20090928Said Responsive Testimony.pdf

LISA D. NORDSTROM
Senior Counsel
1SIDA~POR~
An IDACORP Company
September 25,2009
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-08-22
RuleH
Dear Ms. Jewell:
Enclosed please find for filing an original and eight (8) copies of the Response
Testimony of Gregory W. Said on Reconsideration. One copy of the enclosed testimony
has been designated as the "Reporter's Copy." In addition, a disk containing a Word
version of Mr. Said's testimony has been provided for the Reporter and has been marked
accordingly.
In addition, an original and eight (8) copies of the Certificate of Service to the parties
is enclosed herein for filng.
Very truly yours,
¿;~jJ. ~h-
Lisa D. Nordstrom
LDN:csb
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, 10 83702
CERTIFICATE OF SERVICE RECE C'
I HEREBY CERTIFY that on this 25th day of September 2009 I se~ iliPuéSmBH ~: 48
correct copy of IDAHO POWER COMPANY'S RESPONSE TESTIrvR~.~ FPilt ¡('
GREGORY W. SAID ON RECONSIDERATION upon the following namect1Pft~l1i;~'~¡ŠS10
method indicated below, and addressed to the following:
Commission Staff
Kristine A. Sasser
Deputy Attomey General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Building Contractors Association of
Southwestern Idaho
Michael C. Creamer
GIVENS PURSLEY, LLP
601 West Bannock Street
P.O. Box 2720
Boise, Idaho 83701-2720
City of Nampa AND
Association of Canyon County
Highway Districts
Matthew A. Johnson
Davis F. VanderVelde
WHITE PETERSON GIGRA Y
ROSSMAN NYE & NICHOLS, P.A.
5700 East Franklin Road, Suite 200
Nampa, Idaho 83687
Kroger Co.
Michael L. Kurt
Kurt J. Boehm
BOEHM, KURTZ & LOWRY
36 East Seventh Street, Suite 1510
Cincinnati, Ohio 45202
Kevin Higgins
Energy Strategies, LLC
Parkside Towers
215 South State Street, Suite 200
Salt Lake City, Utah 84111
CERTIFICATE OF SERVICE - 1
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-- Email kris.sasserßùpuc.idaho.gov
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Ada County Highway District
Scott D. Spears
Ada County Highway District
3775 Adams Street
Garden City, Idaho 83714
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~jl~~
Lisa D. Nordst~
CERTIFICATE OF SERVICE - 2
Be Cç \\JEO.. l .'i-..~~
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1ßß~ SE? 25 l '
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO MODIFY ITS RULE H
LINE EXTENSION TARIFF RELATED TO
NEW SERVICE ATTACHMENTS AND
DISTRIBUTION LINE INSTALLATIONS.
I DAHO POWER COMPANY
RESPONSE TESTIMONY
OF
GREGORY W. SAID
ON RECONSIDERATION
CASE NO. IPC-E-08-22
1 Q.Please state your name and business address.
2 A.My name is Gregory W. Said and my business
3 address is 1221 West Idaho Street, Boise, Idaho.
4 Q.Are you the same Gregory W. Said that
5 previously provided direct testimony in this case?
6 A.Yes, I am.
7 Q.Please describe the events leading up to
8 your preparation of responsive testimony in this case.
9 A.On July 1, 2009, the Idaho Public Utilities
10 Commission (" IPUC") issued Order No. 30853 detailing its
11 findings as to the appropriate changes to be made with
12 regard to Idaho Power Company's (" Idaho Power" or the
13 "Company") provisions for constructing new service
14 attachments, distribution line installations, or
15 alterations. Those provisions are contained in the
16 Company's Rule H.
17 Subsequent to the filing of petitions for
18 reconsideration of the July 1 Order, the IPUC, on August
19 19, 2009, issued Order No. 30883 granting the Petitions for
20 Reconsideration of Ada County Highway District, City of
21 Nampa, and Association of Canyon Highway Districts
22 regarding jurisdictional authority issues relating to the
23 Order. A briefing schedule was set to address those
24 issues.
SAID, RESP 1
Idaho Power Company
1 Order No. 30883 also granted in part and denied in
2 part the Petition for Reconsideration filed by the Building
3 Contractors Association of Southwestern Idaho ("BCA").
4 Specifically, reconsideration was granted, but limited to
5 the issue of the emount of initial allowances. The Order
6 instructed the BCA to address "what allowance amount is
7 reasonable based upon the cost of new distribution
8 facilities. "
9 On September 11, 2009, Dr. Richard A. Slaughter on
10 behalf of the BCA submitted his testimony on
11 reconsideration. I am presenting the Company's response to
12 the BCA testimony.
13 Q.Please describe the Commission's
14 determination of the appropriate allowances to be provided
15 to new residential customers outside of a residential
16 subdivision as per Order No. 30853.
17 A.The Commission, in Order No. 30853,
18 determined that new residential customers outside a
19 residential subdivision should receive an allowance of up
20 to $1,780. The $1,780 amount was based upon the current
21 installation cost of Standard Terminal Facilities for
22 single phase service to residential customers. The
23 components of this amount were described by Mr. Sparks in
24 his direct testimony and workpapers in this case. Standard
SAID, RESP 2
Idaho Power Company
1 Terminal Facilities costs include the costs associated with
2 providing and installing one overhead service conductor and
3 one 25 kVa transformer to serve a 200 amperage meter base,
4 Based upon this allowance, customers that required non-
5 typical, larger than standard transformation or customers
6 that wanted underground service would be required to pay as
7 a contribution in aid of construction ("CIAC") those work
8 order costs that exceeded the Standard Terminal Facilities
9 cost of $ 1, 780. Customers are responsible for the costs of
10 new primary conductor constructed between the existing
11 distribution facilities and the customers' terminal
12 facili ties, as well as any secondary conductor constructed
13 between the transformers and j unction boxes,
14 The effect of the allowance is typically that for
15 new residential customers requesting overhead service from
16 existing facilities adj acent to their new home, there is no
17 cost to the customer. However, if the customer wants
18 underground service, or if the customer is building a large
19 home that requires larger than standard transformation, or
20 if the customer is some distance from existing facilities,
21 that customer is responsible for the additional costs of
22 providing service.
23 Q.Please describe the Commission's
24 determination of the appropriate allowances provided to
SAID, RESP 3
Idaho Power Company
1 developers of residential properties inside residential
2 subdi visions as per Order No. 30853.
3 A.Similar to its decision as to the
4 appropriate allowance for residential customers outside of
5 residential subdivisions, the Commission determined that
6 allowances wi thin subdivisions should be based upon the
7 same Standard Terminal Facilities costs that were used for
8 residential customers outside of subdivisions. Therefore,
9 the Commission set the allowance at $ 1, 780 per installed
10 transformer wi thin subdivisions.
11 The effect of the allowance inside a subdivision
12 requiring six transformers is that the Company funds the
13 first $10,680 (6 * $1,780) of a developer's work order
14 costs. Work order costs for residential subdivisions
15 typically include:(1) primary conductor necessary to
16 reach new transformers, (2) the transformers, and (3)
17 secondary conductor to j unction boxes. Meters and services
18 are not typically installed as part of subdivision work
19 orders. Later, when homes are constructed and new owners
20 request service, Idaho Power installs meters and service
21 conductor but those individual owners are only financially
22 responsible for the overhead/underground differential for
23 services (similar to customers outside subdivisions) and,
SAID, RESP 4
Idaho Power Company
1 in the case of large lot subdivisions, any additional
2 secondary line extensions.
3 Q.What is Dr, Slaughter's recommendation for
4 an allowance?
5 A.Dr. Slaughter's recommendation, as I
6 understand it, is to provide an upfront allowance to
7 developers (not customers) of residential subdivisions
8 equal to $1,232 per lot within the subdivision.
9 He equates the number of lots within a residential
10 subdivision to the number of customers that will
11 potentially be served, implying that no development risk
12 exists. He devotes a significant portion of his testimony
13 comparing an embedded cost number of $1,232 per customer to
14 the Commission-ordered allowance within residential
15 subdivisions of $1,780 per installed transformer. I will
16 detail in my testimony why this is not a valid comparison.
17 As the Company has stated in reply comments, there
18 is a difference between lots and customers. Lots represent
19 a possibility of future customers that will receive service
20 from the Company, but are by no means a guarantee of future
21 customers.
22 Q.What is the financial effect of Dr.
23 Slaughter's recommendation?
SAID, RESP 5
Idaho Power Company
1 A.Dr. Slaughter's recommended mechanism treats
2 developers of residential subdivisions more favorably than
3 individual customers seeking connections outside of
4 subdivisions. It tends to provide allowances in
5 subdivisions that exceed the costs of Standard Terminal
6 Facilities with the excess allowances offsetting the costs
7 of primary conductor and secondary conductor. Such
8 treatment is inconsistent with the treatment of residential
9 customers outside of subdivisions who do not receive an
10 allowance greater than the cost of Standard Terminal
1 1 Facilities.
12 Furthermore, as I will discuss later in my
13 testimony, Dr. Slaughter's allowance recommendation
14 inappropriately includes a component for substations which
15 are excluded from the provisions of Rule H.
16 In my opinion, it would be illogical for the
17 Commission to conclude that the Company should make a
18 greater investment on behalf of a speculative development
19 wi thin a subdivision than the investment the Company makes
20 for an actual new residential customer outside a
21 residential subdivision.
22 Q.As the Commission reconsiders its
23 determination of appropriate residential allowances, what
SAID, RESP 6
Idaho Power Company
1 do you see as the primary considerations the Commission
2 must make?
3 A.The determination of appropriate residential
4 allowances is primarily a policy issue of how to apportion
5 the costs and risks associated with extending distribution
6 service to new customers. Current policy decisions
7 regarding allowances to residential customers and
8 residential developers should take into consideration:(1)
9 current economic factors facing the Company and its
10 customers, (2) consistency of allowances within each
11 customer class, and (3) risks associated with the
12 differences between requests made by residential customers
13 and requests made by residential developers.
14 Once the Commission has settled on appropriate
15 policy, the only remaining issue is to determine the
16 appropriate method by which the allowances are to be
17 determined.
18 Q.What policy rationale does Dr. Slaughter
19 gi ve for his recommendation?
20 A.Dr. Slaughter points to policy the
21 Commission set in 1995 as precedent for policy in 2009. He
22 quotes Commission Order No. 26780 issued in 1995 wherein
23 the Commission stated:
SAID, RESP 7
Idaho Power Company
1
2
3
4
5
6
7
8
9
10
We find that new customers are
enti tled to have the Company provide
a level of investment equal to that
made to serve existing customers in
the same class. Recovery of those
costs in excess of embedded costs
must also be provided for and theimpact on the rates of existing
customers is an important part of
our consideration.
11 (Order 26780 at 17.)
12 Q.Does the Company agree with Dr. Slaughter
13 that the level of investment that the Company should make
14 on behalf of new customers via allowances for line
15 installations and service attachments should not change
16 over time?
17 A.No. While there is some value in having a
18 consistent policy over time, there is also value in
19 changing policy in light of changing circumstances. As I
20 pointed out in my direct testimony in this proceeding, the
21 Company has filed four general rate cases and two single-
22 issue rate cases since 2003. The Company recently filed a
23 Notice of Intent to file an additional general rate case
24 later this year. In general, additional revenues generated
25 from the addition of new customers and load growth are not
26 keeping pace with the additional expenses created and
27 required to provide ongoing safe and reliable service to
28 new and existing customers. Gi ven the current frequency of
SAID, RESP 8
Idaho Power Company
1 rate case acti vi ty and recognition that the Company will
2 still be making substantial investments in generation and
3 transmission assets in coming years, the Company believes
4 it is reasonable for the Commission to adj ust its policy
5 with regard to the level of investment that the Company
6 should make on behalf of new customers via allowances for
7 line installations and service attachments. What worked in
8 1995 is not working today.
9 In addition, I believe that the Commission must re-
10 examine and update its historical policy regarding
11 residential allowances to ensure consistent treatment
12 within the residential class while at the same time
13 recognizing the differences in risk associated with
14 facilities constructed for customers or constructed for
15 developers.
16 Q.In your opinion, did Dr. Slaughter follow
17 the Commission instructions to address "what allowance
18 amount is reasonable based upon the cost of new
19 distribution facilities" when making his allowance
20 recommendation for residential subdivisions?
21 A.No. The Commission's instruction to
22 evaluate the cost of "new" distribution facilities is
23 consistent with the Company's contention that current
24 policy should be based upon current conditions. Dr.
SAID, RESP 9
Idaho Power Company
1 Slaughter's recommendation is based upon 14 year-old policy
2 and what he calls "the Company's embedded distribution
3 costs. " Rather than evaluating the costs of facilities
4 currently required wi thin a given subdivision, Dr.
5 Slaughter proposes allowances be based upon historical
6 investments of the Company on behalf of customers. In that
7 regard, I believe that Dr. Slaughter includes costs that
8 are unrelated to facilities required as part of residential
9 subdi vision requests and therefore should not be considered
10 when determining allowances.
11 Q.What does Dr. Slaughter propose as the
12 allowance to be funded by the Company inside a residential
13 subdi vision?
14 A.Dr. Slaughter proposes an allowance of
15 $ 1,232 per lot wi thin a residential subdivision.
16 Q.What methodology did Dr. Slaughter use to
17 derive his $1,232 per lot recommendation?
18 A.Dr. Slaughter has simply re-packaged
19 computations made by the Commission Staff earlier in this
20 case. Those computations included costs related to
21 investments the Company has made in substations, primary
22 lines, secondary lines, transformers, services, and meters
23 that have been allocated to the residential class in rate
24 proceedings. Attachment 4 to Staff Comments in this
SAID, RESP 10
Idaho Power Company
1 proceeding quantified total net plant for these six items
2 per residential customer at $ 1,104. Staff Comments
3 described an adjustment of this number to arrive at $1,232
4 per customer, an amount Staff described as a "revenue
5 neutral" level. Staff did not make a proposal based upon
6 its quantifications. Staff ultimately recommended no
7 allowance inside subdivisions but instead proposed refunds
8 equal to the cost of overhead transformers to developers as
9 new homes are built and customers are connected. See Staff
10 Comments at pp. 6-7.
11 Q.Does the Company believe that allowances for
12 residential subdivisions should be based upon what Staff
13 calls "revenue neutral" and Dr. Slaughter calls "embedded
14 costs" that include substations, primary lines, secondary
15 lines, transformers, services, and meters?
16 A.No. The Company disagrees with both the
17 policy underlying the computations and the methodology used
18 based upon that policy. The Commission did not utilize the
19 Staff's computations when it made earlier determinations in
20 this case and it should not accept those computations as
21 re-presented by the BCA,
22 First, with regard to the methodology, the
23 Commission should recognize that residential subdivision
24 work orders typically include only a primary line (or
SAID, RESP 11
Idaho Power Company
1 backbone), a number of transformers and secondary line to
2 indi vidual lots. There are no costs associated with
3 substations, services, or meters in residential subdivision
4 work orders. Service conductor and meters are not
5 installed wi thin subdivisions until later when homes are
6 actually constructed and customer load occurs. In my
7 opinion, there is no reason to provide allowances to
8 developers for costs that are not incurred or included in
9 the developer's work order to construct facilities
10 necessary for the residential subdivision.
11 Second, with regard to consistency of policy, per
12 Order No. 30853, residential customers outside of
13 subdivisions receive allowances based solely on Standard
14 Terminal Facilities. They receive no allowances for the
15 costs of substations, primary lines, or secondary lines.
16 In my opinion, it is not appropriate to base an allowance
17 to developers for lots inside a residential subdivision on
18 facilities that are not considered for allowances to
19 residential customers outside of subdivisions.
20 Third, again with regard to consistency of policy,
21 as pointed out by Dr. Slaughter, transformers often serve
22 more than one ultimate customer. Offering an allowance on
23 a per customer basis rather than on a per transformer basis
24 can lead to the unreasonable result that the allowance is
SAID, RESP 12
Idaho Power Company
1 greater than the cost of terminal facilities (in this case
2 transformers) required to provide service. These excess
3 allowances would theoretically be applied to other work
4 order costs such as primary and secondary line
5 construction, an allowance that is not provided to any
6 other customer group.In my opinion, allowances should
7 consistently be based upon terminal facilities and
8 allowances should not exceed these costs.
9 Q.Further addressing the allowance computation
10 methodology, does the Company believe that the Staff
11 computation adopted by Dr. Slaughter represents a correct
12 "revenue neutral" level that can be used for quantifying
13 historical per residential lot investments made by the
14 Company in residential subdivision work orders?
15 A.No. As I have discussed, the Staff
16 computations include amounts for substations, meters, and
17 service conductor which are not provided as part of
18 residential subdivision work orders. Of the remaining
19 three cost categories (transformers, primary lines, and
20 secondary lines) only transformers are considered when
21 determining allowances for all other customer classes.
22 Furthermore, Staff included the costs of both primary and
23 secondary transformers that receive allocation to
24 residential class in general rate case proceedings. New
SAID, RESP 13
Idaho Power Company
1 residential requests under Rule H provisions rarely, if
2 ever, include primary transformers. In order to remain
3 consistent with the treatment of all other customer
4 classes, the Commission should isolate its review of Dr.
5 Slaughter's computations to the transformer component.
6 Q.Please quantify the embedded net plant
7 investment per customer in transformers per residential
S customer based upon data contained in Staff Comments in
9 this proceeding.
10 A.Based upon Attachment 4 to Staff's Comments,
11 the embedded net plant investment in transformers for the
12 residential class is $314. SO per residential customer
13 ($123,250,351 / 391,525 customers). As I pointed out
14 previously in my testimony, this amount includes primary
15 transformer costs that should not be included and are
16 unrelated to Rule H requests.
17 Q.Can you quantify the embedded net plant
lS investment in transformers per residential transformer
19 based upon the numbers contained in Staff Comments?
20 A.Unfortunately, there is not an easy method
21 to arrive at such a number. However I am told by the
22 Company's Line Design Leader that the Company has installed
23 approximately 132,662 transformers smaller than 150 kVA.
24 These transformers can and do serve a variety of customer
SAID, RESP 14
Idaho Power Company
1 classes. Using an allocation methodology used in rate
2 cases based upon customer demands, my staff tells me that
3 60.6 percent of secondary transformer costs are allocated
4 to the residential class. Using this percentage, the
5 estimated number of residential transformers is SO,393
6 (132,662 x 0.606). Using that value, the embedded net
7 plant per installed residential transformer is $ 1,533 per
S installed transformer.($123,250,351 / SO,393
9 transformers. ) Again, please remember that this number
10 includes primary transformers as well as secondary
11 transformers. Even so, the Commission approved allowance
12 of $1,7S0 per installed residential transformer based upon
13 current costs is more generous than an allowance of $ 1,533
14 per transformer that would result from an isolated look at
15 the embedded cost of both primary and secondary
16 transformation per installed residential transformer. If
17 primary transformers were removed from the computation, the
1 S $ 1, 7 S 0 allowance would appear even more generous.
19 Q.What rationale does Dr. Slaughter provide in
20 support of his per customer allowance as opposed to a per
21 transformer allowance?
22 A.Dr. Slaughter implies that developers of
23 residential subdivisions should be awarded greater overall
24 allowances via a per lot allowance than the overall
SAID, RESP 15
Idaho Power Company
1 allowance provided to residential customers outside of
2 subdi visions because more lots can be served per
3 transformer wi thin subdivisions than the number of
4 customers served per transformer outside of subdivisions.
5 However, Dr. Slaughter fails to consider the financial risk
6 associated with lots that are left undeveloped; i. e. ,
7 facili ties have been installed and there is no connected
8 load.
9 Q.Do you have an estimate of the number of
10 undeveloped residential lots wi thin subdivisions that
11 currently have no homes, but have backbone and transformers
12 available to provide service?
13 A.I am told that the current estimate of
14 vacant, undeveloped residential lots in residential
15 subdivisions where the Company has installed backbone line
16 and transformers is greater than 20,000 lots.
17 Q.Notwi thstanding the risk of non-development
18 of residential lots wi thin residential subdivisions, is
19 there a difference between the number of potential
20 customers served per transformer wi thin a subdivision and
21 the number of customers that are served per transformer
22 outside of subdivisions?
23 A.Yes. The typical transformer installed
24 outside a subdivision is a single phase 25 kVA transformer
SAID, RESP 16
Idaho Power Company
1 that can typically serve 3 customers. The $1,780 allowance
2 is based upon the installed cost of that transformer ($ 915)
3 along with service conductor and metering ($865). The
4 typical transformer installed inside a subdivision is a
5 single phase 75 kVA transformer. The Company's and
6 Commission Staff's position is that allowances should be
7 based on the costs associated with overhead Terminal
8 Facilities, which, in a residential subdivision, equates to
9 transformers. The current installed cost of an overhead
10 single phase 75 kVA transformer is $1,667. The Commission-
11 approved allowance provided exceeds the cost of the
12 typically installed transformer inside a subdivision by
13 $113 per transformer, but offers an equivalent benefit to
14 customers, whether located inside or outside a subdivision.
15 As I have testified previously, service conductor and
16 metering are provided to homeowners at a later time and are
17 not costs incurred by developers.
18 A request for service within a residential
19 subdivision has an implied number of ultimate customers per
20 transformer, whereas a request for service to a residential
21 customer outside of a subdivision does not. However, if
22 addi tional residential customers request service that can
23 be served by an existing transformer, those customers only
24 recei ve an allowance reflective of service conductor and
SAID, RESP 17
Idaho Power Company
1 metering because the transformer is already there. As a
2 result, Dr. Slaughter's conclusion that residential
3 allowances outside of residential subdivisions are more
4 generous than allowances wi thin residential subdivisions is
5 erroneous.
6 Q.Based upon your responsive testimony, what
7 recommendation do you now make with regard to the
8 appropriate level of allowances wi thin residential
9 subdivisions?
10 A.I recommend that the Commission reaffirm its
11 original conclusion that an allowance of $1,780 per
12 installed transformer is the appropriate allowance to be
13 funded by the Company wi thin residential subdivisions. The
14 allowance is appropriate based upon policy that considers
15 current economic conditions, consistent treatment between
16 and wi thin customer classes, and different risk attributes
17 of new residential customers and residential developers.
18 The methodology of determining an appropriate allowance
19 wi thin a residential subdivision based upon the current
20 cost of transformers is appropriate and consistent with a
21 policy that treats residential customers inside and outside
22 subdivisions similarly.
23 Q.Do you have any additional comments on Dr.
24 Slaughter's testimony on reconsideration?
SAID, RESP 18
Idaho Power Company
1 A.Yes. On page 8 of his testimony on
2 reconsideration, Dr. Slaughter includes a table that he
3 attributes to Staff as his source. In fact, only a portion
4 of the table is taken from Staff computations. Dr.
5 Slaughter arrives at an incorrect conclusion that the
6 Company will somehow achieve negative investment per
7 customer by incorrectly equating what he terms "recovery
8 through existing rates" with contributions in aid of
9 construction. Generally speaking, as long as the Company
10 provides any allowance, that allowance is representative of
11 a Company investment on behalf of customers. The Company
12 is entitled to recover depreciation expense as well as
13 other O&M expenses associated with that investment. The
14 Company is also entitled to an opportunity to earn a return
15 on its investments. However, recovery of investment-
16 related expenses should not be confused with contributions
17 in aid of construction (e. g., work order expenses in excess
18 of allowances) which offset rate base.
19 On page 10 of Dr. Slaughter's testimony on
20 reconsideration, he states that as a result of a $1,780 per
21 installed transformer allowance within a subdivision, "the
22 Company will be in an excess earning situation with regard
23 to its distribution plant." This conclusion suggests that
24 the Company color codes its revenues and assesses under-
SAID, RESP 19
Idaho Power Company
1 and over-earning of the Company's authorized rate of return
2 by functional category. This is not a historic approach
3 utilized by the Commission. I am confident that the
4 Commission can and will monitor the earnings of the Company
5 over time. In the last decade, the Company has found it
6 difficult to earn its authorized rate of return, much less
7 earn more than its authorized rate of return. The
8 Commission should continue to consider the Company's actual
9 earnings from a global perspective rather than a piecemeal
10 perspective.
11 Q.Does that conclude your testimony?
12 A.Yes, it does.
SAID, RESP 20
Idaho Power Company