20090316Waites Direct.pdf

RF;CE: J
2009 Hl.R 13 PH l¡:1 0
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
DUE TO THE INCLUSION OF
ADVANCED METERING INFRASTRUCTURE
(UAMI") INVESTMENT IN RATE Base.
)
) CASE NO. IPC-E-09-07
)
)
)
)
)
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
COURTNEY WAITES
1 Q.Please state your name and business address.
2 A.My name is Courtney Waites. 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 as a
7 Pricing Analyst.
8 Q.Please describe your educational background.
9 A.In December of 1998, I received a Bachelor
10 of Arts degree in Accounting from the University of Alaska
11 in Anchorage, Alaska. In 2000, I earned a Master of
12 Business Administration degree from Alaska Pacific
13 University. I have attended New Mexico State University's
14 Center for Public Utili ties and the National Association of
15 Regulatory Utility Commissioners Practical Skills for the
16 Changing Electric Industry conference and the Electric
17 Utility Consultants, Inc., Introduction to Rate Design and
18 Cost of Service Concepts and Techniques for Electric
19 Utili ties conference.
20 Q.Please describe your business experience
21 wi th Idaho Power Company.
22 A.I became employed with Idaho Power Company
23 in December 2004 in the Accounts Payable Department. In
24 2005, I accepted a Regulatory Accountant position in the
WAITES, DI 1
Idaho Power Company
1 Finance Department where one of my tasks was to assist
2 responding to regulatory data requests pertaining to the
3 finance scope of work. In 2006, I accepted my current
4 position, a Pricing Analyst, in the Pricing and Regulatory
5 Services Department. My duties as a Pricing Analyst
6 include providing support for the Company's various
7 regulatory activities, including tariff administration,
8 regulatory ratemaking and compliance filings, and the
9 development of various pricing strategies and policies.
10 Q.Are you the same Courtney Waites that
11 provided direct testimony in Case No. IPC-E-08-16, the
12 Application of Idaho Power Company for a Certificate of
13 Public Convenience and Necessity (UCPCN") to install
14 Advanced Metering Infrastructure (UAMI") throughout its
15 service terri tory?
16 A.Yes I am.
17 Q.Did the Commission issue an order in Case
18 No. IPC-E-08-16 approving the Company's Application for a
19 CPCN to install AMI throughout its service territory?
20 A.Yes. The Commission, in Order No. 30726,
21 issued on February 12, 2009, approved the Company's
22 application for a CPCN to install AMI throughout its
23 service territory.
WAITES, DI 2
Idaho Power Company
1 Q.What is the Company requesting from the
2 Commission in this case?
3 A.The Company is asking the Commission to
4 review the investments the Company has made to date for the
5 installation of AMI throughout its service territory and
6 those investments that will be made during the proposed
7 test year. Based on those investments and the associated
8 test year expenses, the Company seeks approval of an
9 adjustment to the Company's rates to take place on June 1,
10 2009.
11 Q.What is the test year the Company is
12 proposing in this filing?
13 A.The Company is proposing a test year of June
14 1, 2009, through May 31, 2010.
15 Q.How was the June 1, 2009, through May 31,
16 2010, test year selected for this proceeding?
17 A.In order to meet the legal requirement that
18 rates be fair, just, reasonable, and sufficient, the
19 Commission must establish a test year that most closely
20 reflects the investment and expense levels that will exist
21 at the time new rates are implemented. The Company has
22 made the necessary Information Technology (UIT") upgrades
23 to its Meter Data Management System (UMDMS") and the Two-
24 Way Automated Communication System Net Server (UTWACS"),
WAITES, DI 3
Idaho Power Company
1 has ordered and begun installation of stations equipment
2 required for AMI, and has placed orders and begun
3 installation of meters for the three-year AMI deployment.
4 The accelerated installation of AMI meters has begun so
5 that an average of 700 meters per day will be installed
6 throughout the test year beginning June 1, 2009. Under the
7 direction of Company witness Mr. Said, a June 1, 2009,
8 through May 31, 2010, test year was chosen as it best
9 satisfies the Commission's requirement of establishing an
10 appropriate test year because revenue recovery will occur
11 simultaneously with investments and expenses.
12 An additional benefit to a June 1 rate change is
13 that other rate changes such as the Power Cost Adjustment
14 will also occur on June 1, 2009, thus minimizing the number
15 of rate changes wi thin the same year.
16 Q.What are the primary factors used to derive
17 the incremental revenue requirement associated with
18 deployment of AMI during the test year?
19 A.There are two investment streams to be
20 considered:(1) new investment in AMI and (2) depreciated
21 metering plant replaced by AMI. Expenses to be considered
22 include (1) accelerated depreciation of pre-existing
23 metering plant, (2) reduced Operations and Maintenance
24 (uO&M") expenses due to operating efficiencies that are
WAITES, DI 4
Idaho Power Company
1 gained from AMI deployment, and (3) incremental tax
2 impacts.3 INVSTMNTS
4 Q.What are the total investments related to
5 the installation of AMI throughout the Company's service
6 territory (the UProject") that the Company is asking be
7 reflected in rates?
8 A.The total amount of investment associated
9 with the installation of AMI grows to $37,527,804 by May
10 31, 2010, as can be seen on Exhibit No.1. The thirteen-
11 month average AMI plant in service of $24,981,251 during
12 the test year is the basis of the June 1 rate change that
13 the Company is requesting in this proceeding.
14 Q.Please describe the nature of the new
15 investments associated with the installation of AMI that
16 are included in this proceeding.
17 A.The investments associated with the Project
18 through May 31, 2010, of $37,527,804 are comprised of IT
19 expenditures, meter and installation costs, and stations
20 equipment expenses.
21 Q.How did the Company quantify the capital
22 costs associated with the Project through May 31, 2010?
23 A.In an attempt to smooth the representation
24 of expenditures across the deployment period, the Company
WAITES, DI 5
Idaho Power Company
1 has computed the capital costs over the test year using a
2 average unit cost and applied that to the number of meters
3 installed. Since the Company provided a Commitment
4 Estimate as approved by the Commission in Order No. 30726,
5 it has experienced a shift in timing of meter and stations
6 equipment expenditures. The manufacturers of both the
7 meter and stations equipment require lead time on orders to
8 ensure timely delivery. Initially, stations equipment
9 required a twenty-week lead time and the Company placed
10 orders accordingly. However, due to the downturn in the
11 economy, stations equipment orders are being filled more
12 quickly. The receipt of equipment earlier than expected
13 results in higher upfront stations equipment costs.
14 Likewise, the ramp up of meter installations has been
15 slightly slower than the Company expected, resulting in
16 fewer meter exchanges and a larger number of meters on
17 hand. These unexpected shifts will not impact the total
18 amount of the meter and stations equipment expenditures but
19 they do shift when the expenditures occur.
20 Q.How was the average unit cost calculated?
21 A.Using the Company's Commitment Estimate of
22 $70,864,902 approved by the Commission in Order No. 30726
23 and the expected number of 433,234 meter exchanges in Idaho
24 during the deployment period, the average unit cost per
WAITES, DI 6
Idaho Power Company
1 meter is $163.57. This unit cost was then multiplied by
2 the meter exchanges expected from January 2009 through May
3 2010, resulting in capital costs of $37,527,804.
4 Q.How does the $37,527,804 of investment in
5 the AMI installation through May 31, 2010, compare to the
6 expected capital costs for the same time period outlined in
7 the Company's Commitment Estimate noted by the Commission
8 in Order No. 30726?
9 A.The capital cost of $37,527,804 is about
10 $4.46 million higher than outlined in the Company's
11 Commitment Estimate, which is a result of the timing shifts
12 explained above.
13 Q.Please explain the accelerated depreciation
14 of the existing metering infrastructure the Company has
15 included in this proceeding and how it affects plant
16 investment.
17 A.In Order No. 30726, the Commission
18 authorized Idaho Power to depreciate its existing metering
19 infrastructure over an accelerated three-year period. In
20 this proceeding, the Company is requesting to begin this
21 acceleration and corresponding rate recovery on June 1,
22 2009. The Company has estimated the net plant value of the
23 existing metering equipment as of May 31, 2009, to be
24 $23,895,068, which is based on the actual net plant value
WAITES, DI 7
Idaho Power Company
1 as of February 28, 2009, and forecasted changes in net
2 plant value through May 31, 2009. Using a straight line
3 depreciation method results in an amortization of $663,752
4 per month for thirty-six months, which can be seen on
5 Exhibi t NO.2. The net plant amount declines over time due
6 to accumulated depreciation. The accelerated depreciation
7 affects both plant investment values and expenses within
8 the revenue requirement determination.
9 Q.What is the impact to net plant investment
10 as a result of accelerated depreciation?
11 A.The existing metering investment declines
12 from $23,895,068 to $15,930,046 over the twelve months of
13 the test year.
14 Q.What is the combined change in metering
15 plant throughout the test year?
16 A.The increasing AMI investment offset by the
17 declining existing metering plant results in net plant
18 additions of $29,562,781 throughout the year and a thirteen
19 month average of net plant additions of $20,998,738.20 EXPENSES
21 Q.What is the incremental depreciation expense
22 included in the Company's request?
23 A.The incremental depreciation expense is
24 $9,720,815, which is comprised of depreciation of new AMI
WAITES, DI 8
Idaho Power Company
1 meters and incremental depreciation resulting from
2 accelerated depreciation of existing meters.
3 Q.Please explain the O&M savings that result
4 from the installation of AMI the Company has included in
5 this proceeding.
6 A.The quantifiable O&M savings expected from
7 the installation of AMI during the test year June 1, 2009,
8 through May 31, 2010, is $1,483,855, as shown on Exhibit
9 NO.3. It should be noted that the expected O&M saving
10 benefits increase with time. While these O&M savings only
11 partially offset the required investment in initial years,
12 they eventually exceed the costs in the long term.
13 Q.What is the effect to the consolidated
14 operating income of the Company as a result of the
15 incremental depreciation expense, the O&M savings, and
16 incremental tax impacts that the Company is requesting be
17 reflected in its revenue requirement?
18 A.The Company's consolidated operating income
19 is deficient by $5,549,131 as a result of the impacts of
20 incremental depreciation expense offset by O&M savings and
21 reflective of incremental taxes.
WAITES, DI 9
Idaho Power Company
1 REVENU DEFICIENCY
2 Q.Have you quantified the Company's revenue
3 deficiency as a result of the Company's investment in AMI
4 and the associated changes in expenses?
5 A.Yes. The total revenue deficiency for the
6 June 1, 2009, through May 31, 2010, test year is
7 $11,181,318, which can be seen at line 37 of Exhibit NO.3.
8 Q.What percentage increase to revenue is
9 required in order to recover the $11,181,318 revenue
10 deficiency?
11 A.An increase in Idaho jurisdictional revenue
12 of 1.61 percent is needed in order to recover the
13 $11,181,318 revenue deficiency.
14 Q.Does this increase apply to all customer
15 classes?
16 A.No. The increase only applies to those
17 customers receiving AMI meters, which includes: Schedules
18 1,4, and 5 (Residential); Schedule 7 (Small General
19 Service); Schedule 9 (Large General Service); Schedule 24
20 (Agricultural Irrigation Service); Schedule 41 (metered
21 Street Lighting Service); and Schedule 42 (metered Traffic
22 Signal Lighting Service). Attachment No. 3 to the
23 Application details the percentage change in the revenue
24 requirement for each class. As a result of spreading the
WAITES, DI 10
Idaho Power Company
1 revenue deficiency over a subset of the total customer
2 base, the percentage increases by class are greater than
3 the percentage change in Idaho jurisdictional revenue
4 requirement.
5 Q.How is the Company proposing to spread the
6 revenue requirement among each class?
7 A.To keep components close to the cost of
8 service and maintain differentials between tiers, the
9 Company is proposing to spread the revenue requirement
10 uniformly across the energy charges of each affected
11 customer class. Attachment No. 3 to the Application shows
12 the proposed revenue requirement spread.
13 Q.Has the Company prepared tariff sheets to
14 reflect the incremental increase in the Company's revenue
15 requirement?
16 A.Yes. Attachment Nos. 1 and 2 to the
17 Company's Application in this proceeding contain tariff
18 related information. Attachment Nos. 1 and 2 contain the
19 tariff sheets in both clean and red- line format specifying
20 the proposed rates that reflect the revenue requirement for
21 providing retail electric service to Schedules 1, 4, 5, 7,
22 9 secondary, 24 secondary, 41 metered service, and 42.
23 Attachment No. 3 to the Application shows a comparison of
24 existing revenues from the various tariff customers under
WAITES, DI 11
Idaho Power Company
1 the Company's current rates to the corresponding new
2 revenue levels resulting from the proposed rates based upon
3 normalized energy sales reflected in Commission Order No.
4 30722 issued in Case No. IPC-E-08-10.
5 Q.Does this conclude your testimony?
6 A.Yes, it does.
WAITES, DI 12
Idaho Power Company
BEFORE THE Ri:rr- Cl'1-.' - - t: '., ;,: ~~"jj
2089Mp,R 13 PM~: to
IDAHO PUBLIC UTiliTIES COMMISSION
CASE NO. IPC-E-09-07
IDAHO POWER COMPANY
WAITES, 01
TESTIMONY
EXHIBIT NO.1
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2009 MAR i 3 PM~: I I
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-09-07
IDAHO POWER COMPANY
WAITES, 01
TESTIMONY
EXHIBIT NO.2
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1
BEFORE THE RECE
l009HAR f 3 PH 4: , l
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-09-07
IDAHO POWER COMPANY
WAITES, 01
TESTIMONY
EXHIBIT NO.3
Idaho Power Company
Summary of Revenue Requirement
IPC-E-oS-10 PLUS AMI
RATE BASE
Electric Plant in Service:1 Intangible Plant $2 Production Plant $3 Transmission Plant $4 Distribution Plant $5 General Plant $
6 Total Electnc Plant in Service $
7 Less: Accumulated Depreciation $
8 Less: Amortization of Other Plant $9 Net Electric Plant in Service $
10 Less: Customer Adv for Construction $
11 Less: Accum Deferred Income Taxes $
12 Add: Plant Held for Future Use $
13 Add: Working Capital $
14 Add: Conservation - Other Deferred Progran $15 Add: Subsidiary Rate Base $
16 TOTAL COMBINED RATE BASE $
Idaho
575,218
24,406,033
24,981,251
8,169,874
27,165
16,784,212
1,375,652
15,408,560
NET INCOME Idaho
Operating Revenues:
17 Sales Revenues 0
18 Other Operating Revenues 0
19 Total Operating Revenues 0
Operating Expenses:
21 Operation & Maintenance Expenses (1,483,855)
22 Depreciation Expenses 9,720,815
23 Amortization of Limited Term Plant 164,556
24 Taxes Other Than Income 0
Regulatory Debits/Credits 0
25 Provision For Deferred Income Taxes 2,751,305
26 Investment Tax Credit Adjustment 1,040,186
27 Federal Income Taxes (5,179,198)
28 State Income Taxes (1,464,678)
29 Total Operating Expenses 5,549,131
30 Operating Income (5,549,131)
31 Add: IERCO Operating Income 0
32 Consolidated Operating Income (5,549,131)
33 Rate of Return as fied -36.01%
34 Proposed Rate of Return 8,1801%
Earnings Deficiency 6,809,572
36 Net-to-Gross Tax Multiplier 1,642
37 Revenue Deficiency 11,181,318
38 Firm Jurisdictional Revenue 694,048,476
39 REVENUE REQUIREMENT 705,229,794
40 Percentage Increase Required 1.61%Exhibit No.3
Case No. IPC-E-09-7
C, Waites, IPC
Page 1 of 1