20090309Gale Direct.pdf

r¡ i: (' i: i :ii ':i~~'..Li ;)
20U9HAR -6 PM 5: 00
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AN NECESSITY FOR THE LAGLEY
GULCH POWER PLAT.
CASE NO. IPC-E-09-03
IDAHO POWER COMPAN
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.
24 A.From 1976 to 1983, I was employed by the
GALE, DI 1
Idaho Power Company
1 State of Idaho primarily as an analyst in the Department of
2 EmploYment. In October 1983, I accepted a position at
3 Idaho Power Company as a Rate Analyst in the Rate
4 Department. I initially worked on rate design, tariff
5 administration, and line extension issues. In March 1990,
6 I was assigned to the Company's Meridian District Office
7 where I held the position of Meridian Manager, which was a
8 one-year cross training position established to provide
9 corporate employees with an extensive field experience. I
10 returned to the Rate Department in March 1991 and in June,
11 I was promoted to Manager of Rates. In July 1997, I was
12 named General Manager of Pricing and Regulatory Services.
13 In March 2001, I was promoted to Vice President of
14 Regulatory Affairs, my current position.
15 As Vice President of Regulatory Affairs, I oversee
16 and direct the activities of the Pricing and Regulatory
17 Services Department. These acti vi ties include the
18 development of jurisdictional revenue requirements, the
19 oversight of the Company's rate adjustment mechanisms, the
20 preparation of class cost-of-service studies, the
21 preparation of rate design analyses, and the administration
22 of tariffs and customer contracts. In my current position,
23 I have the primary responsibility for policy matters
24 related to the economic regulation of Idaho Power Company.
GALE, DI 2
Idaho Power Company
1 I have testified frequently before the Idaho Public
2 Utilities Commission ("the Commission") on a variety of
3 rate and regulatory matters. I have also testified before
4 or submitted direct testimony to the regulatory commissions
5 in Nevada and Oregon, the Federal Energy Regulatory
6 Commission ("FERC"), the Bonneville Power Administration,
7 and the United States Senate Committee on Energy and
8 Natural Resources.
9 Q.What it the purpose of your testimony in
10 this matter?
11 A.I will briefly describe the new generating
12 resource for which the Company is seeking a Certificate of
13 Public Convenience and Necessity ("CPCN"). I will discuss
14 certain regulatory alternatives that are available to the
15 Commission that, if authorized, would assist the Company in
16 obtaining the necessary financing for the new resource.
17 Finally, I will propose the specific ratemaking treatment
18 sought by the Company as part of its CPCN request.
19 THE PROJECT
20 Q.Please generally describe the new resource.
21 A.The resource project is a gas-fired,
22 combined cycle combustion turbine power plant that would be
23 constructed, owned, operated, and maintained by Idaho
24 Power. Idaho Power plans to construct and operate the
GALE, DI 3
Idaho Power Company
1 approximately 330 MW plant and associated facilities in
2 Payette County, Idaho. The name of the new resource is
3 Langley Gulch Power Plant ("Langley Gulch" or "The
4 Proj ect") .
5 The Project is split into two categories: (1) the
6 power island and (2) the other support facilities. The
7 major components of the plant's power island include a gas
8 turbine generator, a heat recovery steam generator, a steam
9 turbine, and steam surface condenser. Other support
10 facilities will include a warehouse, office, and operation
11 control buildings to support the plant. The Langley Gulch
12 plant will be water-cooled using secured surface water
13 rights on the Snake River.
14 Q.What is the planned schedule for
15 construction and commercial operation of the Proj ect?
16 A.With the Commission's approval of the CPCN,
17 construction of the Langley Gulch Power Plant will begin in
18 the summer of 2010. The Project is scheduled to be
19 commercially operational by December 2012. To support this
20 schedule, most permits will need to be secured by the
21 spring of 2010.
22 Q.What transmission facilities need to be
23 constructed to interconnect the Langley Gulch Project with
24 the rest of the Idaho Power system?
GALE, DI 4
Idaho Power Company
1 A.There are two segments of transmission line
2 construction that are necessary to integrate the Proj ect
3 with the Idaho Power system. One piece is 2.5 miles of new
4 double circuit 230-kV transmission line that will cross
5 Bureau of Land Management lands to connect to the existing
6 Ontario-Caldwell transmission line. The second section is
7 approximately 18 miles of new 138-kV transmission line to
8 be constructed along public right-of-way to connect to the
9 Caldwell-Willis line.
10 REGULTORY CONSIDERATIONS
11 Q.The Company has filed for CPCNs for several
12 peaking facilities over the last decade, including Evander
13 Andrews units 2 and 3 in 2001, Bennett Mountain in 2003,
14 and Evander Andrews 1 in 2006. How is this request
15 different than those filings?
16 A.All of the proj ects mentioned were simple
17 cycle combustion turbine peaking plants, which are smaller
18 in size, significantly less capital intensive, and much
19 quicker to construct. Because of these characteristics,
20 peaking plants do not present the same type of regulatory
21 and financing risks that a combined cycle combustion
22 turbine project like Langley Gulch does. Additionally, the
23 turmoil in today's capital markets creates a different
24 financing environment than what was present when the
GALE, DI 5
Idaho Power Company
1 previous CPCN applications were before this Commission.
2 Company Witness Ms. Lori Smith discusses the challenge of
3 financing major capital projects in the present economic
4 and financial environment in her testimony.
5 Q.Given the differences between Langley Gulch
6 and the peaking units previously described, is Idaho Power
7 proposing any regulatory or ratemaking changes to its CPCN
8 request that can make this project more attractive to the
9 financial community?
10 A.We are proposing two regulatory alternatives
11 for the Commission's consideration. Both alternatives
12 build from traditional CPCN filings that include the
13 establishment of the need for the resource, the resource
14 selection process, construction timelines, capacity and.
15 operating characteristics, and firm commitment estimates
16 for both the power supply and transmission components of
17 the proposed resource. In this filing, the Company is
18 asking the Commission to also consider either (1) a
19 ratemaking order that would permit all or a portion of the
20 Construction Work in Progress ("CWIP") the Company incurs
21 as it constructs the Project to be included in current
22 rates on an annual basis or (2) to assertively state in the
23 CPCN Order how the Commission intends to treat the
GALE, DI 6
Idaho Power Company
1 Company's investment in Langley Gulch for ratemaking
2 purposes at the time Langley Gulch goes into service.
3 Q.Please describe the CWIP al ternati ve you
4 propose.
5 A.Utilizing this alternative, the Company
6 would submit annual filings to the Commission following the
7 close of each year - potentially on or before March 1. The
8 Commission could audit the Company's filing and authorize
9 the Company to include its investment costs in rates at the
10 time of the annual Power Cost Adjustment rate change (or
11 some other date of its choosing). Utilization of this
12 approach would allow Staff three months to audit the cost
13 information and would implement rate changes in a non-
14 disruptive manner. To alleviate potential concerns
15 regarding the prudency of expenditures, in addition to the
16 ability to audit, the Commission could also limit CWIP
17 recovery to a percentage of booked and audited costs. In
18 the final year, the accumulated plant in service would be
19 evaluated against the Company's Commitment Estimate in the
20 same manner as other projects I cited earlier in my
21 testimony that were constructed under the CPCN process.
22 Q.How would the inclusion of annual CWIP
23 amounts into rates reduce the cost of financing the
24 Project?
GALE, DI 7
Idaho Power Company
1 A.As Ms. Smith notes in her testimony in this
2 proceeding, current financing conditions are extremely
3 difficult. Issuing large amounts of equity at this time is
4 simply not prudent. The authorization of CWIP for this
5 proj ect would provide a strong signal of regulatory support
6 for capital projects to the financial community and provide
7 increased cash flow throughout the construction of the
8 proj ect, thus decreasing the need for equity issuances.
9 Q.Turning to the second regulatory al ternati ve
10 you described earlier. How would the inclusion of specific
11 ratemaking determinations in the CPCN order be helpful in
12 financing the Project?
13 A.A Commission order that adds certainty to
14 the ratemaking treatment the Company could expect to
15 receive if it proceeds with the Langley Gulch Power Plant
16 would, in the Company's opinion, enhances its ability to
17 obtain financing. This type of ratemaking commitment is
18 currently being discussed in the Idaho Legislature in
19 Senate Bill 1123. A CPCN Order that would provide the
20 needed certainty would include language specifying that the
21 Commission:(1) concurred with the need for the resource
22 in the size and time frame stated in the application; (2)
23 accepted the Commitment Estimate for total Project cost,
24 including both the power supply and transmission segments;
GALE, DI 8
Idaho Power Company
1 (3) stated that costs incurred in an amount up to the
2 Commitment Estimate could be deemed to be reasonable and
3 prudent subject to a "soft cap"; (4) stated that at the
4 time the Proj ect was closed to plant and placed in rate
5 base and cost recovery could begin at the time Langley
6 Gulch begins full commercial operations; and (5) stated
7 that the return on equity the Company could expect to earn
8 on the Proj ect investment would be the authorized rate in
9 effect at the time the Proj ect is placed in service.
10 Q.Please clarify what you mean by the term
11 "soft cap."
12 A.A soft cap when applied to a Commitment
13 Estimate means that the Company could be assured that
14 amounts incurred up to the Commitment Estimate amount would
15 be determined to be prudent. Should the cost of the
16 Project be less than the Commitment Estimate, the savings
17 would directly benefit the customer through a lower amount
18 in rate base. On the other hand, should the proj ect come
19 in over the Commitment Estimate, amounts above the
20 Commitment Estimate would have to be justified before the
21 Commission and mayor may not be determined as prudently
22 incurred.
GALE, DI 9
Idaho Power Company
1 Q.Does this Commission have the ability to
2 bind future Commissions to the degree that you are
3 requesting?
4 A.No. However, as a practical matter given
5 the construction time frame for the Langley Gulch proj ect,
6 it is likely that all or most of the current Commissioners
7 will be serving at the time the Proj ect becomes commercial.
8 Addi tionally, if during the pendency of this proceeding the
9 Commission should obtain the legal authority to issue
10 orders that would commit future Commissions to the
11 ratemaking determinations made by this Commission, it would
12 be the Company's intent to file an amended request seeking
13 such a commitment.
14 RATEMING REQUEST
15 Q.After considering the application of the
16 regulatory alternatives just described, what is the Company
17 asking the Commission to include in its Langley Gulch CPCN
18 order?
19 A.Idaho Power believes that the results of the
20 RFP clearly demonstrate that the Langley Gulch Project
21 represents an opportunity for its customers to obtain a
22 very cost-effective resource. To take advantage of that
23 opportunity, the Company is asking the Commission to
24 include ordering language that will enhance the Company's
GALE, DI 10
Idaho Power Company
1 chances to obtain financing for the Proj ect. Specifically,
2 Idaho Power requests that the Commission find that:
3 (1) The construction of the Langley Gulch
4 Power Plant is consistent with Idaho Power's resource plans
5 and is an appropriate resource to supplement and support
6 the Idaho Power system and its customers.
7 (2) The December 2012 on-line date is
8 consistent with Idaho Power's resource plans and the
9 anticipated load requirements of Idaho Power's retail
10 customers.
11 (3) The approved total Commitment Estimate
12 is $427,400,000, which includes the power plant and the two
13 transmission proj ects described previously in my testimony
14 related to the Ontario-Caldwell connection and the
15 Caldwell-Willis connection.
16 (4) The Commitment Estimate is subject to a
17 soft cap that provides retail customers with the full
18 benefit of the Project being completed under the Commitment
19 Estimate, while providing the Company with an opportunity
20 to justify any costs above the Commitment Estimate as
21 prudent should that be the case.
22 (5) The Company can recover prudently
23 incurred costs for fuel, fuel storage, and fuel
GALE, DI 11
Idaho Power Company
1 transportation through the Company's existing Power Cost
2 Adjustment mechanis~.
3 ( 6 ) The Company can inc 1 ude in rates
4 through annual ratemaking adjustments of booked and audited
5 CWIP investment with a final reconciliation at the time of
6 commercial operation or, in the alternative;
7 (7) The Company can expect to include in
8 rates at the time of commercial operation the specific
9 ratemaking determinations I described previously in my
10 testimony.
11 Q.Can Idaho Power assure this Commission that
12 if the Commission authorizes either of the alternatives
13 requested, that the Company has the ability to finance the
14 Project?
15 A.No it cannot. Providing the regulatory
16 assurances would give Idaho Power a better chance to obtain
17 financing, but in today's environment, we simply do not
18 know if it can be done. The Company will be reviewing its
19 financing alternatives for the Project throughout this
20 spring and, if necessary, may supplement or amend this
21 request based on its findings.
22 Q.Does this conclude your testimony?
23 A.Yes, it does.
GALE, DI 12
Idaho Power Company