20080104Reading rebuttal.pdf

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!("t" hID' PUBUC"",f\" ,', '.1I'8"S'I"'",
UTILITIES COfibn ,'" v,¡~BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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IN THE MATTER OF THE APPLICATION )5 OF ID,AQ PÓWiR ÇOMPANY FOR )
AUTHORITY TO INCREASE ITS RATES )6 ANQÇRAGES FOR ELECTltC SERVICE ~
7 TO ELECTRIC CUSTOMERS IN THE )
STATE QF IDAHO, )
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Case No.: IPC-E-07-08
REBUTTAL TESTIMONY OF DR DON
READING ON BEHALF OF THE
INDUSTRIAL CUSTOMERS OF IDAHO
POWER
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Q.
A.
Are you the same Don Reading who ried Direct Testimony in Case IPC-E-07-08?
Yes, I am.
Q What is the purpose of your Rebuttal Testimony?
I rebut several assertions made by Staff witness Hessing relating to his Cost-of-Service
(COS) testimony, load shapes of customer groups, and the relationship between average and
marginal costs and revenues. I also make some observations relating to the Testimony of Kevin
Higgins, on behave of The Kroger Company, regarding mandatory Time-of-Use (TOU) rates for
Schedule 19 customers and his proposal that TOU rates be voluntary for Schedule 9 customers.
Q. What are your comments regarding Staff witness Hessing's Testimony about the
allocation of costs to customer classes as they relate to load growth?
A. Mr. Hessing states that load growth has been occuring on Idaho Power's system by
record amounts, and that this growth has been "substantially in the residential class". He goes on
to say the cost of power to meet these growing loads has been much higher than it used to be at
about 6 tper kWh. (Hessing, Di, IPC-E-07-08, pp. 9 - 10.)
Q. According to Mr. Hessing, under the approved COS methodology, costs have been
allocated 'disproportionately' to the residential class. Do you agree?
No.
Q.Please explain.
Mr. Hessing states,
Under approved cost of service methodology these costs have been allocated
disproportionately to the residential class, however, some of these high costs are
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allocated to all other classes as well. In the cost of service model the residential
class received credit for all of the revenue from its load growth at near 6t/kWh
and a portion of the production cost increases at about the same rate. In cost of
service the revenues offset the costs and the Residential Class is calculated to
receive an increase below the Idaho Jurisdictional average, or even a decrease as
demonstrated in Staffs results.
Hessing, Di. P. 10.
I have two issues with Mr. Hessing's statements. First, in the IPC-E-03-13 case the
Company proposed the residential class receive a higher than overall percentage increase -
19.03% overall v. 17.68% for residential, this was not tre for the IPC-E-05-28 case filed two
years later. In the 2005 case the "Traditional COS" allocated a percentage increase to the
residential class of 1.7% out of an overall proposed increase of7.82%. The other issue I have
with Mr. Hessing's. testimony is that it highlights the anual cost of suppling power for growth
but does not consider the monthly marginal cost of power or the load pattern of the residential
class.
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Q.Could you discuss further Mr. Hessing's statements about the COS methodology
'disproportionately' allocating costs to the residential class?
Yes. As discussed in my Direct Testimony the last litigated COS for Idaho Power was in
the IPC-E-03-13 case, while the IPC-E-05-28 case was settled with an uniform percent increase
of 3.2% for all classes. The COS studies fied by the Company in the IPC-E-05-28 case
allocated significantly higher costs to the high load factor customers than for the residential
class. The "Traditional COS" assigned 1.7% increase for the residential class while allocating a
percentage amount 5 times higher to Large Power Service Schedule 19 at 8.63% out of an
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overall proposed increase of 5.28%. The high load factor special contract customers all received
double digit allocations ranging between 12.30% to 15.62%.
Whle it is true that the COS studies in the IPC-03-13 indicated higher percentage
increases for the residential class than for high load factor customers, there was a dramatic
change in the allocations among the customer classes in the rate case filed by the Company two
years later in 2005. That trend of higher percentage increases to high load factor customers has
continued in this curent case. Therefore I don't believe the record supports Mr. Hessing's
assertion that residential customers have been 'disproportionately' assigned higher costs.
Q. Could you please explain what you meant by saying Mr. Hessing failed to consider
customer class load patterns and the monthly marginal cost of power in his analysis?
His point seems to be that since residential customers pay higher rates than high load
factor customers, the revenue offset tends to mitigate the percentage increases. High load factor
customers pay less per kWh than the residential class for a myriad of reasons.
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17 Q.What are some of those reasons?
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One major reason for these lower rates is that high load factor customers tend to use a
steady amount of power, while on the other hand, the residential class shows a significant
varation in the amount of power used through out the year. This use pattern has bèen causing
peaking problems on Idaho Power's system and has lead to the constrction of the Company's
most recent and most expensive resources. While the cost of power to serve growth may well be
in the 6-cents..per-kWh range as an anual average, Idaho Power's studies show the cost of
power varies significantly through out the course ofthe year. The marginal cost of power is
highest in the summer when residential demand is high.
Q.Could you explain further the variations in the monthly marginal cost of power as
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found in Idaho Power's studies?
According to the Marginal Cost Study filed by Idaho Power (Tatu Workpapers), the
monthy marginal cost of Power Supply varies between $54.86 $/Mwh in May to $127.75
$/Mwh in July. The monthly marginal cost of power is shown in Exhibit 214 along with the
monthly consumption patterns of the residential and industrial classes. As can be seen in Exhibit
214, the 4th highest consumption month for the residential class is in July which is when the
marginal cost of power is the highest. While the anual cost of serving growth may be
approximately 6 cents per kWh, the marginal cost in July is more than twce that. This means
that the residential class' higher rates per kWh are not covering the costs of the system during
sumer months when the costs of supplying power to the system are the highest.
Furhermore, the growth of sumer peak for the residential class is expected to continue
in the future which will exacerbate the peaking problem on Idaho Power's system. On the other
hand, the load pattern of the industrial class can be seen as basically constant throughout the
year.
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Q.Why do you think it is important to consider the load patterns of a customer class
when considering proper cost allocations?
As I outlined in my Direct Testimony, a properly calculated cost of service study should
assign costs that will send price signals to a customer class that reflect the costs that class is
placing on the system. Whle it is tre, as Mr. Hessing states, there may be some revenue
"offset" by the residential revenues, the low percentage increases for the residential class
produced by the cost of service studies in the past two rate' cases do not send the correct price
signals to the class that is causing expensive peakng plants to be built by Idaho Power. Without
these price signals customer behavior tends not to be altered which will mean the need for more
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power during the most expensive time of year which will increase costs to all customers on the
system.
Q. What rate design would be appropriate for a customer class that has the peaking
profile like the residential class?
The most appropriate rate design would be time of day and time of use rates. Curently
Schedule 19 is the only customer class that has mandatory time of day rates.
Q. Do you have any comments on time of use rates for other classes, in addition to the
residential class?
A. Kroger witness Higgins is proposing that some Schedule 9 customers be shifted to
Schedule 19 and permitted to take service under time of use rate. However these classes tend to
have a high load factors and thus are not as likely to benefit from time of use rates as the
residential class.
Q. Do you have any comments on the use of voluntary time of use rates?
A. Yes. Witness Higgins suggests that time of use rates may be volunta for certin
Schedule 9 customers and Staff Witness Hessing states that he is not opposed to making time of
use rates volunta for Schedule 9 Primary and Transmission service level customers. I believe
that volunta time of use rates would be appropriate for those customers because those
customers who can benefit from time of use rates will take advantage of that opportunity while
those who canot benefit from such rates wil choose to stay with the standard tariff. That said,
however, I do have a serious problem with the proposed voluntary time of use rates for Schedule
9 Primar and Transmission level customers.
Q.
A.
What are your concerns with voluntary time of use rates?
My concern is not with voluntary time of use rates, per se. It is the inequity of permitting
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this class to opt in or out of time of use rates while at the same time mandating that such rates be
imposed on the Schedule 19 class. In fact I would say such a rate design would not be merely
inequitable, I would say it is discriminatory.
Q.
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In what way would such an inequity rise to the level of discriminatory rate making?
Mr. Higgins points out the many similarties between the Primary and Transmission
level Schedule 9 customers and the existing Schedule 19 customers. According to Mr. Higgins
the cost to serve these two classes is nearly identicaL. If that is tre then the rate design for these
two classes should not include voluntar time of use rates for one half of the equation and
mandatory time of use rates for the other half.
Q.
A.
What is your proposed solution to this potential discrimination in rate design?
Time of use rates should be made volunta for all Schedule 9 and 19 customers. This
would provide the maximum benefit with the minimum disruption to these customers.
Does this conclude your rebuttal testimony?
Yes, it does.
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 4th day of December, 2008, a true and correct copy of
the foregoing REBUTTAL TESTIMONY OF DR. READING on behalf of the Industrial
Customers ofIdaho Power was served by U.S. Mail, postage prepaid to and hand delivered to
those so indicated:
Baron Kline - Hand Delivery
Lisa Nordstrom
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
John R. Gale - Hand Delivery
Vice President, Regulatory Affairs
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
Jean Jewell - Hand Delivery
Commission Secretar
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Conley Ward
Givens Pursley LLP
PO Box 2720
Boise, Idaho 83701-2720
LotH. Cooke
United States DOE
1000 Independence Ave. SW
Washington, DC 20585
£-4 ' ~
Peter Richardson
Weldon Stutzman - Hand Delivery
Donovan Walker
Idaho Public Utilities Commission
PO Box 83720
Boise, Idaho 83720-0074
Eric Olsen
Racine, Olson, Nye, Budge
PO Box 1391
Pocatello, Idaho
Anthony Yanel
29814 Lake Road
Bay Vilage, OH 44140
Michael Kurz
Boehm, Kurz & Lowr
36 E. Seventh Street, Ste. 1510
Cincinnati, OH 45202
Dennis Peseau
Utility Resources, Inc.
1500 Libert Street, Ste. 250
Salem, OR 97302
Dale Swan
Exeter Associates
5565 Sterrett Place, Ste. 310
Columbia, MD 21044
Certificate of Service.. Dr. Reading Rebuttal Testimony - IPC-E-07-08