20111202Tatum Di and Exhibits.pdf

HEC eslDA~POR~
An IDACORP Company
JASON B. WILLIAMS
Corporate Counsel
iwilliamstaidahopower.com
December 2, 2011
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilties Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-11-18
IN THE MATTER OF IDAHO POWER COMPANY'S REQUEST FOR
ACCEPTANCE OF ITS REGULA TORY PLAN REGARDING THE EARL Y
SHUTDOWN OF THE BOARDMAN POWER PLANT
Dear Ms. Jewell:
Enclosed for filing are an original and eight (8) copies of the Direct Testimony of
Timothy E. Tatum. One copy of Mr. Tatum's testimony has been designated as the
"Reporter's Copy." In addition, a disk containing a Word version of Mr. Tatum's testimony
is enclosed for the Reporter.
Mr. Tatum's testimony supplements the original Application to greater detail Idaho
Power Company's proposal for use of a (1) balancing account to track the difference
between revenues and expenses associated with the Boardman Power Plant early
shutdown and (2) a levelized revenue requirement methodology in determining the amount
of annual cost recovery to be tracked in the balancing account.
Very truly yours,
\.~~~~~
~n ~. Willams
JBW:csb
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
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ioii DEC -2 PH t¡: 02
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S REQUEST FOR ACCEPTANCE
OF ITS REGULATORY PLAN REGARDING
THE EARLY SHUTDOWN OF THE
BOARDMAN POWER PLANT.
CASE NO. IPC-E-ll-1S
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
TIMOTHY E. TATUM
1 Q.Please state your name and business address.
2 A.My name is Timothy E. Tatum 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 Senior Manager of Cost of
7 Service.
8 Q .Please describe your educational background.
9 A.I have earned a Bachelor of Business
10 Administration degree in Economics and Master of Business
11 Administration degree from Boise State University. I have
12 also attended electric utility ratemaking courses,
13 including "Practical Skills for the Changing Electrical
14 Industry," a course offered through New Mexico State
15 Uni versi ty' s Center for Public Utilities, "Introduction to
16 Rate Design and Cost of Service Concepts and Techniques"
1 7 presented by Electric Utili ties Consultants, Inc., and
18 Edison Electric Institute's "Electric Rates Advanced
19 Course. "
20 Q.Please describe your work experience with
21 Idaho Power.
22 A.I began my employment with Idaho Power in 1996
23 as a Customer Service Representative in the Company's
24 Customer Service Center where I handled customer phone
25 calls and other customer-related transactions. In 1999, I
TATUM, DI 1
Idaho Power Company
1 began working in the Customer Account Management Center
2 where I was responsible for customer account maintenance in
3 the area of billing and metering.
4 In June of 2003, after seven years in customer
5 service, I began working as an Economic Analyst on the
6 Energy Efficiency Team. As an Economic Analyst, I was
7 responsible for ensuring that the demand-side management
8 ("DSM") expenditures were accounted for properly, preparing
9 and reporting DSM program costs and acti vi ties to
10 management and various external stakeholders, conducting
11 cost-benefit analyses of DSM programs, and providing DSM
12 analysis support for the Company's 2004 Integrated Resource
13 Plan ("IRP").
14 In August of 2004, I accepted a position as a
15 Regulatory Analyst in Regulatory Affairs. As a Regulatory
16 Analyst, I provided support for the Company's various
17 regulatory acti vi ties, including tariff administration,
18 regulatory ratemaking and compliance filings, and the
19 development of various pricing strategies and policies.
20 In August of 2006, I was promoted to Senior
21 Regulatory Analyst. As a Senior Regulatory Analyst, my
22 responsibilities expanded to include the development of
23 complex financial studies to determine revenue recovery and
24 pricing strategies, including the preparation of the
25 Company's cost-of-service studies.
TATUM, DI 2
Idaho Power Company
1 In September of 2008, I was promoted to Manager of
2 Cost of Service and in April of 2011 I was promoted to
3 Senior Manager of Cost of Service. As Senior Manager of
4 Cost of Service I oversee the Company's cost-of-service
5 acti vi ties such as power supply modeling, jurisdictional
6 separation studies, class cost-of-service studies, and
7 marginal cost studies.
8 Q.What is the purpose of your testimony?
9 A.My testimony will provide implementation
10 details regarding the Company's request for acceptance
11 ("Request for Acceptance") of its regulatory plan regarding
12 the early shutdown of the Boardman Power Plant ("Boardman")
13 that was filed on September 26, 2011. Specifically, I will
14 explain in detail the Company's proposal for the use of a
15 balancing account to track, on a cumulative basis, the
16 difference between revenues and revenue requirement
17 resul ting from the Boardman early shutdown. My testimony
18 will describe the Company's proposal to apply a levelized
19 revenue requirement methodology in determining the amount
20 of annual cost recovery to be tracked in the balancing
21 account.
22 Q.Please summarize your exhibits.
23 A.Exhibi t No. 1 details the development of the
24 levelized revenue requirement that the Company is proposing
25 to book to the Boardman balancing account. Exhibit No. 2
TATUM, DI 3
Idaho Power Company
1 details the development of the current Boardman revenue
2 requirement based upon the Company's 2011 Test Year filed
3 in Case No. IPC-E-11-OS. Exhibit Nos. 1 and 2 are for
4 demonstration purposes only and will need to be updated
5 when the Company seeks approval for rate recovery of
6 Boardman early shutdown expenses.
7 Q.Please discuss the need for a Boardman
S balancing account as outlined in the Request for
9 Acceptance.
10 A.The approval of Portland General Electric's
11 ("PGE") Boardman shutdown plan by the Public Utility
12 Commission of Oregon ("OPUC") and the Environmental
13 Protection Agency ("EPA") will require incremental
14 investments at the Boardman plant to maintain operations
15 prior to ultimately decommissioning the plant. However,
16 the specific timing and exact amounts of those investments
17 are not yet known. For that reason, Idaho Power proposes
lS the establishment of a balancing account that would allow
19 flexibility for the timing and recovery of the remaining
20 Boardman revenue requirement.
21 Q.What types of costs will be booked and tracked
22 in the balancing account under the Company's proposal?
23 A.There are three types of costs the Company
24 anticipates booking to the balancing account:(1) a return
25 on undepreciated capital investments at Boardman until its
TATUM, DI 4
Idaho Power Company
1 shutdown, (2) the accelerated depreciation associated with
2 Boardman plant investments, and (3) the decommissioning
3 costs related to the Boardman shutdown.
4 Q.Please explain how a return on undepreciated
5 capi tal investments at Boardman will be tracked in the
6 balancing account.
7 A.As of December 31, 2011, the Boardman
8 investment is estimated to be approximately $79.3 million
9 and accumulated depreciation is estimated to be
10 approximately $53.1 million. Although the EPA has approved
11 PGE's Boardman shutdown plan with coal-fired operations
12 ceasing on December 31, 2020, there will be required
13 investments in emissions controls in the future resulting
14 from the Best Available Retrofit Technology II ("BART II")
15 petition at the plant prior to its shutdown in addition to
16 normal maintenance repairs required to keep the plant
17 operational. Idaho Power anticipates most of the emissions
18 control upgrades will be made between 2012 and 2014, with
19 routine capital expenditures for repairs throughout the
20 remaining nine years of the plant's life. The return on
21 the additional investments and the associated depreciation
22 expense will be tracked in the balancing account.
23 Q.Please describe the tracking of accumulated
24 depreciation as proposed by the Company.
25
TATUM, DI 5
Idaho Power Company
1 A.The Company will have accelerated depreciation
2 expense related to all Boardman plant investments. Current
3 depreciation rates are set based on a Boardman closure of
4 December 31, 2030. Depreciation rates will be updated as
5 part of Idaho Power's depreciation study that is currently
6 being prepared and will incorporate Boardman's early
7 shutdown. Idaho Power anticipates filing a request for new
8 depreciation rates for all plant accounts in early 2012,
9 with a change in rates request to occur June 1, 2012. The
10 accelerated depreciation associated with the 2020 shutdown
11 will result in a considerable increase in depreciation
12 expense for Boardman.
13 Q.Please describe the proposed tracking of
14 Boardman decommissioning costs.
15 A.Idaho Power will incur decommissioning costs
16 related to the shutdown of Boardman. Currently, estimated
17 decommissioning costs are accounted for as an Asset
18 Retirement Obligation ("ARO"), which considers costs to
19 decommission and remove plant components, including the
20 power plant and associated facilities, the Carty reservoir,
21 certain transmission lines, tower access road, ash field
22 capping or removal, and coal handling facilities. The ARO
23 also includes a 10 percent contingency estimate and is
24 partially offset by expected salvage proceeds associated
25 with decommissioning the plant. The Company's current base
TATUM, DI 6
Idaho Power Company
1 rates do not include any recovery of ARO related to
2 Boardman. Idaho Power estimates its share of the
3 decommissioning costs by applying the Company's 10 percent
4 ownership percentage.
5 Q.Why is the Company proposing a balancing
6 account for these costs as opposed to traditional
7 ratemaking treatment?
8 A.The Company's rationale for a balancing
9 account is two-fold: (1) to provide a mechanism that will
10 smooth revenue requirement impacts of early Boardman
11 retirement over the remaining nine years of the plant's
12 life and (2) ensure full recovery of Boardman related costs
13 by Boardman life end.
14 Q.Why would the costs the Company has proposed
15 to book to the balancing account vary between now and the
16 Boardman closure date?
17 A.All three costs that the Company proposes to
18 be tracked have the potential to vary. The Company is not
19 certain that forecasted capital investments will occur
20 because such investments are dependent upon the approval of
21 proposed rules or a possible waiver of future rules.
22 Depreciation expense will depend upon required additional
23 capital investments, which can only be estimated at this
24 time. Although the current decommissioning cost estimate
25 is based on all known potential liabilities in 2011, some
TATUM, DI 7
Idaho Power Company
1 uncertainty remains around some items included in the
2 study. These uncertain items were not included in the
3 estimate of decommissioning costs to be recovered from
4 customers in the near term, but could materialize over the
5 next nine years. A balancing account would allow for the
6 tracking of these expenses on a cumulative basis and ensure
7 that customers pay no more and no less than the actual
8 expenditures.
9 Q.How does the Company propose to determine the
10 revenue requirement amounts that are to be tracked in the
11 balancing account?
12 A.The Company proposes to use a levelized
13 revenue requirement methodology to determine the amount of
14 annual cost recovery to be tracked in the balancing
15 account. Under this approach, the Company would determine
16 the annual levelized revenue requirement associated with
17 the recovery of both existing investment in Boardman on an
18 accelerated basis as well as incremental, forecasted
19 investments between January 1, 2012, and December 31, 2020.
20 The newly calculated levelized revenue requirement would
21 replace the currently approved level of Boardman investment
22 recovery included in base rates.
23 Exhibi t No. 1 details the development of the
24 levelized revenue requirement that would be booked to the
25 balancing account. As can be seen on line 45, based on
TATUM, DI 8
Idaho Power Company
1 reasonable estimates of costs at this time, the present
2 value of these incremental costs increase initially because
3 of the capital investments required wi thin the next three
4 years and then decrease over time. The Company's proposal
5 of levelizing the incremental revenue requirement over the
6 life of the plant would help stabilize customer rates and
7 align cost recovery with the remaining production life of
S Boardman.
9 Q.Please explain your levelizing calculations.
10 A.The levelized revenue requirement includes the
11 return associated with Boardman capital investments net of
12 accumulated depreciation forecasted through the remaining
13 life of Boardman, the costs of accelerating the
14 depreciation of the Boardman plant items, and the
15 decommissioning costs associated with the shutdown of
16 Boardman. The levelized revenue requirement was determined
17 by calculating the present value of each of the individual
lS items and converting the values into an annuity or level
19 payment stream from customers over the next nine years.
20 Q.What is the current revenue requirement
21 related to the Company's investment in Boardman?
22 A.Based upon the Company's 2011 Test Year filed
23 in Case No. IPC-E-11-OS, revenue requirement related to the
24 Company's return on investment and depreciation expense for
25 Boardman is approximately $4.3 million on a total system
TATUM, DI 9
Idaho Power Company
1 basis. Exhibit No. 2 details the development of the $4.3
2 million total system revenue requirement amount. Under the
3 Company's proposal, the Idaho jurisdictional share of this
4 amount would be replaced with the Idaho jurisdictional
5 share of the levelized revenue requirement amount detailed
6 in Exhibit No. 1.
7 Q.What is the Company's estimate of the
8 levelized revenue requirement associated with the Boardman
9 early shutdown?
10 A.The Company's estimate is $5.9 million on a
11 total system basis.
12 Q.Based upon $5.9 million levelized and $4.3
13 million current, what is the incremental change to base
14 rates to recover Boardman going forward?
15 A.The incremental levelized revenue requirement
16 is approximately $1.6 million on a total system basis.
17 This amount can be derived by taking the difference between
18 the levelized revenue requirement amount in Exhibit No. 1
19 and the current revenue requirement amount for Boardman in
20 Exhibit No.2 ($5.9 million - $4.3 million = $1.6 million).
21 Q.Has the Company prepared a study to determine
22 the Idaho jurisdictional share of the incremental levelized
23 revenue requirement?
24 A.No. However, using the demand allocator from
25 the jurisdictional separation study filed in Case No. IPC-
TATUM, DI 10
Idaho Power Company
1 E-11-OS, the incremental Idaho jurisdictional revenue
2 requirement would be approximately $1.5 million.
3 Q.Why does the Company believe that using a
4 levelized method of cost recovery for Boardman is better
5 than other cost recovery al ternati ves?
6 A.As Idaho Power developed its preferred
7 approach for recovering the costs associated with the early
S shutdown of the Boardman plant, it considered three
9 fundamental objectives including:(1) timely cost
10 recovery, (2) rate stability, and (3) the proper matching
11 of costs and benefits. While there are a number of methods
12 that could be applied to simply recover the costs
13 associated with the early shutdown of the Boardman plant,
14 the Company believes that a levelized recovery approach
15 effectively satisfies each of the three obj ecti ves.
16 Alternatives to the proposed levelized recovery
17 using a balancing account, such as methods using annual
lS filings to adjust rates to reflect the incremental annual
19 investments, would not achieve all three obj ecti ves. These
20 more "traditional" methods would result in shorter recovery
21 times for incremental investments and potential large, one-
22 time increases. Further, a more traditional approach would
23 likely require cost recovery beyond the useful life of the
24 plant, resulting in a mismatching of cost recovery and
25 associated benefits.
TATUM, DI 11
Idaho Power Company
1 Q.What benefits do customers receive for paying
2 for these costs prior to when they occur?
3 A.Current customers will receive the benefit of
4 the time value of money for paying costs associated with
5 the early shutdown of Boardman in advance while also
6 benefiting from a rapidly declining plant balance and will
7 potentially limit large rate increases related to
8 decommissioning costs anticipated upon Boardman's closure.
9 This approach would also result in an appropriate matching
10 of costs and benefits, as these same customers impacted by
11 the costs are currently experiencing the benefits of the
12 Boardman plant as a lower-cost base load resource.
13 Q.What is the Company's proposal for the timing
14 and amortization period of the balancing account?
15 A.The Company is proposing to begin tracking the
16 costs associated with the Boardman early shutdown in a
17 balancing account in January 2012 with inclusion of the
18 levelized revenue requirement in customer rates on June 1,
19 2012. Idaho Power envisions an annual review of the
20 balancing account with adjustments to the levelized
21 recovery amount to address significant changes in actual
22 and/or forecasted investments as they become known. Any
23 overage or shortfall in the collection of the previous
24 year's levelized revenue recovery would be incorporated
25
TATUM, DI 12
Idaho Power Company
1 into the new
2 necessary.
3 Q.
4 A.
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Does this conclude your testimony?
Yes, it does.
TATUM, DI 13
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTiliTIES COMMISSION
CASE NO.IPC-E-11-18
IDAHO POWER COMPANY
TATUM, 01
TESTIMONY
EXHIBIT NO.1
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BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-11-18
IDAHO POWER COMPANY
TATUM, 01
TESTIMONY
EXHIBIT NO.2
Idaho Power Company
Summary of Revenue Requirement - Total System
Boardman: 2011 Test Year
RATE BASE
Electric Plant in Service
Intangible Plant
Production Plant
Transmission Plant
Distribution Plant
General Plant
Total Electric Plant in Service
Less: Accumulated Depreciation
Less: Amortization of Other Plant
Net Electric Plant in Service
Less: Customer Adv for Construction
Less: Accumulated Deferred Income Taxes
Add: Plant Held for Future Use
Add: Working Capital
Add: Conservation - Other Deferred Prog
Add: Subsidiary Rate Base
TOTAL COMBINED RATE BASE
NET INCOME
Operating Revenues
Sales Revenues
Other Operating Revenues
Total Operating Revennues
Operating Expenses
Operation and Maintenance Expenses
Depreciation Expenses
Amortization of Limited Term Plant
Taxes Other Than Income
Regulatory Debits/Credits
Provision for Deferred Income Taxes
Investment Tax Credit Adjustment
Current Income Taxes
Total Operating Expenses
Operating Income
Add: IERCO Operating Income
Consolidated Operating Income
Rate of Return as filed
Proposed Rate of Return
Earnings Deficiency
Net-to-Gross Tax Multiplier
BOARDMAN REVENUE REQUIREMENT
$238,771
$76,237,871
$
$
$107,576
$76,584,218
$53,077,636
$15,142
$23,491,440
$2,290,408
$ 21,201,032
$
$1,294,494
$260,000
$(66,523)
$(607,729)
$880,241
$(880,241)
$(880,241)
-4%
8.180%
$2,614,486
1.642
$4,292,986
Exhibit No.2
Case NO.IPC-E-11-18
T. Tatum, IPC
Page 1 of 1
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 2nd day of December 2011 I served a true and
correct copy of the DIRECT TESTIMONY OF TIMOTHY E. TATUM upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Karl T. Klein
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
-X Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-X Email KarI.KleinCcpuc.idaho.gov
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~
CERTIFICATE OF SERVICE