20081203Reading Rebuttal.pdf

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Peter Richardson \D1\HO PUt...1L.\QOM1" S CO"AM\SSi i"
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P.O. Box 72 i 8 Boise, ID 83707 - 5 i 5 N. 27th St. Boise, ID 83702
3 December 2008
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
RE: IPC-E-08-10
Dear Ms. Jewell:
We are enclosing the original and nine (9) copies of REBUTTAL TESTIMONY
OF DR. DON READING ON BEHALF OF THE INDUSTRIAL CUSTOMERS OF
IDAHO POWER'S in the above case.
Sincerely,~~\
Nina Curtis
Richardson & O'Leary PLLC
RECEIVED
2008 DEC -3 PH 3: 14
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
N THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR AUTHORITY ) CASE NO. IPC-E-08-10
TO INCREASE ITS RATES AND CHARGES FOR )
ELECTRIC SERVICE TO ELECTRIC )
CUSTOMERS IN THE STATE OF IDAHO )
)
REBUTTAL TESTIMONY OF
DR. DON READING
ON BEHALF OF THE
INDUSTRIAL CUSTOMERS OF IDAHO POWER
DECEMBER 3, 2008
1 INTRODUCTION
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31 Q.
Are you the same Don Reading who filed Direct Testimony in Case IPC-E-08-10?
Yes.
Q. What is the purpose of your rebuttal testimony in this Docket?
A. I discuss statements made by Staff witness Hessing dealing with changes in the cost-of-
service (COS) methodology that have occured since the Company's IPC-E-03-13
general rate case and the curent Docket. I also discuss the cost-of-service studies that
were fied in Direct Testimony and my understanding ofthe Staffs Rebuttal filing.
Keith Hessing
Q. You state that you have comments over a point put forward by Staff witness Hessing
in his Direct Testimony. What is the issue you address?
As I discussed in my Direct Testimony, there have been dramatic shifts in the costs of
capacity and energy for the Company in the 5 years since general rate case IPC-E-03-13
was filed by the Company. The growth in system load over this time period has come
primarily from the residential class while the high load factor classes and the irrigation
class have experienced little or no growth. The growth in the residential class load has
caused the Company to experience pressure on capacity resources. In response, the
Company has built 250 MW in gas peaking units in the past few years. In spite of the
increased costs to serve the growing residential load, the Company's cost-of-service
studies have displayed paradoxical and counterintuitive results.
What paradoxical and counterintuitive results are the Company's cost-of-service
studies showing?
They assign disproportional rate increases to high load factor customers, and significantly
lower percentage increases to the residential class.
What did Mr. Hessing have to say about these counterintuitive results from the
Reading, Reb
IPC-E-08-10
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Company's COS filings since IPE-E-03-13?
Mr. Hessing frames the issue by saying:
There are a number of circumstances that have
caused changes in cost of service results. Load growth,
substatially in the residential class, has occured in
record amounts. The cost of power supply to meet the
growing load, at approximately 6t/kWh, has been much higher
than it used to be. Under cost of service methodology a
disproportionately larger share of all costs, old and new,
are allocated to the residential class because the
residential classes percentage share of energy, peak demand
and customers has increased. A mix of old and new costs
is also allocated to all other classes even if they
experienced no load growth. No customer class is entitled
to rates based on a grandfathered share of old costs. 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 the cost of service study the
increased revenues offset the increased costs and the
Residential Class is shown to deserve an increase below the
Idaho Jurisdictional average, or even a decrease as
demonstrated in Staffs results.
High load factor customer groups are situated
differently. They are allocated a reduced portion of all
costs, old and new, and have little or no new revenue to
offset the new costs. The new costs more than offset the
cost reduction due to the decrease in the allocation
percentages and without additional revenue rates go up.
Therefore, cost of service results indicate increases
higher than the average. (Hessing Direct Testimony, pgs. 9-11.)
Mr. Hessing goes on to say that because high load factor customers pay about 3t/kWh
and residential customers pay approximately 6t/kWh, residential customers' contribution
to revenue, on a per kWh basis, is double that of high load factor customers. This leads
him to the conclusion that higher percent increases for high load factor customers follows
naturally because they cover such a smaller share of the marginal cost of power on a kWh
basis.
Do you agree with Mr. Hessing's analysis?
Only halfway. While Mr. Hessing is correct that residential customers do contribute, on
Reading, Reb
IPC-E-08-10
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Q.
a kWh basis, about double the revenue of high load factor customers, his analysis looks at
only the revenue side of the cost-of-service equation. There is a reason that residential
customers pay about double the amount that high load factor customers pay. The reason
is that the residential class imposes -- again on a per kWh basis. -- about double the costs
on the system than do high load factor customers. The reason for these higher costs on a
per kWh basis are many, and include such factors as the relatively poor load factor ofthe
class, higher distribution costs, and much higher administrative costs.
Is it appropriate to only look at revenue in a cost of service analysis?
No. Cost of service calculations include both customer class costs and revenues.
10 Considering only revenue and ignoring costs is like trying to cut paper with a one bladed
11 scissor . You need to consider both the cost and revenue blades in order to assign proper
12 rate responsibility for customer classes and in order to get the rate assignment job done
13 accurately. Therefore, Mr. Hessing's example only provides part of the explanation for
14 the paradoxical results of the Company's recent COS. For the reasons stated above,
15 however, it does not provide a complete explanation.
16 Cost-of-Service
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Q.You recommend some changes to the cost-of-service testimony filed by the
Company in your Direct Testimony. Didn't you state a cause of the shift of cost
responsibilty from residential and small commercial customer to high load factor
customers was a methodological change in the calculation of coincident peak
recommend by attendees in the COS workshops?
Yes, in my Direct Testimony I state:
Rather than using the median values for the system coincident demand factors I
substituted in the 2007 values and ran the 3 CPI12 CP model with no other
changes. Use of2007 system coincident demand factors, rather than the five year
median values, produced some significant shifts among some customer classes. In
general there was a shift of costs away from the higher load factor customer
classes to the lower load factor classes. (Direct Testimony, Don Reading, (p. 10.)
I present cost-of-service results with this change and state:
The Company's Cost of Service method requires several steps of transferring large
Reading, Reb
IPC-E-08-10
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amounts of data to make this change. We are working with the Company to verify
these steps have been made correctly. To the extent the results presented here vary
from the Company's, we wil adopt the Company's verification of these results
and fie revised exhibits. (p. 11.)
It is my understanding that the Company and Commission Staff have worked together to
verify the results I testified to in my direct testimony. I also understand that, as a result,
Mr. Hessing has accepted the change in the cost-of-servIce methodology that substitutes
the 2007 values for the system coincident demand factors for the median values of the
past 5 years. I agree with this change and anticipate that Mr. Hessing's rebuttl
testimony will confirm it as welL. The rationale for this change is detailed in my Direct
Testimony; and need not be repeated here. I also stated in my Direct Testimony that it
would be worthwhile for the Company, Staff, and interveners to work together to arive
at an acceptable methodology to 'normalize' peak demand in the cost-of-service studies.
Does this conclude your Rebuttal Testimony on December 3, 2008?
Yes, it does.
Reading, Reb
IPC-E-08-10
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1 CERTICATE OF SERVICE
2
3 I hereby certify that on the 3rd day of December 2008, I served the foregoing
4 REBUTTAL TESTIMONY OF DR. DON READING in Case NO. IPC-E-08-10 to the
5 following as indicated below:
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Baron L. Kline
Lisa D. Nordstrom
Donovan E. Walker
Idaho Power Company
1221 W. Idaho St. (83702)
PO Box 70
Boise, ID 83707-0070
E-mail: bklineCfidahopower.com
InordstromCfidahopower .com
dwalkerCfidahopower .com
i Hand Delivery
_ U.S. Mail, postage pre-paid
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John R. Gale
Vice President, Regulatory Affairs
Idaho Power Company
1221 W. Idaho St. (83702)
PO Box 70
Boise, ID 83707-0070
E-mail: rgaleCfidahopower.com
x. Hand Delivery
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Jean Jewell
Commission Secretary
472 W.Washington (83702)
PO Box 83720
Boise, ID 83720-0074
E-mail: jean.jewellCfpuc.idaho.gov
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Randall C. Budge
Eric L. Olsen
Racine, Olson, Nye, Budge
& Bailey, Charered
201 E. Center
PO Box 1391
Pocatello, ID 83204-1391
E-mail: rcbCfracinelaw.net
eloCfracinelaw.net
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Reading, Reb
IPC-E-08-10
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Anthony Yanel
29814 Lake Road
Bay Vilage, OH 44140
E-mail: yanelCfattbi.com
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Michael Kurz, Esq.
Kur 1. Boehm, Esq.
Boehm, Kurz & Lowry
36 E. Seventh Street, Suite 1510
Cincinnati, OH 45202
E-mail: mkurtzCfBKLlawfirm.com
kboehmCfBKLlawfrm.com
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Kevin Higgins
Energy Strategies, LLC
Parkside Towers
215 S. State Street, Suite 200
Salt Lake City, UT 84111
e-mail: khgginsCfenergystrat.com
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Brad M. Purdy
Attorney at Law
2019 N. 17th Street
Boise, ID.83702
E-mail: bmpurdyCfhotmail.com
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LotH. Cooke
Arthur Perr Bruder
United States Deparment of Energy
1000 Independence Ave., SW
Washington, DC 20585
E-mail: Lot.cookeCfhq.doe.gov
Arhur. bruderCfhq .doe. gov
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Dwight Etheridge
Exeter Associates, Inc.
5565 Sterrett Place
Suite 310
Columbia, MD 21044
E-mail: detheridgeCfexeterassociates.com
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Reading, Reb
IPC-E-08-10
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Conley E. Ward
Michael C. Creamer
Givens Pursley LLP
601 W. Banock Street
PO Box 2720
Boise, ID 83701-2720
E-mail: cewCfgivenspursley.com
Dennis E. Peseau, Ph.D.
Utility Resources, Inc.
1500 Liberty Street SE, Suite 250
Salem, OR 97302
E-mail: dpeseauCfexcite.com
Weldon Stutzan
Neil Price
Deputy Attorneys General
472 W. Washington (83702)
PO Box 83720
Boise, ID 83720-0074
E-mail: weldon.stutzmanCfpuc.idaho. gov
NeiL. priceCfpuc. idaho. gov
Ken Miler
Clean Energy Program Director
Snake River Allance
PO Box 1731
Boise, ID 83701
E-mail: kmilerCfsnakeriverallance.org
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Ovø~N\ ll~)
Nina M. Curis
Reading, Reb
IPC-E-08-10
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