20090619Harms Direct.pdf

iOß9..IUll '9 PM 1: 46
~~ 1~:',1 tfriIDAHO PUBLIC UTILITIES CO.M"".. l(~'~1r~SIO¡\'l
IJ. .lT! n11ï¡l¡t., S' 'C)"r,~ ",. '", ,¡-..
BEFORE THE
,. r: 1\1 ': 1"
R,c" ç: a ,C"i \( L '\;.J. ,',""'h_ "";''''
IN THE MATTER OF IDAHO POWER )
COMPANY'S APPLICATION FOR A ) CASE NO.IPC-E-09-3
CERTIFICATE OF PUBLIC CONVENIENCE )
AND NECESSITY FOR THE LANGLEY )GULCH POWER PLANT )
)
DIRECT TESTIMONY OF PATRICIA HARMS
IDAHO PUBLIC UTILITIES COMMISSION
JUNE 19, 2009
1
2 record.
Q.Please state your name and address for the
3 A.My name is Patricia Harms. My business address
4 is 472 West Washington Street, Boise, Idaho.
5
6
Q.By whom are you employed and in what capacity?
A.I am employed by the Idaho Public Utili ties
7 Commission (Commission) as a Principal Financial
8 Specialist/Senior Auditor.
9 Q.Please give a brief description of your
10 educational background and experience.
11 I graduated from Boise State University, Boise,A.
12 Idaho in 1981 with a B.A. degree in Business
13 Administration, emphasis in Accounting. I am a Certified
14 Public Accountant licensed by the State of Idaho. Prior
15 to joining the Commission Staff in 2000, I was employed
16 by the State of Alaska as an In Charge Auditor and
17 performed both financial and performance audits of
18 governmental agencies. I have attended many seminars and
19 classes involving auditing and accounting. While at the
20 Commission I have audited a number of utilities including
21 water, electric, gas and telephone utilities and provided
22 comments and testimony in a number of cases that dealt
23 with general rates, hook-up fees, accounting issues, and
24 other regulatory issues. I have also completed the
25 National Association of Regulatory Utility Commissioners'
CASE NO. IPC-E- 09-306/19/09 HAS, P. (Di) 1
STAFF
1 (NARUC) annual regulatory studies program at Michigan
2 State University. I also regularly attend meetings of
3 NARUC's Staff Subcommittee on Accounting and Finance and
4 at selected meetings serve as secretary for the
5 Subcommittee.
6 Q.What is the purpose of your testimony?
7 A.The purpose of my testimony is to present
8 Staff's recommendations regarding the treatment of
9 depreciation for the Langley Gulch Proj ect.
10 My testimony in this case also describes
11 Staff's position regarding the Allowance for Funds Used
12 During Construction (AFUDC) and Construction Work in
13 Progress (CWIP) as it relates to projects in general and
14 Langley Gulch specifically. Staff witness Sterling's
15 testimony recommends that the actual amount of AFUDC
16 incurred be recoverable, but that it be considered an
17 addition to both the Soft Cap and Hard Cap amounts for
18 the Langley Gulch Proj ect.
19 My testimony also describes capitalized taxes
20 and Staff's recommended treatment of those costs. Staff
21 recommends that the actual amount of taxes relating to
22 project costs be capitalized and recovered based upon
23 Staff's proposed Langley Gulch Proj ect amount.
24 DEPRECIATION
25 Q.What is Staff's recommendation regarding the
CASE NO. IPC-E-09-306/19/09 HARMS, P. (D i) 2
STAFF
2
1 treatment of depreciation for the Langley Gulch Proj ect?
A.Staff recommends that the Langley Gulch Project
3 be depreciated in accordance with the depreciation rates
4 that are in effect at the time the Proj ect is placed into
5 service. This recommendation is similar to the return on
7
6 equity treatment that the Company is requesting for the
8 Staff also recommends that a new depreciation study that
Project.(Gale, Supplemental Direct, page 4, lines 1-4) .
9 includes the Project with economic lives no shorter than
10 35 years for the production plant and 45, years for the
11 related transmission plant be completed and filed when,
12 or shortly after, the Proj ect is placed into service
13 (likely during 2013). This timeframe is consistent with
14 the historical periodic depreciation filings of the
15 Company.
16 Q.How were the depreciation rates currently used
18
17 by the Company approved by the Commission?
A.The depreciation rates currently in use by the
19 Company were approved by the Commission in Case No.
20 IPC-E-08-6 (08-6 case) in Order No. 30639 dated
21 September 12, 2008. The depreciation rates were based on
22 the results of a detailed depreciation study of the
23 Company's electric plant in service as of December 31,
24 2006. The depreciation rates were based on a straight
25 line, average service life procedure for all electric
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 3
STAFF
1 plant. In that case, the proposed changes in
2 depreciation rates resulted in a decrease of the
3 Company's total annual depreciation expense. The parties
4 to the 08-6 Case filed a Stipulation setting forth
5 agreed-upon depreciation rates. The Stipulation
6 identified changes to the Company's proposal agreed to by
7 the parties, primarily increases in the service life and
8 life span of a steam generation plant and hydraulic
9 production plants. The parties also agreed to a detailed
10 review in the next depreciation case of accrual rates for
11 several plant assets, including Bridger Assets, Bennett
12 Mountain, Clear Lake Hydraulic Production Plant, Meters,
13 Computers and Corporate Aircraft.
14 Q.What depreciation rates were approved in Case
15 No. IPC-E- 08 - 6 for production plant and how do those
16 rates compare to the depreciable life of 35 years (2.86%)
17 requested by the Company for the Langley Gulch production
18 plant?
.19 A.The Commission-approved accrual rates for
20 selected production plant accounts according to the
21 Attachment to Order No. 30639 are stated in the following
22 table (Table No.1) .
23
24
25
CASE NO. IPC-E- 09-306/19/09 HAS, P. (Di) 4
STAFF
1 Table No. 1
2 Account and Description Accrual
3
6
340.00
341. 00
342.00343.00344.00345.00346.00
Land
Structures & Improvements
Fuel Holders
Prime MoversGenerators
Accessory Electric Equipment
Misc. Power Plant Equipment
Non-depreciable
2.75-3.16%
2.75-2.80%
2.76-3.25%
1.93-3.30%
2.75-7.22%
2.52-7.17%
4
5
7 Q.Why do the listed accrual amounts vary so
8 greatly by account?
9 A.In the Attachment to Order No. 30639, accrual
10 rates and composite remaining life for production plant
11 are listed by Federal Energy Regulatory Commission (FERC)
12 account and within that account by plant. For example,
13 the accrual rates for Account 344.00 Generators range
14 from a low of 1.93% and a composite remaining life of
15 29.5 years for Evander Andrews to a high of 3.30% and a
16 composite remaining life of 34.5 years for Bennett
17 Mountain. Similarly, the accrual rates for Account
18 345.00 Accessory Electric Equipment range from a low of
19 2.75% and a composite remaining life of 34.5 years for
20 Bennett Mountain to a high of 7.22% and a composite
21 remaining life of 10.5 years for Salmon Diesel.
22 Q.Was Langley Gulch part of the depreciation
23 study filed in Case No. IPC-E-08-6?
24 A.No. The depreciation study only relates to
25 plant in service at the time of the study.
CASE NO. IPC-E-09-306/19/09
HAS, P. (Di) 5
STAFF
1 Q.What Commitment Estimate dollars for the
2 Langley Gulch production plant relate to the above
3 accounts and what is its related depreciable life?
4 A.Staff asked the Company in the discovery
5 process to provide all studies, life cycle analyses and
6 other information used to derive a depreciable life of 35
7 years for the production plant and 45 years for the
8 transmission plant. The Company was asked to include
9 within its response the Commitment Estimate dollars as it
10 relates to production and transmission plant by electric
11 plant in service account number (3XX. xx) and the related
12 depreciable life. The Company's response to Production
13
14
15
16
17
18
19
20
21
22
23
24
25
Request No. 83 referred Staff to the depreciation study
that was the basis of Case No. IPC-E- 08 - 6 and stated the
following:
"While Idaho Power believes that its
Commitment Estimate is reasonable, it
cannot predict with precision the
specific Commitment Estimate amounts
that will close to each FERC electric
plant account upon placing the project
in-service. The requested allocation
of Commitment Estimate dollars will be
made upon final unitization of the work
order (s). However, there are portions
of the power plant Commitment Estimate
that will likely close to specific
accounts. The property and water
rights acquired for the plant will
close to plant account 340. The
amounts for the gas turbine, steam
turbine, and heat recovery steam
generator ("HRSG") will close to plant
accounts 343 and 344. The remainder of
CASE NO. IPC-E-09-306/19/09 HAS , P . (D i) 6
STAFF
1
2
3
4
5
6
the power plant investment will close
to plant accounts 341, 342, 345, and
346. Accounts 340-346 currently all
have approximately the same overall
depreciable life. The current Idaho
Power investment in these accounts has
a composite remaining life ofapproximately 30 years."
Q.What depreciation rates were approved in Case
7 No. IPC-E-08-6 for transmission plant and how do those
8 rates compare to the depreciable life of 45 years (2.22%)
9 requested by the Company for Langley Gulch transmission
10 plant?
11 A.The Commission-approved accrual rates for
12 selected transmission accounts according to the
13 Attachment to Order No. 30639 are stated in the following
14 table (Table No.2) .
15 Table No. 2
16
17
18
19
20
21
Account and Description
350.20
350.21
352.00
353.00
354.00
355.00
356.00
Land Rights and Easements
Rights of Way
Structures & Improvements
Station Equipment
Towers and Fixtures
Poles and Fixtures
Overhead Conductors and Devices
Accrual
1. 51%
1. 50%
1. 68%
2.06%
1.96%
2.81%
1.92%
Q.What are the composite remaining lives for the
24
23 30639?
22 above accounts as stated in the Attachment to Order No.
A.The composite remaining lives for the above
25 accounts according to the Attachment to Order No. 30639
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 7
STAFF
1 are stated in the following table (Table No.3) .
3
2 Table No. 3
Account and Description
4 350.20350.21352.00
353.00
354.00
355.00
356.00
5
6
7
8
Remaining Life
Land Rights and Easements
Rights of Way
Structures & Improvements
Station Equipment
Towers and FixturesPoles and Fixtures
Overhead Conductors and Devices
54.2 Years
63.7 Years
47.3 Years
35.4 Years
48.6 Years
36.7 Years
48.3 Years
Q.What Commitment Estimate dollars for the
9 Langley Gulch transmission plant relate to the above
11
10 accounts and what is its related depreciable life?
A.
12 the discovery process to provide all studies, life cycle
As noted previously, Staff asked the Company in
13 analyses and other information used to derive a
14 depreciable life of 35 years for the production plant and
15 45 years for the transmission plant. The Company was
16 asked to include within its response the Commitment
17 Estimate dollars as it relates to production and
18 transmission plant by electric plant in service account
19 number (3XX. xx) and the related depreciable life. The
20 Company's response to Production Request No. 83 referred
21 Staff to the depreciation study that was the basis of
22 Case No. IPC-E-08-6 and stated the following:
23 "While Idaho Power believes that its
Commitment Estimate is reasonable, it24 cannot predict with precision the
specific Commitment Estimate amounts25 that will close to each FERC electric
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 8
STAFF
1
2
3
4
5
6
plant account upon placing the proj ect
in-service. The requested allocation
of Commitment Estimate dollars will be
made upon final unitization of the workorder (s) ... The transmission lines
portion of the proj ect will close to
plant accounts 354-356 and the
transmission station portion will close
to accounts 350,352, and 353."
Q.Do you have a schedule of the Langley Gulch
7 Commitment Estimate dollars by account and its related
8 depreciable life?
9 A.No, the Company did not provide such a schedule
10 in support of its request for the depreciable life of 35
11 years for production plant and 45 years for transmission
13
12 plant.
Q.How frequently has the Company filed cases
15
14 requesting approval of its depreciation rates?
A.The Company filed its most recent depreciation
16 case in 2008 (Case No. IPC-E-08-6). The previous
17 depreciation case was filed in October 2003 (Case No.
19
18 IPC-E-03-7) .
20
21
22
23
24
Q.Is this timing the basis of your recommendation
that the Company file a depreciation case during 2013
when,or shortly after,the Project is placed into
service?
A.Yes.However,another consideration is the
size (in dollars)of the plant and the other issues
25 identified in Case No. IPC-E-08-6 that were identified
CASE NO. IPC-E-09-306/19/09 HAMS, P. (D i) 9
STAFF
1 for further review by the parties to the Stipulation.
2 This leads to Staff's expectation that another
3 depreciation study will be forthcoming within five years
4 of the last filed depreciation case.
5 Q.Is there anything else that might influence
6 depreciation in 2013 when the plant is expected to close
7 to plant in service?
8 A.Yes. The Securities and Exchange Commission
9 (SEC) has published a roadmap associated with
10 implementation of International Financial Reporting
11 Standards (IFRS). This roadmap sets forth several
12 milestones that, if achieved, could lead to the required
13 use of IFRS by U. S. issuers in 2014 if the SEC believes
14 it to be in the public interest. Current international
15 standards treat depreciation differently than most u. S.
16 utilities.
17 Q.How are assets depreciated under current
18 International Accounting Standards (lAS)?
19 A.While there are many different aspects of
20 depreciation under lAS, the most significant one that the
21 Company can currently prepare the Langley Gulch Project
22 for is componentization.
23 lAS 16, paragraph 43 states:
24 "Each part of an item of property,
plant and equipment with a cost that is25 significant in relation to the total
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 10
STAFF
1 cost of the item shall be depreciatedseparately. "
2
3 This may be a physical component or a non-
4 physical component such as an inspection or an overhaul.
5 Q.How does this differ from current depreciation
6 methods?
7 A.Utilities currently use mass/group asset
8 depreciation. It has been recognized that mass/group
9 asset depreciation cannot be accommodated under IFRS.
10 Q.What is Staff's recommendation to the Company
11 regarding lAS 16 ?
12 A.Staff recommends that the Company create and
13 retain documentation associated with the Langley Gulch
14 Project that would allow the Company to comply with
15 component depreciation when IFRS are adopted. Staff
16 expects this detail will also be utilized in the next
17 depreciation study.
18 AFC AN CWIP
19 Q.What is Staff's recommendation for the recovery
20 of AFUDC in this case?
21 A.Staff recommends that the Company accrue actual
22 AFUDC based upon the monthly cash balance of actual
23 expenditures as the production and transmission plant is
24 under construction. The monthly expenditures would be
25 subj ected to a prudency review of the amounts to which
CASE NO. IPC-E-09-306/19/09
HAMS, P. (D i) 11
STAFF
1 the AFUDC rate is applied except for those plant amounts
2 approved in this proceeding. Absent specific ratemaking
3 authority, AFUDC will cease when the plant is placed in
4 service.
5 Q.What is Staff's recommendation regarding CWIP
6 in this case?
7 A.Based upon the evidence at this time, Staff
8 does not believe that including CWIP in rate base before
9 the related plant is used and useful is appropriate. The
10 Company has not made a CWIP request in this case.
11 Q.What has the Company included for AFUDC in this
12 case?
13 A.The Company's Commitment Estimate includes an
14 estimated AFUDC of $49 million associated with the
15 production plant and almost $1 million for the
16 transmission portion of the proj ect.
17 Q.How has the Company calculated those amounts?
18 A.According to the Company's responses to
19 discovery, it used a 7% AFUDC rate and applied it to
20 estimated monthly cash flows for the production plant to
21 derive the $49 million. The 7 percent rate used to
22 estimate AFUDC on the power plant portion of the project
23 was not based on an exact capital structure or exact
24 financing cost (s) at a particular point in time. It was
25 a high level estimate derived from the average annual
CASE NO. IPC-E-09-306/19/09 HAS, P . (D i) 12
STAFF
1 AFUDC rates the Company applied to construction work in
2 progress over the last four years according to the
3 Company.
4 The $1 million included within the Commitment
5 Estimate for transmission was not calculated in the same
6 manner. Instead it was an estimate from the bid process
8
7 and does not have a supporting schedule. The Company's
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
response to Production Request Nos. 80 and 64 explained
the AFUDC amounts as follows:
"The monthly cash flow estimates for
the Langley Gulch power plant were
derived from preliminary payment
schedules/estimates for the gas
turbine, steam turbine, and EPC
(Engineering, Procurement and
Construction) contract. The cash flow
amounts for the remainder of theproj ect were based on Idaho Power'sproj ected timing of construction and
planned work activities."
"Payment schedules for the construction
of the gas turbine, steam turbine, and
overall construction of the Langley
Gulch plant are not available at this
time because contract terms have not
been finalized. Idaho Power estimated
monthly cash construction expenditures
for the power plant portion of theproj ect for purposes of proj ecting
AFUDC... The proj ected transmission cost
of $31. 5M includes a high level AFUDCestimate of approximately $991,000. A
projected cash flow and AFUDC schedule
is not available at this time for the
transmission portion of the proj ect due
to the preliminary nature and scope of
the overall design and cost estimate."
Q.What are the historical AFUDC percentages that
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 13
STAFF
1 have been applied to plant?
2 A.According to the last general rate case for
3 Idaho Power (Case No. IPC-E-08-10), the monthly AFUDC
4 rates January 2008 through October 2008 ranged from
5 3.016% to 6.585%. (Case No. IPC-E-08-10, Miller Direct
6 Rebuttal, page 5). According to the Company's responses
7 to discovery, the monthly AFUDC rates for January through
8 April 2009 have ranged from 3.27% to 8.26% (response to
9 Production Request No. 82).
11
10 Table No. 4
12
13
14
15
16
17
18
19
20
21
Month and Year Rate in Effect
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
6.352%
5.592%
4.111%
4.136%
3.696%
3.016%
4.894%
6.271%
6.240%
6.585%
6.660%
6.793%
5.24%
4.11%
3.27%
8.26%
Q.How do the rates above compare to that used to
22 calculate the $49 million estimated AFUDC for the Langley
23 Gulch production plant?
24 A.As can be seen above, the historical rates vary
25 widely compared to the 7% used for the production plant
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 14
STAFF
1 AFUDC included in the Langley Gulch Commitment Estimate.
2 Q.How does Idaho Power calculate the AFUDC rate?
3 A.On a monthly basis the Company's AFUDC rate is
4 calculated consistent with the AFUDC formula established
5 in the FERC Uniform System of Accounts/General
6 Instructions (18 CFR 1.101). Idaho Power uses semi-
7 annual compounding as allowed in FERC Order 561.
8 Q.What are AFUDC and CWIP?
9 A.AFUDC is an accounting mechanism which
10 recognizes capital costs associated with financing
11 construction. Generally, the capital costs recognized by
12 AFUDC include interest charges on borrowed funds and the
13 cost of equity funds used by a utility for purposes of
14 construction. The main purposes of AFUDC are to
15 capitalize with each project the costs of financing that
16 construction; separate the effects of the construction
17 program from current operations; and to allocate current
18 capital costs to future periods when these capital
19 facilities are in service, useful and producing revenue.
20 AFUDC represents the cost of funds used during the
21 construction period before plant goes into service. When
22 it is placed in service, the entire cost of the plant,
23 including AFUDC, is added to rate base, where it earns a
24 rate of return and is depreciated over the life of the
25 plant.
CASE NO. IPC-E- 09-3
06/19/09 HAS, P. (Di) 15
STAFF
1 CWIP is the accumulation of all costs
2 associated with the construction of an asset, including
3 the cost of financing construction (AFUDC) expenditures.
4 Utilities record these costs in Account 107. This
5 account includes the total of the balances of work orders
6 for electric plant in process of construction. Work
7 orders are to be cleared from this account and closed to
8 plant in service as soon as practicable after completion
9 of the proj ect . CWIP has not been included in rate base
10 on a current basis (before a proj ect is complete and its
11 costs closed to plant in service) historically in Idaho.
12 ALTERNATIVES PROPOSED BY THE COMPANY
13 Q.What two alternatives to a plant filing with
14 the assurances described in the Company's testimony does
15 Company witness Smith describe in her testimony?
16 A.Company witness Smith describes "CWIP in Rate
1 7 Base" and "AFUDC: Pay Currently" in her testimony and
18 compares this to the ratemaking assurances described in
19 Company witness Gale's direct testimony. "CWIP in Rate
20 Base" is described as the Company recovering CWIP
21 expenditures (including AFUDC) the Company incurs as it
22 constructs the Proj ect in current rates on an annual
23 basis. "AFUDC: Pay Currently" is similar to Hells Canyon
24 Relicensing AFUDC granted in Order No. 30722 where
25 customers would pay AFUDC in annual rate increases from
CASE NO. IPC-E- 09-306/19/09 HAS, P. (Di) 16
STAFF
2
1 2010 through 2013.
3 Smith's Exhibit No.7 for the two alternatives to
Q.Do the percentages shown in Company witness
4 traditional ratemaking and the third alternative of
5 placing in service at the end of the construction period
6 the entire CWIP balance including AFUDC represent the
7 rate increases that could be expected using those
8 methods?
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A.No. According to the Company's response to
Production Request No. 102, the spreadsheet that was used
to develop this Exhibit was:
"...to demonstrate the potential to
reduce rate shock by employing either
AFUDC Pay Currently or CWIP in Rate
Base versus the third alternative to
place in service at the end of
construction the entire CWIP balance,
including AFUDC of the Langley Gulch
Power Plant. The analysis is for
illustrative purposes only and does not
predict the future impact of thesealternatives. "
And,
"The assumption in the illustrative
example that revenues would grow 1
percent each year was not intended to
portray any expectation by Idaho Power.
This was a simplifying assumption for
the hypothetical illustration of the
annual differences between the
regulatory treatments of AFUDC Pay
Currently, CWIP in Rate Base and
Traditional Ratemaking." (Emphasis
Added. )
Q.What is Staff's position regarding AFUDC and
CASE NO. IPC-E-09-306/19/09 HARMS, P. (D i) 1 7
STAFF
1 CWIP?
2 A.Staff's position regarding AFUDC was most
3 recently presented by Staff witness Vaughn in Idaho
4 Power's last General Rate Case, Case No. IPC-E-08-10 and
5 remains largely the same today.
6 In Case No. IPC-E-08-10 the Company requested
7 recovery of the currently accruing AFUDC for the Hells
8 Canyon relicensing proj ect (AFUDC component of CWIP).
9 Staff agreed in large part with the Company's proposal
10 because the amount of AFUDC expected at the end of 2012
11 would be larger than the actual direct relicensing costs
12 assuming no additional expenses were incurred during the
13 relicensing proj ect. Staff stated that this enormous
14 growth in AFUDC for the Hells Canyon relicensing proj ect
15 provided the basis for an explicit finding that it was in
16 the public interest to include AFUDC in base rates before
17 the proj ect was closed to plant in service.
18 Although there are limited situations where the
19 public is served by placing CWIP in rate base according
20 to Staff's testimony in Case No. IPC-E-08-10, the Hells
21 Canyon relicensing project is different from other
22 construction proj ects for several reasons. First,
23 "proj ect completion" is determined when the FERC grants a
24 permanent license. Because of the large number of
25 stakeholders involved in relicensing and because of the
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 18
STAFF
1 ever-shifting political environment, project completion
2 is largely beyond the Company's direct control. A
3 permanent license could be granted as early as January
4 2009 or it could be delayed for many years. Second, it
5 is unlikely that the permanent license will not be
6 granted. At the present time, Idaho Power is operating
7 the Hells Canyon dam complex under annual licensing.
8 Because the Hells Canyon complex is fully operational and
9 power generation is not curtailed, Staff argued that the
10 relicensing investment is essentially used and useful.
11 Q.What did the Commission find in Case No.
12 IPC-E-08-10?
13 A.The Commission found in Order No. 30722, pages
14 13 and 14, as follows:
15 "... that the Hells Canyon relicensing
proj ect is unlike a typical16 construction proj ect, and establishes
circumstances that support a finding17 that including AFUDC in rates will
serve the public interest. The unique18 circumstances include: (1) the proj ect
process has already been under way for19 nearly ten years, and Idaho Power has
little control over the completion20 date; (2) the Company is able to use
the generating facilities during the21 relicensing process, and they currently
provide a significant amount of the22 Company's total generating capacity and
energy; (3) the lengthy duration of the23 project, and an as yet unknown
completion date, mean that AFUDC is24 already significant and will continue
to accumulate to alarming levels.25 Other considerations, not unique to the
CASE NO. IPC-E-09-306/19/09 HARS, P. (D i) 19
STAFF
1
2
3
4
5
6
7
8
Hells Canyon project, also support a
finding the public interest is served
by including a portion of AFUDC in
rates. The amount of AFUDC included inrates now will reduce the total proj ect
costs that ultimately will be included
in rate base, thereby reducing future
rate increases. Idaho Power's cash
flow will improve, which will help
maintain its credit strength and
ability to access funds for ongoingconstruction projects."
Q.Do any of the three attributes described in the
9 Commission's finding in Case No. IPC-E-08-10 apply to the
10 Langley Gulch Project?
11 A.No. The proj ect has not been under way for
12 nearly ten years and Idaho Power has substantial control
13 over the completion date as the Proj ect is a self -build
14 Proj ect. The Proj ect is not currently used and useful
15 nor is AFUDC growing at "an alarming rate" as described
16 in Case No. IPC-E-08-10 for the Hells Canyon relicensing
17 project. The Company's ability to obtain financing for
18 the Langley Gulch Proj ect and cash flow is described in
19 Staff witness Carlock's testimony.
20
22
21 AFUDC in base rates?
Q.What authorizes the inclusion of CWIP and/or
A.The potential inclusion of CWIP/AFUDC in base
23 rates is an option the Commission may utilize based on a
24 2006 change in Idaho Code.
25 In 1984 the Idaho Legislature enacted Idaho
CASE NO. IPC-E-09-306/19/09 HAS, P. (Di) 20
STAFF
1 Code § 61-502A to read
2 "Except upon its finding of an extreme
emergency, the (Public Utilities)3 Commission is hereby prohibited in any
order issued after the effective date4 of this act, from setting rates for any
utility that grants a return on5 construction work in progress... or
property held for future use and which6 is not currently used and useful in
providing utility service."
7
8 However, in 2006 this section was amended to read
9 "Except upon its explici t finding thatthe public interest will be served--10 thereby, the Commission is hereby
prohibi ted in order issued after the11 effective date of this act, from
setting rates for any utility that12 grants a return on construction work in
progress or property held for future13 use and which is not currently used and
useful in providing utility service."14 (Emphasis indicates amended language.)
15 CWIP including AFUDC may be considered in the
16 determination of rates upon a finding that the public
17 interest will be served.
18 Q.Has the Company stated as its preferred
19 ratemaking treatment that CWIP and/or AFUDC should be
20 included in rates before the plant is used and useful and
21 closed to plant in service?
22 A.No. Company witness Gale states that the
23 Company prefers that the Commission issue an Order under
24 the provisions of Senate Bill 1123 (Gale Supplemental
25 page 6, line 20-22) .
CASE NO. IPC-E-09-306/19/09 HARS, P. (Di) 21
STAFF
2
1 CAITALIZED TAXS
Q.What are the capitalized taxes the Company has
3 included in its Commitment Estimate for the Langley Gulch
4 Project?
5 A.The Company has included an estimate of
6 capitalized property taxes in its Commitment Estimate.
7 The Company has estimated the year-end plant balance
8 (exclusive of AFUDC) for each year during construction,
9 deri ved on estimated assessed value and multiplied that
10 estimated assessed value by the levy rate estimate for
12
11 each year including 2009 through 2012.
Q.Is it appropriate for the Company to include
13 capitalized property taxes in its Project costs?
14 A.Yes. Property taxes are a cost that the
15 Company will incur during the period the Langley Gulch
16 plant is under construction and should be included within
17 the cost of the Proj ect. Once the Proj ect is completed
18 and closed to plant in service property tax becomes an
20
19 annual expense of operating the plant.
Q.What amount does Staff recommend be included
22
21 within the Project's cost?
A.Staff witness Sterling recommends that actual
23 property taxes capitalized for this Project be included
24 in its costs. For those plant amounts not approved by
25 this Commission, any related capitalized property taxes
CASE NO. IPC-E-09-306/19/09 HAS , P. (D i) 22
STAFF
2
1 would also be excluded pending a prudency review.
Q.Does this conclude your direct testimony in
4
3 this proceeding?
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
A.Yes, it does.
CASE NO. IPC-E-09-306/19/09 HAMS, P. (Di) 23
STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF JUE 2009,
SERVED THE FOREGOING DIRECT TESTIMONY OF PATRICIA HARMS, IN
CASE NO. IPC-E-09-3, BY ELECTRONIC MAIL AND MAILING A COpy THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
BARTON L KLINE
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: bklinetmidahopower.com
Inordstromtmidahopower .com
PETER J RICHARDSON
RICHARDSON & O'LEARY
515 N 17TH STREET
PO BOX 7218
BOISE ID 83702
E-MAIL: peter(ßrichardsonandoleary.com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreading(ßmindspring.com
KEN MILLER
CLEAN ENERGY PROGRAM DIRECTOR
SNAKE RIVER ALLIANCE
PO BOX 1731
BOISE ID 83701
E-MAIL: kmiler(ßsnakeriverallance.org
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
E-MAIL: tonytmyankel.net
ERIC L. OLSEN
RACINE, OLSON, NYE, BUDGE
& BAILEY, CHARTERED
PO BOX 1391
POCATELLO ID 83204-1391
E-MAIL: elotmracinelaw.net
BETSY BRIDGE
IDAHO CONSERVATION LEAGUE
710 N SIXTH ST (83702)
PO BOX 844
BOISE ID 83701
E-MAIL: bbridgetmwildidaho.org
SUSAN K. ACKERMAN
9883 NW NOTTAGE DR
PORTLAND OR 97229
E-MAIL: susan.k.ackermantmcomcast.net
BRAD M. PURDY
ATTORNEY AT LAW
2019 N. 17TH STREET
BOISE, ID 83702
E-MAIL: bmpurdy(ßhotmail.com
1 CERTIFICATE OF SERVICE