20080104Yankel rebuttal.pdf

LAW OFFICES OF
LOUIS F. RACINE, JR.
WILLIAM D. OLSON
W. MARCUS W. NYE
RANDALL C. BUDGE
JOHN A. BAILEY, JR.
JOHN R. GOODELL
JOHN B. INGELSTROM
DANIEL C. GREEN
BRENT O. ROCHE
KIRK B. HADLEY
FRED J. LEWIS
MITCHELL W. BROWN
ERIC S. HUNN
DAVID E. ALEXANDER
LISA M. CHRISTON
RICHARD A. HEARN, M.D.
ERIC L. OLSEN
LANE V. ERICKSON
RACINE, OLSON, NYE, BUDGE Be BAILEY
CHARTERED
BOISE OFFICE
CENTER PLAZ-CORNER FIRST Be CENTER
POST OFFICE BOX 1391
POCATELLO, IDAHO 83204-1391
CONRAD J. AIKEN
iot SOUTH CAPITOL
80ULEVARDu.s. BANK PLA, SUITE 202
BOISE, IDAHO 83702
TELEPHONE: [phone]FACSIMILE: [phone]
TELEPHONE [phone]
FACSIMILE [phone]
SENDER'S E-MAIL ADDRESS:rcbl!racinelaw.net
January 4, 2008
r-=i:~='-~
i.:
Jean Jewell
IPUC Commssion Secretary
P.O. Box 83720
Boise, Idaho 83720-0084
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Re: IPC-E-07-08
Dear Mrs. Jewell:
Enclosed for fiing you wil find the original and eight copies of the Rebuttal Testimony of
Anthony Yankel. A compact disk containing the Rebuttal Testimony in a searchable format will
follow under separate cover.
Thank you for your assistance.
Sincerely,~f-
ERIC L. OLSEN
ELO:kb
Enclosures
c: Servce List
3: 41
BEFORE TH IDAHO PUBLIC UTILITIES COMMSSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPAN FOR )
AUTHORITY TO INCREASE ITS )
RATES AN CHARGES FOR ELECTRIC )
SERVICE TO ELECTRIC CUSTOMERS )IN THE STATE OF IDAHO )
CASE NO. IPC-E-07-08
IDAHO IRGATION PUMERS
REBUTAL TESTIMONY
OF
ANTHONY J. Y ANL
JANARY 4, 2008
ORIGINAL
1 Q.PLEASE STATE YOUR NAME, ADDRESS, AND EMPLOYMENT.
2
3 A.I am Anthony J. Yanel. I am President of Yanel and Associates,
4 Inc. My address is 29814 Lake Road, Bay Vilage, Ohio, 44140.
5
6 Q.ARE YOU THE SAME ANTHONY J. YANKEL THAT HAS
7 PREVIOUSL Y FILED DIRECT TESTIMONY IN THIS CASE?
8
9 A.Yes.
10
11 Q.WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY?
12
13 A.My rebuttl testimony is limited to addressing the cost of service
14 testimony of the following witnesses:
15 Deparent of Energy witness Denns Goins
16 Staff witness Keith Hessing
17 Micron witness Denns Peseau
18 Industral Customers witness Don Reading
19
20 Q.WHAT ARE YOUR CONCLUSIONS AND RECOMMENDATIONS
21 REGARING COST OF SERVICE AFTER READING THE TESTIMONY OF
22 THE OTHER PARTIES?
23
1 Yanel, RE
Irrgators
1 A.As outlined in my direct testimony, there is a major problem with
2 allocating the cost of growth between classes. Although the problem impacts all
3 classes, it impacts none more than it impacts the Irrgation customers-who have not
4 grown over the last 25 years, but find themselves being allocated a large portion of
5 the cost of growth which they do not cause. In Case No. IPC-E-04-23 the
6 Commssion ordered that a workshop be conducted to look into cost of service issues.
7 Among other things, the workshop paricipants addressed the equitable allocation of
8 the cost of growth. The workshop paricipants agreed that there was something
9 inherently troubling with the way costs associated with growth were allocate, but
10 were unable to agree upon an allocation procedure to recognzed these problems.
11 Since that time, the Company had another rate case (IPC-E-05-28) where the
12 cost of growth was incorporated into rates. Although a small victory compared to the
13 Company's cost of service results in that case, the Irrigator rates were increased only
14 by the amount of the system average--ven though the Irrigators did not contribute to
15 that growth.
16 In this case, several paries recognze that the Company's cost of service
17 studies are not reflections of what various parties believe to be cost causation,
18 especially as it relates to the cost of growt. There is a new call for additional study
19 of the issue--utside the confines of this rate case. I agree that additional review
20 could (not would) be helpfuL. However, it has not worked in the past. I admit that the
21 cost of service results contained in my direct testimony do not fuly address the cost
22 of growt between classes, including the cost of new Distribution which has been the
23 largest item of plant growth on the system. More work needs to be done.
2 Yanel, RE
Irrigators
1 Because of the large disparty in cost allocation that occurs when just a
2 correction is made to Production related plant, I continue to support no cost increase
3 to the Irrigators. For the other customer classes, an equal sharng of the increase
4 would be appropriate, and a new investigation initiated to better address the cost of
5 growth on the system. If the Commission were to have the Irrigators share equally in
6 the present rate increase, it would just be encouraging paries to continue to
7 procrastinate regarding developing a solution to solve the issue of reflecting the cost
8 of growth in the Company's cost of service studies. Recognition of the actual cost of
9 growth is beneficial to all customers, as it sends an appropriate price signal to those
10 customers causing the increased costs and thus giving customers information upon
11 which to make their decisions to use electricity.
12
13 Q.IS IT APPROPRIATE TO RECOGNIZE GROWTH IN A COST OF
14 SERVICE STUDY; OR ARE THERE PROHIBITIONS AGAINST SUCH
15 RECOGNITION?
16
17 A.A cost of service study should be what it claims to be, a study to
18 determine the cost causation that should be assigned/allocated to varous groups of
19 customers. The cost of growth clearly comes at marginal and higher prices than the
20 historic/average system costs. Growth is not limited to increases in the number of
21 customers, but it includes increased usage by existing customers as welL. Those
22 customer groups whose loads are rapidly growing are clearly causing higher costs to
23 be incured on the system than a customer group that is (for all practical puroses) not
3 Yanel, RE
Irrgators
1 growing, and thus, not requiring the Company to incur higher marginal costs to meet
2 their load. This is a well recognized fact. It would be discriminatory to not address
3 this recognized inequity of disproportionate cost causation between classes that has
4 been at issue before this Commission for several years. If a cost of service study is
5 trly to be a reflection of cost causation, then it must address the costs that are
6 incured because of increased load and which customer groups are causing those costs
7 to be incured.
8 It is my understading that it is unawfl to charge similarly situated
9 customers different rates, based upon the time when the customer came to the system.
10 Weare not addressing such a concept here. I am proposing (as well as others) that
11 there is a need to reflect the cost of increased usage in a cost of service study. Cost of
12 service studies are designed to reflect differences in cost causation between customer
13 classes, while reflecting as a group the costs they bring to the system (growth as well
14 as non-growth costs). It is my understanding that the Commission can (and should)
15 consider many factors in a cost of service study, including; the natue of the use, the
16 reasonable efficiency and economy of operation/costs, and the differences in the
17 customers being serviced. The Workshop initiated as a result of the last case stated:
18 The paries agreed that there was something inherently troubling with
19 the way costs, associated with growth, were allocated. This is evidenced
20 by the relatively large increase in revenue requirement allocated to
21 customers whose load and energy requirements were unchanged or grew22 only slightly.
23 Many witnesses in this case provide evidence that the Company's cost of service
24 study does not address growth and thus results in inappropriate assignment of costs.
25 It would be unjust and uneasonable to allocate costs in this case, based upon a cost of
4 Yanel, RE
Irrigators
1 service study that did not consider the lopsided growth on the system and the impact
2 the Company's cost of service study has on the customer classes not growing.
3
4 Deparment of Energy witness Denns Goins
5 Q.DOES DEPARTMENT OF ENERGY WITNESS DENNIS GOINS
6 ADDRESS THE GROWTH ISSUE IN HIS TESTIMONY?
7
8 A.No. Dr. Goins is the only witness that never addressed growth in spite
9 of the fact that: (1) the impact of growth has been a major issue in the Company's last
10 few rate cases, and (2) growth was a maj or focus of the workshop that was ordered as
11 a result ofthe last contested rate case (lPC-E-03-13). In fact, Dr. Goins' testimony
12 only mentioned growth in two places i, but only for the limited purose of recognizing
13 that it was Idaho Power's justification for proposing the 3CPI12CP method.
14
15 Q.DOES DR. GOINS' TESTIMONY ADD ANY INFORMTION TO
16 GUIDE THE COMMISSION REGARDING THE RELATIONSHIP BETWEEN
17 COST CAUSATION AND GROWTH?
18
19 A.No. Dr. Goins testimony provides neither an economic or engineering
20 rationale (or even concern) regarding the all importt issue of growt. Dr. Goins
21 testimony only deals with developing classification schemes or allocation factors that
22 will put his client's costs in a better light. His testimony may be of value in a
i Page 6
line 10 and page 18 line 14 of Mr. Goins testimony
5 Yanel, RE
Irrigators
1 different jursdiction, but in the Idaho Power service area where most customer
2 classes are concerned about how to get their ars around the all encompassing issue
3 of growth, his comments add little to the issue at hand.
4
5 Staff witness Keith Hessing
6 Q.DOES STAFF WITNESS KEITH HESSING ADDRESS THE
7 GROWTH ISSUE IN HIS TESTIMONY?
8
9 A.Yes, to a limited extent. Although Mr. Hessing addresses growth far
10 more than Mr. Goins, his discussion is stil limited. On page 9 of his direct testimony
11 he state that:
12 Load growth, substatially in the residential class, has occured in record
13 amounts. The cost of power supply to meet the growing load has been
14 much higher than it used to be, approximately 6 cents/k Wh.
15 Mr. Hessing goes on to state on page 11 of his direct testimony:
16 The explanation that I have provided addresses the trend of
17 disproportionate increases to the high load factor classes observed in
18 the IPC-E-05-28 case and the curent case.
19 Thus, although Mr. Hessing recognizes that there is substatial and disproportionate
20 growth taing place within the Residential class, he has limited his observations only
21 to the impact that the Residential growth is having on cost assignent to the high
22 load factor customers (Special Contract Customers and Schedule 19), but he does not
23 make any observations regarding the Irrgators who have virtally not grown at all in
24 the last 25 years.
25
6 Yanel, RE
Irrigators
1 Q.DOES MR. HESSING'S TESTIMONY ADD ANY INFORMTION
2 TO GUIDE THE COMMISSION REGARDING THE RELATIONSHIP OF COST
3 CAUSATION AND GROWTH?
4
5 A.Yes. Although Mr. Hessing's testimony does not go into a discussion
6 of the full extent of the problems associated with the cost of growth in one class being
7 allocated to other classes, his testimony does recognize that the problem is occuring.
8 He goes on2 to make an observation that is quite accurate for the present situation:
9 In general, I propose that Cost of Service results be used as a guide in
10 establishing class revenue requirements for the varous rate classes. I
11 view Cost of Service results as an imprecise science that is
12 appropriately used as a staring point in revenue allocation.
13 Although I agree with Mr. Hessing that the present cost of service results are quite
14 imprecise, I believe that they could be greatly improved with some non-parochial
15 effort on the par of the paries.
16 However, I find Mr. Hessing's revenue allocations to be contrar to his
17 observations regarding the imprecise natue of the Company's cost of service study
18 and the inability to prevent the cost of growth from being allocated to classes that are
19 not substantially growing or not growing at all. Given the fact that the Irrgators have
20 not grown for the last 25 year (not just the last two years since the IPC-E-05-28 case
21 addressed by Mr. Hessing), while the Residential class has demonstrated substatial
22 load growth, his proposal to increase Irrgation rates 10%, while only increasing
23 Residential rates 1.37% appears completely counter to his own testimony.
24
2 Page 11 line 21 through page 12 line 1
7 Yanel, RE
Irrgators
1 Micron witness Dennis Peseau
2 Q.DOES MICRON WITNESS DENNIS PESEAU ADDRESS THE
3 GROWTH ISSUE IN HIS TESTIMONY?
4
5 A.Yes. Dr. Peseau makes numerous mention of the growth on the
6 system. His focus seems to be on peak growth3 as opposed to overall energy growth.
7 Admittedly, peak is growing faster than energy. As would be expected, Dr. Peseau's
8 testimony is focused on the problem that load growt is having on the cost
9 assignent/allocation to his client Micron. He also is only focusing on the last four
10 years as he stated:
11 First, with respect to customer usage, it is quite clear that the high load
12 factor customers are not growing appreciably. There appears to have
13 been some modest growth in industrial load, but the contract
14 customers' consumptions is essentially unchanged from four years
15 ago. Consequently, a change in these customers' usage canot account
16 for huge swing in cost of service results. (Emphasis added)
17
18 Q.DO YOU AGREE WITH DR. PESEAU'S TESTIMONY AS IT
19 APPLIES TO THE GROWTH EXPERIENCED BY MICRON OVER THE LAST
20 FOUR YEARS SINCE THE 03-13 CASE?
21
3 See generally Dr. Peseau's testimony at pages 38, 39,46,52,54, and 56.
8 Yanel, RE
Irrgators
1 A.No. I do not know what data Dr. Peseau relied upon as the basis for
2 the above statement, but it certnly does not reflect the growth in load and certainly
3 not the coincident peak load experienced by Micron since the 03-13 case. As a basis
4 of comparson it should be noted that the sum of the 12-coincident peaks for the
5 system grew 10% over these four years between these cases and that the Irrgation
6 contrbution to those 12 coincident peaks actually shr 14%4. The July system
7 peak only increased 5% between these cases. Compared to the system growth (and
8 the Irrgation shrnkage) in peak load, the following growth is listed for Micron:
9
13
Coincident Coincident
kW kW Demand
IPC-E-03-13 IPC-E-07-08 Growth
Jan 71,882 84,280 17%
Feb 72,155 84,414 17%
Mar 72,243 83,985 16%
,Apr 71,599 84,101 17%
May 77,652 90,029 16%
Jun 81,681 91,257 12%
Jul 81,580 93,589 15%
Aug 78,238 92,357 18%
Sep 78,774 90,754 15%
Oct 75,147 85,478 14%
Nov 74,449 86,235 16%
Dec 74,884 86,047 15%
Tot 910,284 1,052,526 16%
10
11
12
14
15
16
17
18 Clearly, an average increase in Micron's coincident peak load of 16% compared to a
19 system increase of 10% does not reflect Dr. Peseau's statement that; "There appears
20 to have been some modest growt in industral load, but the contract customers'
21 consumptions is essentially unchanged from four years ago." The fact that Micron's
22 contribution to the July coincident peak increased 15% compared to the system
4 Company Exhibit 55 page 1 of this case lists the individual monthly coincident peak data for the
system and the Irgators. Company Exhibit 40 page 1 of case IPC-E-03-13 lists the individual
9 Yanel, RE
Irrgators
1 increase of only 5% is also extremely counter to Dr. Peseau's suggestion that
2 Micron's contribution to peak load "is essentially unchanged from four years ago."
3
4 Q.HAS MICRON'S ENERGY USAGE INCREASED ALSO OR IS
5 MICRON'S GROWTH LIMITED TO PEAK USAGE?
6
7 Micron has experienced growth in overall energy consumption as welL.A.
8 Like the rest of the system (except the Irrigators), the growth in energy consumption
9 has generally lagged that of peak growth. Compared to the 5% reduction in energy
10 usage that the Irrgators experienced between this case and the 03-13 case, Micron's
11 energy growth has been:
Energy Energy Energy
IPC-E-03-13 IPC-E-07-08 Growth
Jan 55,383 61,451 11%
Feb 49,820 55,492 11%
Mar 54,862 61,502 12%
Apr 53,366 59,749 12%
May 56,436 62,480 11%
Jun 55,787 60,977 9%
Jul 58,361 64,672 11%
Aug 57,734 64,374 12%
Sep 55,611 60,878 9%
Oct 57,554 62,557 9%
Nov 56,098 60,455 8%
Dec 57,804 62,660 8%
Tot 668,816 737,247 10%
12
13 Instead of pointing at others for causing the growth problem, Micron should first
14 recognize its own contribution to the problem.
15
monthly coincident peak data for the system and the Irgators from four years ago.
10 Yanel, RE
Irrgators
1 Q.IN YOUR DIRECT TESTIMONY, YOU ASSIGNED VERY LITTLE
2 GROWTH TO MICRON. WHY WAS THAT THE CASE?
3
4 A.In my direct case, I developed Production related allocation factors
5 that reflect the lO-year growth found in Idaho Power's 2006 IRP. The projected
6 growt rate I used for Micron was that for the entire class of special contract
7 customers and was not specific to Micron. Perhaps it would be better to use historic
8 growt data to accomplish the same purose, where growth that has caused the
9 increase in costs that we are presently experiencing can be more accurately
10 quantified.
11
12 Q.DOES DR. PESEAU'S TESTIMONY ADD ANY INFORMTION TO
13 GUIDE THE COMMISSION REGARDING THE RELATIONSHIP OF COST
14 CAUSATION AND GROWTH?
15
16 A.Although Dr. Peseau's testimony adds additional information
17 regarding the problems associated with growth, his attempt to advocate on behalf of
18 his client has gotten in the way of presenting appropriate recommendations regarding
19 the spread of the revenue requirement to the respective customer classes. After
20 recognizing that growth is the single largest issue that is driving the rate increase, Dr.
21 Peseau recommends that the Irrigators get a disproportionately large increase (in spite
22 of not growing) and he furher recommends that Micron get a less than average
23 increase (in spite of the fact that since the 03-13 case Micron has grown as fast or
11 Yanel, RE
Irrigators
1 faster than the system average). His revenue spread proposal is completely counter to
2 the logic he presented and the facts in this case.
3 On the last two pages of his testimony, Dr. Peseau expresses concern that
4 "Idaho Power's accelerating peak load growt and deteriorating load factor are
5 suffciently alaring" that he recommends an investigation into the problem and its
6 solution. I concur with this recommendation, yet have reservations about its
7 effectiveness. It has been four years since the problem of allocating the cost of
8 customer classes that are growing disproportionately has been brought before the
9 Commission. We have had a workshop that has concluded that:
10 The paries agree that there was somethng inherently troubling with
11 the way costs, associated with growt were allocated. This is
12 evidenced by the relatively large increase in revenue requirement
13 allocated to customers whose load and energy requirements were
14 unchanged or grew only slightly. While there was agreement that the
15 cost of growth did not necessarly get allocated to the customer classes
16 that grew, we were unable to devise a technical remedy to the
17 allocation procedure that would also satisfy the cours.
18 Dr. Peseau's testimony is typical of the problem with outside investigations.
19 Although everyone may agree that a problem exists, no customer or customer class is
20 willng to shoulder responsibility for their own growth. If the Commission wants to
21 advance the discussion regarding the problem of properly assigning the cost of
22 growt, it should give the Irrigators no increase in this case and give an even spread
23 to all other customer classes. Without defining a specific allocation methodology, no
24 increase to the Irrgators would be well within the Commission's rate setting
25 authority. Once it has been recognzed that the Commission is no longer going to
26 continue to spread the cost of growt upon the one class that is not growing, it wil be
27 much easier to develop a solution to the problem. Until this is done, there will
12 Yanel, RE
Irrgators
1 continue to be the urge to pawn-off as many costs as possible to the Irrgation
2 customers.
3
4 Industrial Customers witness Dr. Don Reading
5 Q.DOES INDUSTRIAL CUSTOMERS WITNESS DON READING
6 ADDRESS THE GROWTH ISSUE IN HIS TESTIMONY?
7
8 A.Yes. Dr. Reading recognizes that there is upward pressure on costs
9 that is drven primarly by the residential and small commercial customerss. Like Dr.
10 Peseau, he advocates on behalf of his clients and proposes a number of changes that
11 he believes wil more appropriately align cost responsibility with those causing the
12 costs to be incured. Like Dr. Peseau, his proposed changes that are designed to
13 remedy the counterintuitive results of the Company's cost of service study with
14 respect to the cost of growth are more counterintuitive than those of the Idaho
15 Power's study. Idaho Power's study found that the Irrgators should be given a
16 42.6% increase in spite of the lack of growth, yet Dr. Readings study suggests that the
17 increase to Irrgators should be almost double that at 72.1 %. Basically, the studies
18 developed by Dr. Reading and Dr. Peseau are putting band aids on a process that
19 . .requires major surgery.
20
5 Reading testimony page 13 and 14
13 Yanel, RE
Irrigators
1 Q.DOES DR. READING'S TESTIMONY ADD ANY INFORMTION TO
2 GUIDE THE COMMISSION REGARING THE RELATIONSHIP OF COST
3 CAUSATION AND GROWTH?
4
5 A.Yes. Like Dr. Peseau, Dr. Reading recognizes that there is a problem
6 with the allocation of the cost of growth. However, unlike Dr. Peseau, Dr. Reading
7 recognizes that there is stil something inherently wrong with the results of his study
8 as it does not send the correct price signals. Dr. Reading appropriately sums up the
9 problem:
10 The irrigation class has the misfortune of having their need for power
11 durng sumer peak which is when the Company's system needs are
12 growing the fastest. Unlike the residential class, the Irrigation class is not
13 growing. Yet due to increasing residential and commercial demand in the
14 sumer, the irrigation class' allocations increase their share of Company
15 costs. (Emphasis added)
16 In light of the above, Dr. Reading recommends that all classes (including the
17 Irrgators) get an even spread in the rates and that an investigation be initiated to
18 address what he refers to as the perverse results coming from the cost of service
19 studies. I believe that Dr. Reading has moved this discussion fuher than any of the
20 other witnesses that I have addressed. However, I do not believe that an even spread
21 to the Irrgators (although better than a 43% or a 72% increase) is appropriately
22 addressing the fact that by now should be obvious to all-the Irrigators are not
23 growing, have not been growing, and should not be required to pickup the costs of
24 that growth. The continued spreading (even on an across-the-board basis) of rate
25 increases associated with system growth to the Irrgators is discriminatory on its face.
26 The rate increase in this case should not be large, and thus it would be a good time to
14 Yanel, RE
Irrigators
1 send a signal to the other classes that the Commission is not going to straddle the
2 Irrgators with the cost of growth of others.
3 I continue to recommend no increase to the Irrgators in this case and believe
4 that a separate investigation (as called for by other witnesses) would be appropriate.
5 However, I also believe that that investigation will not lead to any signficant
6 improvement without strong Commission direction in this case.
7
8 Q.DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY?
9
10 A.Yes.
15 Yanel, RE
Irrigators