20110601Said Di.pdf

RECEIVED
2011 JUN -I PM 2: i.i
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC SERVICE
TO ITS CUSTOMERS IN THE STATE OF
IDAHO.
CASE NO. IPC-E-II-08
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
GREGORY W. SAID
1 Q.Please state your name and business address.
2 A.My name is Gregory W. Said and my business
3 address is 1221 West Idaho Street, Boise, Idaho.
4 Q.By whom are you employed and in what capacity?
5 A.I am employed by Idaho Power Company ("Idaho
6 Power" or "Company") as the Vice President of Regulatory
7 Affairs.
8 Q.Please describe your educational background
9 and business affiliations.
10 A.In May of 1975, I received a Bachelor of
11 Science Degree in Mathematics with honors from Boise State
12 University. In 1999, I attended the Public Utility
13 Executi ves Course at the Uni versi ty of Idaho and am now on
14 the faculty of that program covering "Regulation and
15 Ratemaking. " I have attended numerous additional
16 educational conferences throughout my career at Idaho Power
17 and am an active member of the Edison Electric Institute's
18 Rates and Regulatory Affairs Committee.
19 Q.Please describe your work experience with
20 Idaho Power.
21 A.I was hired by Idaho Power in 1980 as an
22 analyst in the Resource Planning Department. In 1985, the
23 Company applied for a general revenue requirement increase.
24 I was the Company witness addressing power supply expenses.
25
SAID, DI 1
Idaho Power Company
1 In August of 1989, after nine years in the Resource
2 Planning Department, I was offered and I accepted a
3 position in the Company's Rate Department. With the
4 Company's application for a temporary rate increase in
5 1992, my responsibilities as a witness were expanded.
6 While I continued to be the Company witness concerning
7 power supply expenses, I also sponsored the Company's rate
8 computations and proposed tariff schedules in that case.
9 Because of my combined Resource Planning and Rate
10 Department experience, I was asked to design a Power Cost
11 Adjustment ("PCA") which would impact customers' rates
12 based upon changes in the Company's net power supply
13 expenses. I presented my recommendations to the Idaho
14 Public Utilities Commission ("Commission") in 1992, at
15 which time the Commission established the PCA as an annual
16 adjustment to the Company's rates. I sponsored the
17 Company's annual PCA in each of the years 1996 through
18 2003.
19 In 1996, I was promoted to Director of Revenue
20 Requirement. I managed the preparation of revenue
21 requirement information for regulatory proceedings until
22 2008.
23 In 2008, I was promoted to Director of State
24 Regulation, overseeing the management of both cost-of-
25 service and rate design.
SAID, DI 2
Idaho Power Company
1 In 2010, I was promoted to General Manager of the
2 Regulatory Affairs Department and in 2011, I was promoted
3 to Vice President of Regulatory Affairs.
4 As the Vice President of Regulatory Affairs, I
5 oversee and direct the activities of the Regulatory Affairs
6 Department. These acti vi ties include the development of
7 jurisdictional revenue requirements, the oversight of the
8 Company's rate adjustment mechanisms, the preparation of
9 cost-of-service studies, the preparation of rate design
10 analyses, and the administration of tariffs and customer
11 contracts. I also have the primary responsibility for
12 corporate policy regarding matters related to the economic
13 regulation of Idaho Power. I have testified before the
14 Commission and the Public Utility Commission of Oregon on
15 numerous occasions.
16 Q.What is the purpose of your testimony in this
17 matter?
18 A.First and foremost, the purpose of my
19 testimony is to present the Company's request for an
20 increase to customer rates that will increase the Company's
21 annual Idaho jurisdictional revenues by $82.6 million,
22 which is 9.9 percent greater than the revenues that could
23 be generated under current rates.
24 As the Vice President of Regulatory Affairs, I am
25 responsible for the overall preparation and presentation of
SAID, DI 3
Idaho Power Company
1 this filing. I will provide an overview of the Company's
2 case and summarize what I consider to be the major points
3 contained in the testimony of the various Company
4 witnesses. Further, I will present the Company's request
5 for authorization to treat demand response incentive
6 payments as power supply expenses and to establish a base
7 or "normal" level of cost recovery for those demand
8 response incentive payments in rates.
9 I . BACKGROUN
10 Q.Please provide a brief background on the
11 general rate case moratorium that is currently in effect.
12 A.In November of 2009, the Company filed an
13 application with the Commission requesting an order
14 allowing the Company to amortize additional accumulated
15 deferred income tax credits and approving a general rate
16 case moratorium. That application was based upon a
17 stipulation ("Stipulation") signed by the Company, the
18 Commission Staff, the Idaho Irrigation Pumpers Association,
19 Inc., the Industrial Customers of Idaho Power, Micron
20 Technology, Inc., the United States Department of Energy,
21 the Community Action Partnership Association of Idaho, and
22 the Kroger Co.
23 The Stipulation was approved by the Commission on
24 January 13, 2010. The rate case moratorium language
25 contained in the approved Stipulation states that "Idaho
SAID, DI 4
Idaho Power Company
1 Power will not file a general revenue requirement case
2 which would result in a general rate adjustment becoming
3 effective prior to January 1, 2012 ."The parties to
4 the Stipulation all recognized that in the normal course of
5 the processing of general revenue requirements cases the
6 Commission would suspend rate implementation for a six-
7 month period from the implementation date proposed by the
8 Company.As a result, even though the Company has filed
9 this case on June 1, 2011, requesting implementation on
10 July 1, 2011, the Company's expectation is that the
11 Commission will suspend implementation of new rates for six
12 months and any new rates established would not become
13 effective until January 2012. Such a result is in keeping
14 with the moratorium language approved in the Stipulation.
15 Q.During the general rate case moratorium, has
16 the Company been able to adj ust rates related to specific
17 items?
18 A.Yes, provisions contained in the Stipulation
19 allowed for rate adj ustments for the following:
20 1.Annual Power Cost Adj ustment;
21 2.Annual Fixed Cost Adjustment ("FCA");
22 3 .Annual Advanced Metering Infrastructure
23 ("AMI") rate adjustment;
24 4 .Annual pension expense recovery
25 ("Pension") ;
SAID, DI 5
Idaho Power Company
1 5.Energy Efficiency Rider adj ustment;
2 6.Recovery of governmentally imposed fees;
3 7.Increased funding for low-income
4 weatherization; and
5 8.Resetting of base level power supply
6 expenses coincident with the 2010 PCA rate change.
7 Q.Have the rate changes associated with these
8 items resulted in higher or lower rates for customers?
9 A.In each of the last two years, the Company has
10 requested rate decreases in its PCA applications that have
11 more than offset increases resulting from the FCA, AMI,
12 Pension, and resetting of base power supply expenses
13 filings. The Company has not requested a change in the
14 Energy Efficiency Rider or increased funding for
15 weatherization.
16 II. CASE STRUCTUR AN WITNSS SUMY
17 Q. Please provide a summary of the financial
18 factors driving the need for rate relief as detailed in the
19 testimony of Mr. Darrel Anderson, Executive Vice President
20 of Administration and Chief Financial Officer.
21 A.Mr. Anderson discusses numerous financial
22 challenges facing the Company, such as a down economy
23 coupled with rising costs and constrained capacity issues.
24 He describes the Company's increased investment in
25 generation plant, transmission facilities, distribution
SAID, DI 6
Idaho Power Company
1 facilities and general plant that has been required to
2 provide for the needs of the Company's customers. He
3 describes how reliability requirements, compliance
4 requirements, and the costs of materials and supplies have
5 impacted the level of investments.
6 Mr. Anderson also addresses Company actions to
7 manage ongoing expenses. Specifically, he points out that
8 over the last two years of the down economy, the Company
9 has provided for general wage adjustments that are below
10 peer group adj ustments to salary structures. While the
11 Company does not fear losing employees in the short-term,
12 in the longer term, the Company will need to return to its
13 strategy of having a salary structure that allows employees
14 the opportunity to receive the median level compensation
15 for like jobs at other companies.
16 Q.Does Mr. Anderson discuss the Company's
17 opportuni ty to earn its authorized rate of return given the
18 additional investments and ongoing expenses of the Company?
19 A.Yes. Mr. Anderson notes that the Company has
20 not earned its authorized rate of return in any of the last
21 five years and does not expect to earn its authorized rate
22 of return in 2011 absent a positive determination from the
23 Internal Revenue Service related to the Company's request
24 to change tax methods related to uniform capitalization for
25 income taxes.
SAID, DI 7
Idaho Power Company
1 Q.Gi ven the financial drivers of the need for
2 rate relief as described by Mr. Anderson, did he give you
3 any specific instructions with regard to preparation of
4 this case?
5 A.Yes. While Mr. Anderson is fully aware that
6 the Company has not earned its authorized rate of return in
7 any of the last five years, he is also cognizant of the
8 prolonged economic downturn. As a result, Mr. Anderson
9 instructed me to identify areas where the Company could
10 forego requesting an increase at this time and keep the
11 Company's requested rate increase as small as possible. I
12 recommended to Mr. Anderson that the Company not request
13 the following items as part of this filing:
14 1.Incremental power supply expenses;
15 2.Incremental Allowance for Funds Used
16 During Construction ("AFUDC") associated with Construction
17 Work in Progress ("CWIP") for the Hells Canyon relicensing
18 project; and
19 3.Incremental 2011 Pension expense.
20 Q.Please provide your rationale for these
21 recommendations.
22 A.The items I have identified for exclusion
23 could have been reasonably included in the Company's filing
24 and have been included and approved in previous Company
25 general rate case filings. I identified these exclusions
SAID, DI 8
Idaho Power Company
1 because I felt they provided the least harm to the Company
2 while providing current rate relief to customers.
3 Wi th regard to incremental power supply expenses,
4 the Company recently filed its annual PCA rate change
5 request (Case No. IPC-E-11-06). New rates should be in
6 effect simultaneously with the filing of this case and
7 reflect current power expense levels. Any changes in power
8 supply expenses that occur next year will, to a large
9 extent, be reflected at mid-year 2012, at the time of the
10 next PCA rate change. The Company is willing to forego
11 collection of increased power supply expenses beginning in
12 January 2012 with the knowledge that those expenses will be
13 later addressed as part of the PCA filing in April 2012.
14 Depending on a number of factors, that PCA rate can either
15 go up or down.
16 My recommendation to not ask for incremental AFUDC
17 on CWIP at Hells Canyon will impact the Company's cash
18 flow, but not affect the Company's earnings or perception
19 of the Company's financial health in the public
20 marketplace. Collection of AFUDC on CWIP at Hells Canyon
21 from customers was approved by the Commission to reduce the
22 future rate impact on customers once the Hells Canyon
23 license is granted and placed in the Company's rate base
24 for recovery through rates. Gi ven the current downturn in
25
SAID, DI 9
Idaho Power Company
1 the economy, it is beneficial to the Company's customers to
2 hold collection of AFUDC at current levels.
3 Likewise, my recommendation to not seek recovery of
4 incremental pension expense recovery at this time will
5 affect the Company's cash flow, but not its earnings. Any
6 incremental pension funding will flow into a balancing
7 account that will be subj ect to future recovery.
8 Q.Please summarize the purpose of Mr. Warren
9 Kline's testimony in this case.
10 A.Mr. Kline is the Company's Vice President of
11 Customer Operations. Mr. Kline describes the Company's
12 thoughtful management of costs incurred by the Company to
13 benefit customers.
14 Specifically, Mr. Kline discusses changes to the
15 Company's Customer Service Operations organization that
16 result in exemplary customer service. For example, he
17 describes how Mobile Workforce Management has been utilized
18 to optimize daily field processes.
19 Mr. Kline goes on to describe the nearing completion
20 of meter replacement with AMI. He describes how the
21 Company was able to leverage its meter change-outs to
22 recei ve a Smart Grid Investment Grant from the U. S.
23 Department of Energy, which will provide for up to $47
24 million of infrastructure that will be treated as a
25 Contribution in Aid of Construction benefitting customers.
SAID, DI 10
Idaho Power Company
1 Mr. Kline also describes the Company's ongoing
2 efforts to pursue all cost-effective energy efficiency.
3 Finally, Mr. Kline explains how all of the efforts
4 he has discussed have been reflected in customer
5 satisfaction measurements. He proudly testifies that
6 customer satisfaction is significantly higher than when the
7 Company began such measurements in 1995 and that the
8 Company has had consistent high performance in recent
9 years.
10 Q.Did the Company hire an outside consultant to
11 evaluate and determine an appropriate acceptable range in
12 which the Company's authorized rate of return on equity
13 ("ROE") should be set?
14 A.Yes. Dr. William E. Avera has been the
15 Company' s consultant on this issue for many years.
16 Q.What does Dr. Avera recommend as the range in
17 which Idaho Power's authorized ROE should be set?
18 A.Dr. Avera provides detailed testimony
19 regarding his analyses of Idaho Power and the utility
20 industry in general. He describes his capital market
21 estimates based upon methods such as discounted cash flow
22 analyses, capital asset pricing models, and comparable
23 earnings methodologies. He also discusses flotation costs.
24 Given the full body of his analyses, he recommends a fair
25 rate of return on equity range of 10.40 to 11.55 percent.
SAID, DI 11
Idaho Power Company
1 Q.Please describe how Mr. Steven R. Keen, Vice
2 President, Finance and Treasurer, used Dr. Avera's
3 recommended fair rate of return on equity range of 10.40 to
4 11.55 percent to arrive at the point estimate for ROE that
5 the Company recommends be approved as the authorized rate
6 of return on equity in this case.
7 A.Mr. Keen presents the CQmpany recommendation
8 that the Commission authorize an ROE of 10.5 percent for
9 the purposes of determining the Company's jurisdictional
10 revenue requirement in this case. This is near the bottom
11 of Dr. Avera's recommended range and is also equal to the
12 currently authorized rate of return on equity in Idaho
13 Power's Idaho jurisdiction.
14 In arriving at his point estimate, Mr. Keen
15 discusses the need for an ROE that is adequate to attract
16 capital in today's financial markets. He discusses the
17 following areas that those markets have identified as the
18 Company's risk factors:
19 1.Declining credit ratings;
20 2.Actual results compared to authorized
21 ROE;
22 3.Power cost volatility;
23 4.Hells Canyon relicensing;
24 5.Impacts of purchases of energy from
25 Qualifying Facilities; and
SAID, DI 12
Idaho Power Company
1 6.Required reliability investments.
2 Q.Does Mr. Keen propose a cost of debt to be
3 used in determining the Company's Idaho jurisdictional
4 revenue requirement?
5 A.Yes. Mr. Keen recommends a cost of debt of
6 5.728 percent.
7 Q.What is the overall cost of capital as
8 quantified by Mr. Keen that incorporates a 10.5 percent ROE
9 and a 5. 728 percent cost of debt?
10 A.Mr. Keen has quantified the overall cost of
11 capital to be 8.17 percent.
12 Q.Who is the next witness in the Company's
13 presentation of its case in this proceeding?
14 A.Following Mr. Keen in the presentation of the
15 Company's case is Mr. Douglas N. Jones, Regulatory
16 Accounting and Support Team Leader. Mr. Jones presents
17 actual 2010 financial data as reported to the Securities
18 and Exchange Commission in the Company's Form 10-K and to
19 the Federal Energy Regulatory Commission ("FERC") in the
20 Company's FERC Form 1. This data serves as the auditable
21 starting point for test year development.
22 Q.Does Mr. Jones perform another function in the
23 preparation of the Company's case?
24 A.Yes. In addition to providing the Company's
25 actual financial data for the 2010 auditable starting
SAID, DI 13
Idaho Power Company
1 point, Mr. Jones quantifies the adj ustments to that
2 financial data that reflect previous Commission directives
3 regarding regulatory treatment of specific accounts.
4 Q.What test year is the Company proposing in
5 this case?
6 A.The Company is proposing a 2011 test year.
7 Consistent with the Company's test year approach in its
8 last general rate case, IPC-E-08-10, the Company is
9 recommending a test year that has not occurred at the time
10 of case preparation, but will have ended prior to the time
11 that new rates begin in January 2012. Because the actual
12 test year information is not known at the time of case
13 preparation, the Company makes adjustments to 2010 actual
14 data that will reasonably reflect what 2011 data will be by
15 the time the case is resolved.
16 Q.Please describe the Company's quantification
17 of 2011 normalized power supply expenses.
18 A.Mr. Timothy E. Tatum, Senior Manager of Cost
19 of Service, requested that Mr. Scott Wright, Regulatory
20 Analyst II, quantify 2011 normalized power supply expenses
21 using the AURORA model that has been routinely utilized for
22 ratemaking determination by this Commission for a number of
23 years.
24 Mr. Wright has quantified test year 2011 normalized
25 net power supply expenses excluding purchases pursuant to
SAID, DI 14
Idaho Power Company
1 the Public Utility Regulatory Policies Act of 1978
2 ("PURPA") to be $127.9 million. He also quantified test
3 year 2011 normalized PURPA purchases to be $113.2 million.
4 The sum of these numbers is $241.1 million.
5 Q.How does this number compare to the currently
6 authorized total power supply expense?
7 A.Mr. Wright's quantification of total
8 normalized 2011 power supply expenses at $241.1 million is
9 $31.9 million more than the currently authorized power
10 supply expense level of $209.2 million. As I previously
11 stated, the Company is not requesting the estimated $31.9
12 million increase in net power supply expenses in this case.
13 Mr. Wright's testimony is informational and demonstrates
14 the Company's desire to mitigate the size of its additional
15 revenue request in this proceeding.
16 Q.Please describe the instructions you gave to
17 Mr. Tatum regarding preparation of the 2011 test year in
18 this case.
19 A.I instructed Mr. Tatum to prepare the 2011
20 test year based upon the 2010 actual financial data
21 provided by Mr. Jones in a manner similar to that accepted
22 by the Commission in Case No. IPC-E-08-10. However, I
23 instructed Mr. Tatum to deviate from that approach in
24 specific areas.
25
SAID, DI 15
Idaho Power Company
1 I told Mr. Tatum to hold operations and maintenance
2 ("O&M") expenses to 2010 levels with the exception of
3 specific cost categories that are "known" to be materially
4 different in 2011. I told Mr. Tatum to hold normalized
5 total power supply expenses and related PCA accounts to
6 2010 levels as approved in Commission Order No. 31042. I
7 also instructed Mr. Tatum to exclude incremental AFUDC on
8 CWIP at Hells Canyon. I have previously discussed the
9 Company's rationale for such instructions.
10 I also instructed Mr. Tatum to reflect recent
11 Commission orders in regard to current recovery of pension
12 funding and Custom Efficiency program payments.
13 Q.Given your instructions to Mr. Tatum, please
14 describe how Mr. Tatum's testimony fits into the Company's
15 presentation of its case.
16 A.Mr. Tatum describes how the Company utilized
17 the 2010 financial data as presented by Mr. Jones as a
18 starting point from which he made conservative adj ustments
19 to derive similar data corresponding to the 2011 test year.
20 Mr. Tatum prepared an exhibit that details the method and
21 rationale for each adjustment he utilized in developing the
22 2011 test year data. Once he determined the 2011 test year
23 system-level data, Mr. Tatum supervised the preparation of
24 the jurisdictional separation study utilized to determine
25 the Idaho jurisdictional revenue requirement.
SAID, DI 16
Idaho Power Company
1 Q.Who is the Company witness that quantified the
2 Idaho jurisdictional revenue requirement?
3 A.Ms. Kelley Noe, Regulatory Analyst II,
4 prepared the Idaho jurisdictional revenue requirement under
5 the direction of Mr. Tatum. Ms. Noe describes her
6 preparation of the jurisdictional separation study
7 incorporating Mr. Keen's return recommendations and Mr.
8 Tatum's recommended adjustments to the financial data
9 presented by Mr. Jones. She then describes the methods by
10 which each regulatory account is allocated to either the
11 Idaho or Oregon jurisdiction. As noted in Mr. Tatum's
12 testimony, the resulting Idaho jurisdictional revenue
13 requirement as quantified by Ms. Noe is $917.6 million and
14 the current Idaho jurisdictional revenue deficiency also
15 quantified by Ms. Noe is $82.6 million.
16 Q.Please describe the next area of presentation
17 in the Company's case.
18 A.Mr. Matthew T. Larkin, Regulatory Analyst,
19 describes the 2011 Retail Revenue Forecast provided to Ms.
20 Noe for her determination of the Company's revenue
21 deficiency. He also describes the Company's class cost-of-
22 service model that is used in part to determine each
23 customer class's responsibility for a portion of the total
24 Idaho jurisdictional revenue requirement.
SAID, DI 17
Idaho Power Company
1 Q.Is the Company proposing to establish rates
2 for its Idaho jurisdictional customer classes that will
3 move each customer class to its class cost-of-service?
4 A.No. Mr. Larkin has prepared an exhibit that
5 shows the percentage of rate change that would be required
6 in order to move each customer class to its cost-of-
7 service. After discussions with Mr. Larkin, Mr. Tatum, and
8 Mr. Youngblood, I instructed Mr. Larkin to provide Mr.
9 Youngblood with class revenue targets that would not
10 decrease any customer class rate, would cap any customer
11 class rate at 1.5 times the system average rate increase,
12 and would reallocate any shortfall in revenue collection
13 created by capping increases to classes receiving uncapped
14 increases.
15 Q.Did Mr. Larkin also quantify the Load Change
16 Adjustment Rate ("LCAR") that would correspond to the
1 7 Company proposed test year values?
18 A.Yes, Mr. Larkin quantified the LCAR by
19 applying the methodology established by Commission Order
20 No. 32206 to the test year values proposed by the Company.
21 If the Company's proposal is approved, the LCAR would be
22 $19.28 per megawatt-hour.
23 Q.What is the next issue addressed in the
24 Company's case?
25
SAID, DI 18
Idaho Power Company
1 A.Mr. Ralph Cavanagh, Energy Program Director
2 for the Natural Resources Defense Council ("NRDC"),
3 provides testimony in support of continuing the Company's
4 FCA mechanism and removing it from pilot status. Mr.
5 Cavanagh was a witness on behalf of the Company when the
6 FCA mechanism was established and testifies as to the
7 ongoing value of such a mechanism as viewed by the NRDC.
8 Q.Please describe the testimony of the Company's
9 final witness, Mr. Michael J. Youngblood, Manager of Rate
10 Design.
11 A.Mr. Youngblood discusses the overall
12 objectives of the Company with regard to rate design.I
13 instructed Mr. Youngblood to continue the Company practice
14 of recommending moderate movement of billing determinant
15 rate components toward cost-of-service determinations. Mr.
16 Youngblood also discusses ongoing issues with regard to
17 special contract customers, the Company's desire to make
18 the FCA a permanent rate mechanism, and the Company plans
19 for expansion of time variant pricing to additional
20 customers.
21 Q.Did Mr. Youngblood supervise the preparation
22 of rate schedule proposals in this case?
23 A.Yes. Mr. Youngblood supervised the
24 preparation of all rate schedule proposals in this case.
25 Ms. Darlene Nemnich, Senior Regulatory Analyst, is the
SAID, DI 19
Idaho Power Company
1 Company witness that describes the Company's rate design
2 proposals for residential customers. Mr. Scott D. Sparks,
3 Senior Regulatory Analyst, is the Company witness that
4 describes the Company's rate design proposals for all other
5 customer classes. Mr. Sparks also discusses proposed
6 changes with regard to Rule H (line installation
7 provisions) and proposed changes to facilities charge
8 computations.
9 III. DEM RESPONSE INCENTIVE FUING
10 Q.How does Idaho Power currently view energy
11 efficiency and demand response programs?
12 A.Cost-effective demand-side management ("DSM")
13 programs (energy efficiency and demand response programs)
14 are considered to be the Company's resource of choice, both
15 from a cost standpoint and from an environmental
16 perspecti ve. The Company believes that cost-effective DSM
17 should be pursued aggressively and has demonstrated this
18 belief through its enhanced efforts toward DSM in recent
19 years. Mr. Kline and Mr. Cavanagh describe the results of
20 these enhanced efforts in their respective testimonies.
21 Q.What is the Company's request with regard to
22 the recovery of demand response incentive payments in base
23 rates?
24 A.As part of this general rate case proceeding,
25 the Company requests authorization to treat demand response
SAID, DI 20
Idaho Power Company
1 incentive payments as power supply expenses and establish a
2 base or "normal" level of cost recovery for those demand
3 response incentive payments in rates.
4 Q.Has the Company requested similar regulatory
5 treatment as part of a prior proceeding before this
6 Commission?
7 A.Yes. On October 22, 2010, the Company filed
8 Case No. IPC-E-10-27, wherein it made a similar request to
9 move demand response incentive payments into the PCA on a
10 prospective basis beginning June 1, 2011.
11 Q.What did the Commission ultimately decide in
12 that case?
13 A.On April 1, 2011, the Commission issued Order
14 No. 32217 rej ecting a settlement stipulation signed by
15 Idaho Power, Commission Staff, the Idaho Conservation
16 League, NW Energy Coalition, Snake River Alliance, and the
17 Communi ty Action Partnership Association of Idaho agreeing
18 to partial support of the Company's request. Order No.
19 32217 also directed the Company to include in the 2011/2012
20 PCA a one-time recovery of $10 million of the Energy
21 Efficiency Rider deferral balance.
22 In that same order, the Commission made the
23 following statement with regard to the requested regulatory
24 treatment: "These and other issues are best considered in
25 a general rate proceeding." The Commission further stated
SAID, DI 21
Idaho Power Company
1 that it "anticipates reviewing proposals to adjust DSM cost
2 recovery in Idaho Power's next rate case." In Order No.
3 32245 that responded to the Company's Petition for
4 Clarification in Case No. IPC-E-10-27, the Commission
5 reaffirmed that "the Company's proposal to include demand
6 response incentive payments in power supply expenses may be
7 reasonable and appropriate. But that cannot be ascertained
8 until the specifics of a proposal are reviewed in a rate
9 case."
10 In accordance with the Commission's preference to
11 handle such matters in the context of a general rate case,
12 the Company requests that the Commission review its
13 proposal to treat demand response incentive payments as
14 power supply expenses as part of this proceeding.
15 Q.Please describe the Company's request related
16 to demand response incentive payments.
17 A.The Company is requesting authority to treat
18 demand response incentive payments as a power supply
19 expense and to establish a level of cost recovery in base
20 rates. As is currently the case with the Company's PURPA-
21 related expenses, this proposal would have the Company
22 track any deviations between actual incentive costs and the
23 base level for 100 percent recovery through the PCA.
24 Currently, the demand response programs include the
25 A/C Cool Credit program for residential customers, the
SAID, DI 22
Idaho Power Company
1 Irrigation Peak Rewards program for irrigation customers,
2 and the FlexPeak Management program for commercial and
3 industrial customers. The customer incentive payments
4 associated with these programs are primarily fixed in
5 nature; however, the incentive payments under the
6 Irrigation Peak Rewards program have a 75 percent fixed and
7 25 percent variable structure. The Company proposes to
8 establish a base level of cost recovery in this proceeding
9 that is comprised of a forecast of only the fixed portion
10 of the demand response incentive payments. As actual
11 demand response incentive payments, both the fixed and
12 variable components, deviate from the base level included
13 in rates, 100 percent of those deviations would be
14 collected or refunded through the PCA.
15 Q.Has the Commission allowed similar regulatory
16 treatment for other utilities in Idaho?
17 A.Yes. In Rocky Mountain Power's last general
18 rate case, Case No. PAC-E-10-07, the Commission directed
19 Rocky Mountain Power to shift the recovery of costs
20 associated with its Irrigation Load Control program from
21 the company's tariff rider into base rates. Order No.
22 32196.
23 Q.What is the base level amount of demand
24 response incentives requested for recovery in this
25 proceeding?
SAID, DI 23
Idaho Power Company
1 A.The Company has included approximately $11.3
2 million in its Idaho jurisdictional revenue requirement
3 calculations associated with forecasted fixed demand
4 response incentive payments. Mr. Tatum describes the
5 method used to forecast the base level amount of demand
6 response incentives in greater detail in his testimony.
7 Q.What are the benefits associated with the
8 Company's demand response incentive funding proposal?
9 A.In recent years, the Company's expenditures
10 related to energy efficiency and demand response have
11 outpaced the recovery of those costs through the Energy
12 Efficiency Rider. The Company's proposal is an effective
13 way to immediately relieve pressure to increase the Energy
14 Efficiency Rider percentage beyond the current 4. 75 percent
15 level. The proposed regulatory treatment will provide the
16 Company with more timely cost recovery for programs that
17 have been shown to provide significant customer benefits.
18 Q.Did Order No. 34425 issue any other Commission
19 directives that could impact the Company's request in this
20 general rate case proceeding?
21 A.Yes. Order No. 32245 also authorized the
22 Company to account for incentives paid to customers through
23 the Custom Efficiency Program as a regulatory asset
24 beginning January 1, 2011.
25
SAID, DI 24
Idaho Power Company
1 Q.Has the Company included any recovery "on" or
2 "of" the regulatory asset as part of the proposed revenue
3 requirement in this case?
4 A.No. The revenue requirement requested in this
5 case does not include any rate base or amortization expense
6 associated with Custom Efficiency incentive payments.
7 Because the Company's general rate case was essentially
8 fully prepared at the time Order No. 32245 was issued, the
9 Compapy intends to accumulate Custom Efficiency incentive
10 payments as a regulatory asset with a carrying charge equal
11 to the currently authorized rate of return until the
12 Company's next revenue requirement proceeding.
13 iV. CAE SUMY
14 Q.Please summarize the Company's requested rate
15 relief in this case.
16 A.Using 2011 test year financial information,
17 the Company has determined its Idaho jurisdictional revenue
18 requirement to be $917.6 million, resulting in an annual
19 revenue deficiency of $82.6 million. An increase to annual
20 Idaho jurisdictional revenues in the amount of $82.6
21 million would result in an average increase to customer
22 rates of 9.9 percent. The presented case demonstrates that
23 Idaho Power has been prudent in the management of its
24 operations and finances and has diligently looked for
25 opportunities to mitigate its requested rate relief where
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Idaho Power Company
1 practicable. The Company believes that the requested rate
2 relief would provide the minimum level of revenue needed to
3 provide a reasonable opportunity to earn the requested rate
4 of return.
5 Q.Please detail the specific approval the
6 Company is requesting from the Commission.
7 A.The Company requests specific Commission
8 approval of the following:
9 1.A current Idaho jurisdictional revenue
10 requirement of $917.6 million, as quantified by Ms. Noe;
11 2.An authorized ROE of 10.5 percent, as
12 recommended by Mr. Keen;
13 3.An authorized overall rate of return of
14 8.17 percent, as recommended by Mr. Keen;
15 4.An overall increase in revenues of
16 $82.6 million to eliminate the current Idaho revenue
17 deficiency, as quantified by Ms. Noe;
18 5.Class revenue requirements, as
19 determined by Mr. Larkin;
20 6.An updated LCAR of $19.28 per megawatt-
21 hour, as computed by Mr. Larkin;
22 7.Approval of the FCA as a permanent rate
23 mechanism, as recommended by Mr. Cavanagh and Mr.
24 Youngblood;
25
SAID, DI 26
Idaho Power Company
1 8.Approval of rate schedules prepared by
2 Ms. Nemnich and Mr. Sparks; and
3 9.PCA base components, as presented by
4 Mr. Tatum.
5 The Company believes that these determinations can
6 reasonably be made based upon the full and detailed
7 testimony provided by the Company in this case.
8 Q.Is it your opinion that the granting of the
9 requested rate relief proposed by the Company is in the
10 public interest?
11 A.Yes. The proposed rates are in the public
12 interest because they will allow Idaho Power to continue
13 providing safe, reliable service at reasonable rates while
14 maintaining its financial health.
15 Q.Does that conclude your testimony?
16 A.Yes, it does.
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SAID, DI 27
Idaho Power Company