19 in terms of dynamic pricing and other Smart Grid
20 opportunities. While the Company is not specifically
21 asking for rate recovery at this time, we are providing the
22 three-year deploYment investment and first year revenue
23 requirement impact.
GALE, DI 4
Idaho Power Company
1 Q.Are the future benefits you mentioned
2 related to dynamic pricing and Smart Grid applications
3 available as a result of the AMI deploYment?
4 A.No, AMI will provide a platform from which
5 the other benefits can launch, but additional investments
6 will be required before wide scale applications of pricing,
7 programs, and information can become a reality. However,
8 because Idaho Power's operational benefits alone can
9 justify the investment in AMI, the Company and the
10 Commission can evaluate additional investments and benefits
11 as the opportunities emerge.
12 Q.Please describe the history of the AMI issue
13 as it relates to Idaho Power and the Idaho Commission.
14 A.One of the many interests spawned during the
15 western energy crisis of 2000 and 2001 was the idea that
16 new metering technology, along with time-of-use ("TOU")
17 pricing could become part of the solution to future energy
18 concerns. As a result, the Commission ordered the Company
19 to evaluate and report upon the viability of TOU metering
20 programs and the deploYment of Automated Meter Reading
21 ("AMR") technology. Since that time, AMR has evolved into
22 the more inclusive term AMI, which includes not only the
23 metering devices but also the hardware, software i
24 communications equipment, customer associated systems, and
GALE, DI 5
Idaho Power Company
1 data management software.
2 In Case No. IPC-E-02-12, a docket opened to
3 investigate TOU pricing for residential customers, the
4 Commission ordered Idaho Power to complete a full AMR
5 installation by 2004. The implementation was subsequently
6 postponed due to a number of financial, technical, and
7 implementation problems encountered with meeting the time
8 frame.
9 The Commission then adopted a phased-in
10 implementation along with a collaborative evaluation
11 approach, while directing the Company to continue to work
12 towards implementation of AMI technology "as soon as
13 possible." The Commission has continually stated that
14 Idaho Power should be working toward the implementation of
15 AMI technology as soon as possible and has reiterated its
16 finding in Order No. 30102 that "the potential benefits of
17 advanced metering to ratepayers and the Company are too
18 great to delay AMR implementation indefinitely."
19 Q.What is the desired regulatory treatment of
20 the procurement and deploYment of AMI?
21 A.As previously stated, Idaho Power has been
22 assessing the value that AMI could bring to its customers
23 for a number of years. As noted in the Company's AMI
24 compliance report dated August 31, 2007, Idaho Power plans
GALE, DI 6
Idaho Power Company
1 a three-year deploYment of AMI across its entire system
2 beginning in 2009. The report, titled Advanced Metering
3 Infrastructure (AMI) Implementation Plan, is Exhibit No.1.
4 On page 4 of that report the Company articulates its
5 regulatory needs for an AMI implementation. They are: (1)
6 a three-year depreciation of the meters and metering
7 equipment that AMI will replace, (2) the recovery of new
8 metering equipment as it is placed in service and the
9 capture of Operating and Maintenance ("O&M") benefits as
10 they begin to occur, and (3) the establishment of
11 appropriate depreciation rates for AMI equipment.
12 Q.Please expand on the importance of each of
13 these regulatory needs.
14 A.The accelerated depreciation of the old
15 metering equipment with corresponding rate recovery is a
16 fundamental assumption in the Company's financial analysis
17 of the AMI deploYment. Idaho Power desires to have the
18 metering equipment fully depreciated at the time the
19 deploYment is complete, thus avoiding a stranded asset
20 situation and the possibility of used and useful concerns.
21 The revenue requirement associated with the
22 installation of AMI includes the return on and return of
23 the investment in metering equipment less the offsetting
24 O&M benefi.ts that will accrue as a result on AMI
GALE, DI 7
Idaho Power Company
1 deploYment. Timely rate adjustments that recognize the
2 combined impact will support the Company's financing
3 requirements as it continues to fund significant
4 investments in system infrastructure.
5 The third item - the appropriate depreciation rates
6 for the new AMI equipment - will be addressed as part of
7 the Company's concurrent depreciation case that is before
8 this Commission, Case No. IPC-E- 08 - 06.
9 Ideally, the Company would have included the revenue
10 requirement impacts of the first year of the deploYment in
11 its current general rate case, Case No. IPC-E-08-10¡
12 however, due to timing of the vendor Request for Proposals
13 and the ultimate awarding of contracts, the Company was
14 unable to have cost information in time for the general
15 rate case filing.
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 8
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.Providing the Commission issues a favorable
13 order in the current CPCN request, the Company will bring a
14 separate filing before the Commission to address the cost
15 recovery aspects of AMI. The Company will propose a
16 parallel cost recovery track to the general rate case and
17 attempt to time the 2009 AMI rate adjustments to coincide
18 with the results from the general rate case.
19 Q.Is it your opinion that the granting of the
20 relief proposed by the Company is in the public interest?
21 A.Yes. The proposed relief proposed by Idaho
22 Power will allow the Company to comply with the
23 Commission' s directives regarding AMI and to continue
24 providing safe, reliable service at reasonable rates while
GALE, DI 9
Idaho Power Company
1 maintaining its financial health.
2 Q.Does this conclude your testimony?
3 A.Yes, it does.
GALE, DI 10
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-08-16
IDAHO POWER COMPANY .
GALE, 01
TESTIMONY
EXHIBIT NO.1
-eIDA~PO.
An IDACP copany
rfc --E'-Òb-O(
Advanced Metering Infrastructure (AMI)
Implementation Plan
Presented by Idaho Power Company
to the Idahó Public Utilities Commission
'"c.. ..~r:¡:..August 31, 2007 -.....'ê ::01;':en m..00...w nI"l m0"1';o.-~:;C~m -0 rn;:r 0(iñ r:~(J0.,Z
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale,lPC
Paoe 1 of9
This page left blan intentionally.
'.'
ii Idaho Power Company
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale,lPC
Paoe 2 of9
Advanced Metering Infrastructure Implementation Plan
Implementation Plan
1. Introduction and Purpose
Idaho Power Company (!PC) has fully analyzed the costs and benefits of implementing AMI i
thughout the remaining portons of its service tertory. Based on this analysis, IPC proposes to
install an AM system covering roughly 99% of the customers in the service terrto and
proposes to do so by the end of 20 11.
This report, supplemental to IPC's AM Status Report fied on May 1,2007, provides:
· A summar of the fmancial analysis
· An AM iniplementation plan for the servce territory
· A discussion for co recover
· Identication of the remaining isses
2. Financial Assumptions and Analysis Results
IPC's financial analysis compares the forecasted cost associated with the current meter reading
operations to the forecasted costs associated with operations utilizing AM. The analysis includes
. al components and costs associated with replacing existig meterng equpment with advanced
metering infrastrctu capabilty. Included in these costs are metering and communcation
equipment, amortzation of the undepreciated investent in the existing meters, reductions in
. Opertions and Maitenance (O&M) expenses related to operationa savings, AM benefits, and
costs of implementation.
A. 2007 Analysis Assumptions
The 2007 fiancial analysis is based on the following assumptions:
· The analysis covers it 30-yea time fre.
. · The meter count (i.e., number of customers) increases yearly by our cuent load forecast
projections.
· The operation and maitenance costs and operational savigs (including labor) esalate
yearly based on Idaho Economics' CPI forecast.
1 The ten AM refe to syte that meas, collect, and anly energy usge infonnation from advanced
metg devices thugh various communication media on reuest or on a pre-defined schedule. Ths inct
includes hardwar, softare, commnications eqipment, customer associated systems, and data maageent
softar.
Idaho Power Company 1
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale, IPC
Paoe 30f9
Implementation Plan Advanced Metering Infrastructure
· Current productivity levels remai constant.
· Income Tax Rate ar based on 2006 amounts.
· Propert and Insurance Rates ar based on 2006 amounts.
· The present value calculations are based on IPC's actua12006 aft-tax weighted average
cost of capita.
· The book value of the existig meters is amorized over the three-year implementation
schedule.
· The AMI meters have a IS-year life.
· Cunt meters have a 30-year life.
· All eqipment is replaced at the end of its usefu life.
· Replacement costs of meter equipment is at today's costs.
The reslts of the financial analysis indicate that the long-term benefits derived from reduced
operatig expenses are sufcient to support a decision to move forwar with AM
implementation. Although the anysis indicates that implementation of AMI will increae IPC's
revenue requirement in the early years, it is expected that the long-term benefits of reduced
expenses plus additional benefits not yet identified or quntified will resut in net benefits in the
long ter. For these reasons, IPC believes it is reasonable to proce with AM implementation.
3. Implementation Plan
Numerous factors were considere in developing the AM implementation plan. The priar
factors !PC considered were (in no parcuar order):
. Impact on revenue requirement
. Impact on existing employees
. Operational savings
· Impact on anual capital requirements
· Other major capital requirement needed to reliably serve existng customers
· Ar with high grwt (new meter)
· Ease of implementation logistcs
Based on a consideration of these factors, IPC has determined that a 3-year AM implementation
plan is reasonable. Work on the project would actully begin in 2008 with such ta as pre-
implementation plannng, execution of contrcts, ordering oflong-Iead materals, and installation
of some communcation equipment. Table 1 shows the yea when AM would be implemented in
each regional area.
2 Idaho Power Company
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale,lPC
Paoe 4 of9
Advanced Metering Infrastructure Implementation Plan
Table 1.AMI Implementtion Time Schedule.
Year
2009
2010
2011
Area of Implementation
Capital Region (Boise, Meridian, Eagle, Kuna. etc.)
Canyon Region and Payette Region (Nampa. caldwell. Payette, Ontano. etc.)
Southern Region and Eastern Region (Twin Falls, Hailey. Jerome, Pocatello,
Salmon. etc.)
---------------r ._-_. _~._w___._._______._._._._.-.--_.-.i !, II .. II .j !i !i '.· l! "i ". "I .j ".. ,.\.I "¡i )\ )~_._.-._.-._.~ \~.~ \.. IDAHO ,."· t:\".. . r'-'
\ ;-', !
\ ._..r"--."""~ '~-J ,
1
i
i
i,
i
i.
i
i.
i
i,-----------------1
i.
o Year 2009
ll Year 2010
. Year 2011
.
I
i.
--.-._--. --___l_________
Figure 1. idaho Power Company's Regional Implementaton Map.
Idaho Power Company 3
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale, IPC
Paoe 5 of9
Implementation Plan Advanced Metering Infrastrctre
4. Cost Recovery
As referenced in IPC's May 1, 2007, AM Status Report, implementation of AM wil provide
customers incrased benefits compared to the curnt opertional practice of manually reading
meters. In addition, AMI wil create the foundation for the abilty to offer customers pricing
options and additional infonnation about their energy consumption, which may lea to açlditional
future benefits. For these reasons, IPC believes it is reasonablë to pursue full implementation of
AM staged over a thee-year period. However, the significat cutomer and economic growt
lPC ha been expenencing requirs contiued investments in infrastrture to connect and meet
the energy needs of these customers. Additionaly, there is an ongoing need to relace existng
intrcte to continue to reliably sere existig loads. Although AM wil provide benefits to
cutomers, it is not an invesent that is necessar in order for IPC to fulfill its obligation to
meet new and existig serice requiements. Therefore, in order to su the lare capital
expenditus neeed to meet new and ongoing service obligations as well as to implement AM,
IPC has identified the reguatory nee between when AM implementation begis and when
AM deployment is complete. These thee regulatory needs are:
1. Three-year depreciation of the mete and metenng equipment tht AM wil replace.
2. Recovery of new metering equipment as it is placed in serice and captu of O&M
benefits as they begin to occu.
3. Esblishment of appropriate depreiation rates for AM eqpment.
As par of its AMI implementation plan, IPC will bring before the Commission reuests to
address each of these reguatory nee.
A. Accelerated Depreciation of Existing Meters
An integral component ofIPC's fmancial analysis is the asption tht IPC will begin
collecting in rates the accelerated depreciation of the meters and meterig eqpment that AM
wil replace at the time tht AMI deployment commences on Januar 1,2009. Specifcally, lPC
wishes to have the old meterng equipment fully depreciated coincident with the completion of
the .three-year AM deployment. This regulatory action is deemed essential to IPC's commitment
to moving forward with AMI implementation. .
B. Recovery of New Metering Equipment
The revenue requiement associated with the installation of AM includes the retu on and of
the investment in metering equipment less the net O&M savings as they occur though the
process changes enabled by the new technology. An adjustment to rates on Januar I, 2009, to
include the revenue reuirement associated with AM implementation will support lPC's
finacig requements as it contiues to fud signficat investments in system infrastcte.
This adjustment may tae the fonn of specific inclusion in a general rate case tes year or a
separate rate mechanism specifcally targeted to the AM implementation.
4 Idaho Power Company
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale, IPC
Paoe 6 of9
Advanced Metering Infrastructure Implementation Plan
,c. Depreciation Rates for AMI Equipment
AM meters and associated equipment have shorter useful lives than the standard pietrig
equipment now being utilized by IPC. In order to appropriately recognize these shorter lives, IPC
will include in its next depreiation filing before the Commssion recommended depreciation
rates for the various components of AM equipment
5. Issues to Resolve
A. CiS Assessment- Time-Variant Pricing
Implementation of AMI wil provide the techDology necessai to captu customers' energy
usage on an hourly basis, creati the foundation for a varety of time-varant pricing options.
Although IPC curently offers two tie-varant pricing options to customers where AM is
. installed, constrts withn the Customer Information System (CIS), which requ manual
intervention in the rate change process, limit IPC's abilty to offer tie-varant pricing on a
large-scale basis. Additional time and investmt is required before IPC can offer time-vañant
pricing on a large-scale basis.
ri. Meter Data Management System (MDMS)
The MDMS system curntly has the functionality reuired to support the AM system and time
varant rates. As the AM system expands beyond the cuent 25,000 endpoints, additional work
related to scalabilty and usabilty wil be required.
6. Conclusions
IPC has anlyzed the.cost and benefits of implementig AMI in the remaing portons of the
servce tertory, Based on the resuts of the financial analysis, IPC believes implementation of
AM will provide customers with long-term benefits. In addition, AM will create the foundation
for the abilty to offer customers pricing options and additional information about their energy
consumption, which may lead to additional futue benefits. For these reasons, IPC believes it is
reasonable to pure full implementation of AM staged over a theeyea perod.
To recover the costs of implementation, it is essential that IPC 1) begi to collect accelerated
depreciation of thë metes and meterig equipment that AM will replace, 2) recover the costs of
new meterig equipment as it is deployed and captue O&M benefits as they begin to ocur
though the process changes enabled and necesitated by AM aId 3) establish the appropratedepreciation rates for AM equipment. .
Idaho Power Company 5
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale, IPC
Paoe 7 of9
Implementation Plan Advanced Metering Infastrcture
\;
This pag was left blan intentionally.
6 Idaho Power Company
Exhibit NO.1
Case No. IPC-Ë-08-16
J. Gale,lPC
Paoe 8 of9
dSlEW~PO.
An 1000RP comp'
August 31, 2007
RECE1VED
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Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 West Washington Street
PO Box 83720
Boise; Idaho 83720-0074
Re: Supplement to Phase I AMI Implementation Status Report
Case No. IPC-E-06-D1
Dear Ms. Jewell:
Enclosed please find eight copies of Idaho Powets Advanced Metering Infrastructure
(AMI) Implementation Plan. This report is a supplement to the Advanced Metenng
Infrastructure (AMI) Status Report filed on May 1, 2007, and is filed in compliance with Idaho
Public Utiities Commission Order No. 30102:
If you have any questions regarding this report, please do not hesitate to contact me,
Sincerely .~/jr
Director, Pricing
MS. .
c: RieGale
P&RS/Legal files
Priing & Regulatory Services
Voice: 208-388-2848
Fax: [phone]
mbriz(§dahopower.co
P.O. Box 70 (87)
1221 W. Idaho st.
Boise. 1083702
Exhibit NO.1
Case No. IPC-E-08-16
J. Gale, ¡PC
Paoe 9 of9