20081204Higgins Rebuttal.pdf

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BOEHM, KURTZ & LOWRY
ATIORNS AT lAW
36 EA SE STREET
SUITE 1510
CICINATI. OHIO 45202
TELEPHONE [phone]
TELECOPIER [phone]
RECEIVED
2008 DEC -3 AM 9= 43
iDAHO PUßí.JC
UTILITiES COMMISSION
VI OVERNIGHT MAIL
December 2, 2008
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
P.O. Box 83720
472 W. Washington Street
Boise, Idaho 83720-0074
In re: Case No. IPC-E-08-10
Dear Ms. Jewell:
Enclosed please find nine the original and (8) copies of the REBUTTAL TESTIMONY OF KEVIN C.
HIGGINS on behalf of THE KROGER CO. dba FRED MEYER AN SMIH'S FOOD AN DRUG to be fied
in the above referenced matter. I also attch an electronic version.
Copies have been served on all parties on the attached certificate of service. Please place this document
of file.
Respectfully yours,j~~
Kurt J. Boehm, Esq.
BOEHM, KURTZ & LOWRY
MLKkew
Enc!.
G:\WORK\MLK\KROGER\IDAHO\IPC-E-oS-lO (Rate Case)\Commssion Itr (Idaho).doc
CERTIFICATE OF SERVICE
I hereby certfy that tre copy of the foregoing was served by electr¡ mal, unless otherwise noted, this
2"0 day of Deember, 2008 to the following: i~
Michael L. Kurtz, Esq.
Kurt J. Boehm, Esq.
Weldon Stutzman, DAG
Idaho Public Utilties Commission
Weldon.Stutzmant1puc.idaho.gov;
Barton L. Kline bklineayidahopower.com
Dr. Don Reading
6070 Hil Road
Boise, Idaho 83703
dreadingaymindspring.com
Lisa D. Nordstrom, Donovan E. Walker
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707-0070
hiordstrom((idahopower.com
dwalker((idahopower.com
Conley E. Ward
Michael C. Creamer
GIVENSPURSLEY LLP
60 1 W. Bannock Street
P.O. Box 2720
Boise, il 83701-2720
cew((givenspursley.com
John R. Gale
Vice President, Regulatory Affairs
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707-0070
rgale((idahopower.com
Dennis E. Peseau, Ph.
Utility Resources, Inc.
l500 Liberty Street SE, Ste. 250
Salem, OR 97302
dpcseau((cxcitc.com
Randall C. Budge, Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey, Chartered
P.O. Box 139l; 20l E. Center
Pocatello, Idaho 83204-l39l
rcb((racinelaw.net
elo((racinelaw.net
Arhur Perr Bruder
Attorneys for the
United States Department of Energy
1 000 Independence Avenue SW
Washington, DC 20585
Arhur .Bruder((hq .doe.gov
Anthony Yankel
29814 Lake Road
Bay Vilage, Ohio 44140
yankel((attbi.com
Peter J. Richardson
Richardson & O'Leary
515 N. 27th St
P.O. Box 7218
Boise, Idaho 83702
peter((richardsonandoleary .com
Stephen H. Telford
Office of Chief Counsel
Idaho Operations Offce
United States Department of Energy
1955 Fremont Avenue MS 1209
Idaho Falls, il 83415
G:\WORK\MLK\KROGER\IDAHO\IPC-E-QS-lO (Rate Case)\Commission Itr (Idaho).doc
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AUTHORITY
TO INCREASE ITS RATES AND CHARGES FOR
ELECTRIC SERVICE
RECE.lvt:ni . '. " h ",'
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION '.'2'
ZooB DEC -4 AM 9= 5
IDAHO PUBLIC, ".
UTlUTIES COMMISS¡ON)
)
)Case No. IPC-E-08-10
AFFIDAVIT OF KEVIN C. HIGGINSSTATE OF UTAH )
)
COUNTY OF SALT LAKE )
Kevin C. Higgins, being first duly sworn, deposes and states that:
1. He is a Principal with Energy Strategies, L.L.C., in Salt Lake City, Utah;
2. He is the witness who sponsors the accompanying testimony entitled "Rebuttl
Testimopy of Kevin C. Higgins;"
3. Said testimony was prepared by him and under his direction and supervision;
4. If inquiries were made as to the facts and schedules in said testimony he would
respond as therein set forth; and
5. The aforesaid testimony and schedules are true and correct to the best of his
knowledge, information and belief.
Ke~Hie1;~-
Subscribed and sworn to or affrmed before me this 15t day of December, 2008, by KevinC. Higgins. ß\,\..Y-
Notar Public
My Commission Expires: :1,- '", \ Ç': Sblz.r-----.-____,
.(1 Nory Pubic
'. II ANElNE WHITW'. Co 1675247 IMy e- EieiIs.,. Ju 15. 2012 ,.. _ _ _ _ _Stte.ot Uth .------
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IDAJIO PUBLIC
BEFORE THE UTILITIES COIA.i.~¡SSiON
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE )
APPLICATION OF IDAHO POWER )
COMPAN FOR AUTHORITY TO )
INCREASE ITS RATES AND CHARGES )
FOR ELECTRIC SERVICE )
Case No. IPC-E-08-10
16 REBUTTAL TESTIMONY OF KEVIN C. HIGGINS
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19 Doing Business as Fred Meyer and Smith's
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REBUTTAL TESTIMONY OF KEVIN C. HIGGINS1
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3 Introduction
Please state your name and business address.4 Q.
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Kevin C. Higgins, 215 South State Street, Suite 200, Salt Lake City, Utah,
84111.
By whom are you employed and in what capacity?
I am a Principal in the firm of Energy Strategies, LLC. Energy Strategies
is a private consulting firm specializing in economic and policy analysis
applicable to energy production, transportation, and consumption.
Are you the same Kevin C. Higgis who previously testified on behalf of The
Kroger Co. in this proceeding?
Yes, I am.
What is the purpose of your rebuttal testimony?
My rebuttal testimony responds to certain proposals made in the direct
testimony of Staff witness Matt Elam and Idaho Irgation Pumpers Association
witness Anthony J. YaneL.
Please summarize the major points in your rebuttal testimony.
(1) My direct testimony expresses strong support for Idaho Power's
proposal to introduce time-of-use rates for Schedule 9 customers taking serice at
primary and transmission voltages. Staff witness Matt Elam also expresses
support for Idaho Power's proposal, but Mr. Elam proposes modifications to
Schedule 9 rates consistent with Staffs lower proposed revenue requirement. I
HIGGINS /1
1 have reviewed Mr. Elam's proposed rate design for Schedules 9-P and 9-T and
2 conclude that his proposal is consistent with the time-of-use design proposed by
3 Idaho Power. Therefore, I support Mr. Elam's proposed rate design at Staffs
4 revenue requirement, while also supporting and Idaho Power's proposed rate
5 design at the Company's proposed revenue requirement.
6 (2) Mr. Yanel proposes to revise Idaho Power's Base Case cost-of-
7 serice study by allocating a portion of class costs based on a ten-year forecast of
8 class growt. Mr. Yane1's proposal would assign generation and transmission
9 costs to curent customers based on projected increases to class load that have not
10 yet materialized. In my opinion, this proposal is unreasonable and I recommend
11 that it be rejected.
12 (3) Mr. Yanel also proposes to change the basis for allocating the
13 revenue credits to classes attbutable to Sales for Resale. Mr. Yanel' s proposal
14 fails to take proper account of the differng cost burdens borne by different
15 customer classes for recovery of the production plant from which Sales for Resale
16 are made. In my opinion, Mr. Yanel's proposed change is grossly inequitable
17 and should be rejected.
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19 Response to Matt Elam
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In your direct testimony, you expressed strong support for Idaho Power's
proposal to introduce time-of-use rates for Schedule 9 customers takig
service at primary and transmission voltages. Have you reviewed the
HIGGINS/2
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proposed modifcations to Schedule 9 rates proposed by Staff witness Matt
Elam?
Yes, I have.
What is your assessment of Mr. Elam's proposed modifcations?
Mr. Elam also expresses support for Idaho Power's time-of-use proposal
for Schedule 9-P and 9-T customers. However, because Staff proposes a lower
revenue requirement than Idaho Power, it is necessar for Mr. Elam to modify the
Schedule 9-P and 9-T time-of-use charges to be consistent with this lower revenue
requirement.
I have reviewed Mr. Elam's proposed rate design for Schedules 9-P and 9-
T and conclude that his proposal is consistent with the time-of-use design
proposed by Idaho Power. Therefore, I support Mr. Elam's proposed rate design
at Staffs revenue requirement, while also supporting Idaho Power's proposed rate
design at the Company's proposed revenue requirement.
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16 Response to Anthony J. Yankel
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What has Mr. Yankel's proposed with respect to revising Idaho Power's
Base Case cost-of-servce study?
Mr. Yanel has proposed that 50 percent of generation and transmission
costs in the Company's Base Case analysis be allocated on the basis of projected
class load growth over the next ten years. Mr. Yanel argues that such an
approach would better reflect "forward-looking" costs.l
i Direct testimony of AnthonyJ. Yanel, p. 18, line 1 - p. 24, line 16.
HIGGINS/3
Q.What is your assessment of this proposal?
2 A.The fundamentals of this proposition are uneasonable. The proposal
3 would assign generation and transmission costs to curent customers based on
4 projected increases to class load that have not yet materialized. The first problem
5 here is that the expected load growth is not necessarly attbutable to curent
6 customers, but to customers who do not yet exist. As customers who do not yet
7 exist canot be charged for the "growth correction" being proposed by Mr. ,
8 Yanel, the burden of this projected growth is instead assigned to the existing
9 customers in the growing classes. Under this approach, class cost responsibilty is
10 weighted by (hgher) futue kilowatt-hours, but costs can only be recovered from
11 curent kilowatt-hours, creating an uneaonable cost burden for the affected
12 customer classes.
13 A further problem is that curent class cost responsibilty would be
14 allocated based on a ten-year growth projection that may not develop as
15 forecasted. This would introduce an undue degree of speculation into the
16 assignent of class cost responsibilty.
17 Q.What is your recommendation with respect to Mr. Yankel's proposal to
18 revise Idaho Power's Base Case cost-of-service study?
19 A.I recommend that the proposed revision be rejected.
20 Q.What change has Mr. Yankel proposed for the allocation of the revenue
21 credits to classes attributable to Sales for Resale?
22 A.Mr. Yankel objects to the traditional allocation of Sales for Resale
23 revenues based on class energy or demand. Instead, Mr. Yanel proposes that
HIGGINS/4
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each customer class be assigned a percentage share of production plant based on
the class's allocation of production plant costs. Each class then would be credited
with Sales for Resale revenues to the extent that its load is less than its assigned
share of production plant in a given hour. The credit would be for a share ofthe
off-system sales takng place in that hour as well as for deemed "sales" to other
customer classes that are consuming more power than their respective "shares" of
production plant. Conversely, to the extent that a class's load exceeds its assigned
plant share in a given hour, the class would be assessed "purchased power" costs
in that hour. As I noted, this crediting of Sales for Resale revenue and assignent
of purchased power costs would not be limited to the actual sales and purchase
transactions with third paries, but would extend to hourly "sales" and
"purchases" that are deemed to take place between "surplus" and "deficit" retail
customer classes.
The upshot of Mr. Yanel's proposal is that he is intending to allocate a
greater portion of Sales for Resale revenue (than would occur under a traditional
energy or demand allocator) to those classes that have highy varable usage
patters throughout the year. Mr. Yanel justifies this change based on his claim
that classes with highy varable usage patters "cause" off-system sales to
happen because their varable usage patters result in perods of under-utilzation
of plant for retail needs, thus "freeing up" the production plant to make off-system
sales.
What is your assessment of Mr. Yankel's proposal for allocating Sales for
Resale revenues?
HIGGINS / 5
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Mr. Yanel's proposal is grossly inequitable and should be rejected. Mr.
Yanel's proposal fails to take proper account of the differing cost burdens borne
by different cùstomer classes for recovery of the production plant from which
Sales for Resale are made. This inequity can be ilustrated using the same
example Mr. Yanel developed to make his point.
Please proceed.
On pages 38-39 of his direct testimony, Mr. Yanel assumes that a utilty
seres a customer Class A that consumes a constant 500 MWh ever hour of the
year and a second customer Class B that consumes a constant 500 MWh ever
hour for six months and zero for the remaining six months. The utilty responds to
this usage pattern by installng 1000 MW of capacity, which exactly meets retail
customer requirements for six months of the year; the utility then sells 500 MW
off system for the six months in which Class B's consumption falls to zero.
Mr. Yanel correctly notes that under the 12 CP method for allocating
production plant costs, Class A would be allocated 2/3 of generation demand
costs and Class B would be allocated the remaining 113. I expand upon Mr.
Yanel's observation by presenting this cost allocation on a month-by-month
basis below:
19 Month 6 7 8 9 10 11 12 Total2 3 4 51
20 Class A CP 500 500 500 500 500 500 500 500 500 500 500 500 6000
21 Class B CP 500 500 500 500 500 500 0 0 0 o o o 3000
22 System CP 100010001000100010001000 500 500 500 500 500 500 9000
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HIGGINS/6
1 I point out in passing that, in this example, the 2/3 allocation of generation
2 demand costs to Class A and the 1/3 allocation of generation demand costs to
3 Class B is the same allocation that would obtain if costs were allocated on an
4 energy basis; thus, the set up of this simple example bears some nexus with the
5 historical cost allocation practices in Idaho Power's service area for generation
6 demand cost, which has traditionally been based on a combination of energy and
7 12 CP allocation factors.
8 Mr. Yanel goes on to correctly note that under a conventional treatment
9 for allocating Sales for Resale revenues (such as occurs in Idaho Power's
10 terrtory), Class A would be allocated 2/3 ofthe revenue and Class B would be
11 allocated 1/3 of the revenue, based on the principle that the benefit of the revenue
12 credit should track the allocation of plant costs. Mr. Yanel maintains that this
13 result is inappropriate. He argues that the ability for the utility to make off-
14 system sales derives from the highly varable usage pattern of Class B. Because
15 Class B's load disappears for six months out ofthe year, thus makng 500 MW
16 available for off-system sales, Mr. Yanel argues that Class-B should receive a
17 greater proportion of the Sales for Resale revenues - 2/3 to be exact. Thus, Class
18 B would pay for 1/3 ofthe plant costs, but receive 2/3 of the Sales forResale
19 benefit.
20 To appreciate the inequity of Mr. Yanel's proposal, it is instrctive to
21 consider what happens in a month in which an off-system sale is made in his
22 example. Let's consider Month 7 in the table on the preceding page. In Month 7,
23 the utility sells 500 MW each hour from its production plant of 1000 MW. Mr.
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Yankel argues that Class B is entitled to 2/3 of the benefit of this sale, since its
demand of zero is 333 MW less than its (anual) allocated share of plant costs of
333 MW.
But how have cost responsibilties been allocated for this month? Because
its demand is zero in Month 7, Class B has already been absolved of any cost
responsibility in Month 7 under the 12 CP method (or under an energy allocation
method, for that matter). Instead, the full burden of paying for the cost of
production plant in Month 7 has fallen to Class A - which means that absent Sales
for Resale revenues, Class A would not only have to pay for the production plant
that serves its 500 MW of load, it would also have to pay for the 500 MW that
was built to sere Class B for six months of the year, as Class B has not been
assigned any costs in Month 7. Of course, in light of this cost burden, it is
entirely appropriate for Class A to receive the lion's share ofthe benefit for Sales
for Resale in Month 7, as would occur under a conventional allocation. Indeed, a
reasonable case can be made that Class A is entitled to 100 percent of the Sales
for Resale revenues in Month 7, as Class A has been allocated 100 percent of the
production plant costs in that month. If anything, a conventional allocation
approach is revealed as being unduly generous to Class B by sharng 1/3 of the
Sales for Resale revenues in a month in which Class B was absolved of any
production plant cost responsibility.
But how can you claim that Class B is absolved of any production plant cost
responsibilty in Month 7 when Class B is allocated 1/3 of production plant
costs?
HIGGINS/8
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A.Look at the table. Class B is allocated 1/3 of production plant costs on an
2 anual basis. It is allocated 50 percent of plant costs for Months 1-6 and zero
3 plant costs in Months 7-12. This averages out to be 1/3 of production plant costs
4 durng the course of the year. But in the months in which off-system sales are
5 made, Class B is asked to contrbute nothing. This is the key consideration that
6 Mr. Yanel overlooks when he proposes to transfer to this class the majority of
7 the off-system sales benefit.
8 Ths point can be fuher ilustrated through an analogy. Consider two
9 roommates who share a house and split the rent evenly for six months out of the
10 year. Roommate A resides in the house year-round, whereas Roommate B leaves
11 for six months. When Roommate B is gone, Roommate A has full responsibilty
12 for the rent. To mitigate this impact, he sublets the vacant room for six months
13 and (generously) offers Roommate B 1/3 ofthe proceeds. Roommate B declines
14 the offer and cites Mr. Yankel's argument: Roommate B claims that 2/3 ofthe
15 proceeds should go to him because ifhe hadn't moved out for six months, the
16 sublet would not have been possible.
17 I think most paries would agree that Roommate B's claim is
18 unreasonable. It is fudamentally the same claim being made by Mr. Yanel in
19 his example.
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21 Q.Does this conclude your rebuttal testimony?
22 A.Yes, it does.
HIGGINS/9