20120217Youngblood Direct.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
HOKU MATERIALS, INC. FOR
REPARATIONS AND REFORMTION
OF ITS AMENDED SPECIAL CONTRACT
WITH IDAHO POWER COMPANY
CASE NO. IPC-E-i2~02
IDAHO POWER COMPANY
DIRECT TESTIMONY IN SUPPORT OF SETTLEMENT STIPULATION
OF
MICHAEL J. YOUNGBLOOD
1 Q.Please state your name and business address.
2 A.My name is Michael J. Youngblood. My business
3 address is 1221 West Idaho Street, Boise, Idaho 83702.
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 Manager of Regulatory Proj ects.
7 Q.Please describe your educational background.
8 A.In May of 1977, I received a Bachelor of
9 Science Degree in Mathematics and Computer Science from the
10 University of Idaho. From 1994 through 1996, I was a
11 graduate student in the Executive MBA program of Colorado
12 State University. Over the years, I have attended numerous
13 industry conferences and training sessions, including
14 Edison Electric Institute's "Electric Rates Advanced
15 Course. "
16 Q.Please describe your work experience with
17 Idaho Power Company.
18 A.I began my employment with Idaho Power in
19 1977. During my career, I have worked in several
20 departments and subsidiaries of the Company, including
21 Systems Development, Demand Planning, Strategic Planning,
22 and IDACORP Solutions. Most relevant to this testimony
23 though is my experience within the Regulatory Affairs
24 Department. From 1981 to 1988, I worked as a Rate Analyst
25 in the Rates and Planning Department where I was
YOUNGBLOOD, DI-STIP 1
Idaho Power Company
1 responsible for the preparation of electric rate design
2 studies and bill frequency analyses. I was also
3 responsible for the validation and analysis of the load
4 research data used for cost-of-service allocations.
5 From 1988 through 1991, I worked in Demand Planning
6 and was responsible for the load research and load
7 forecasting functions of the Company, including sample
8 design, implementation, data retrieval, analysis, and
9 reporting. I was responsible for the preparation of the
10 five-year and twenty-year load forecasts used in revenue
11 proj ections and resource plans as well as the presentation
12 of these forecasts to the public and regulatory
13 commissions.
14 In 2001, I returned to the Regulatory Affairs
15 Department and have worked on special proj ects related to
16 deregulation, the Company's Integrated Resource Plan
17 ("IRP"), and filings with both the Idaho Public Utilities
18 Commission ("IPUC" or "Commission") and the Public Utility
1 9 Commission of Oregon ("OPUC").
20 In 2008, I was promoted to the position of Manager
2 1 of Rate Design for Idaho Power. In this position I was
22 responsible for the management of the rate design
23 strategies of the Company as well as the oversight of all
24 tariff administration.
25
YOUNGBLOOD, DI-STIP 2
Idaho Power Company
1 At the end of 2011, I assumed the role of Manager of
2 Regulatory Proj ects. In this capacity, I provide the
3 regulatory responsibility and support for many of the maj or
4 projects currently facing the Company including issues and
5 filings related to the Public Utility Regulatory Policies
6 Act of 1978 ("PURPA"), the Company's IRP, and specific to
7 this testimony, the development and pricing for new large
8 load customers, including developing pricing for the
9 Company's special contract customers.
10 Q.What is the purpose of your testimony?
11 A.My testimony describes some historical context
12 in the Company's relationship with Hoku Materials, Inc.
13 ("Hoku"), as well as describes the Settlement Stipulation
14 that was submitted by Hoku, Idaho Power, and the Idaho
15 Public Utilities Commission Staff that settles the issues
16 in this case (" Proposed Settlement"). Further, my
1 7 testimony expresses Idaho Power's support for the
18 Settlement Stipulation and urges the Commission to adopt
19 the Proposed Settlement without material change or
20 condition.
21 I . BACKGROUN
22 Q.Please describe the services Idaho Power
23 provides to Hoku.
24 A.Hoku is a large special contract customer
25 that, pursuant to their special contract approved by the
YOUNGBLOOD, DI-STIP 3
Idaho Power Company
1 Commission in 2009, has available to it up to 82 megawatts
2 ("MW") of electric capacity. Idaho Power has planned and
3 designed its electrical system to be able to provide up to
4 this amount of energy to Hoku. The energy provided to Hoku
5 under the special contract is divided into two "blocks" for
6 pricing purposes. The first block for both the demand and
7 energy charge is priced at rates which are more comparable
8 to marginal-cost based rates; the second block demand and
9 energy charges are priced at rates more reflective of the
10 Company's embedded cost rates. The rationale for pricing
11 the first block at marginal-cost based rates is in order to
12 protect the Company's existing customers from upward
13 pressure on rates resulting from new large load customers,
14 such as Hoku, when they come on-line. This pricing
15 methodology for an initial period of time has been adopted
16 for new large load customers, typically for four years.
17 Following this initial pricing period with marginal -cost
18 based rate components, pricing for such special contract
19 customers would transition to a fully embedded rate
20 structure. The Commission approved this pricing
21 methodology when it approved the special contract between
22 Hoku and Idaho Power in 2009 in Order No. 30748.
23 Q.Did Hoku request modification to its original
24 special contract?
25
YOUNGBLOOD, DI-STIP 4
Idaho Power Company
1 A.Yes. Within weeks of Commission approval of
2 the original agreement, Hoku requested of Idaho Power a
3 delay of the effective date by which Hoku would begin
4 taking energy. Under the original agreement, Idaho Power
5 was to begin supplying power to Hoku on June 1, 2009, for a
6 term of four years. Hoku requested that Idaho Power delay
7 the effective date until December 1, 2009, and that the
8 term of the contract be extended accordingly. Idaho Power
9 agreed to accommodate Hoku, and the Commission subsequently
10 approved this change to the service agreement. Order No.
11 30869.
12 Q.Is that the only time Hoku requested
13 modification to the special contract?
14 A.No. A few months after the Commission
15 approved the first modification to the special contract,
16 Hoku approached Idaho Power and requested that the Company
17 wai ve the minimum billed energy charge that was to go into
18 effect on December 1, 2009. Again, Idaho Power agreed to
19 accommodate Hoku and allowed waiver of the minimum billed
20 energy for what turned out to be a period of 16 months,
21 until April 2011. The Commission again approved this
22 request for contract modification. Order No. 31005.
23 Q.Did Hoku make any other requests to modify its
24 special contract with Idaho Power?
25
YOUNGBLOOD, DI-STIP 5
Idaho Power Company
1 A.Yes. While Hoku began making payments to
2 Idaho Power under the terms of the special contract
3 beginning in April 2011, Hoku simultaneously requested that
4 Idaho Power again waive the billed minimum energy charge
5 contained in the special contract. Hoku represented that
6 as a result of the economic down-turn, their start-up
7 schedule had slipped and that they would be delayed in
8 ramping up their operations. While Idaho Power worked
9 diligently with Hoku to develop a solution, the Company and
10 Hoku were unable to reach a compromise that would not have
11 an adverse impact on both the Company and our customers.
12 Q.Why would an addi tional waiver of the billed
13 minimum energy charge have an adverse impact on existing
14 customers?
15 A.Subsequent to Hoku beginning to make payments
16 to Idaho Power in April 2011, Idaho Power had filed its
17 2011 Power Cost Adjustment ("PCA") and later in 2011 a
18 general rate case. Both of these revenue filings included
19 the assumptions consistent with the revenues Idaho Power
20 anticipated receiving from Hoku in amounts provided for in
21 the special contract. Without the fulfillment of these
22 revenue obligations, the Company's remaining customers
23 would have experienced an increase in their rates.
24
25
YOUNGBLOOD, DI-STIP 6
Idaho Power Company
1 II . PROPOSED SETTLEMNT
2 Q.Has the Company been able to reach a
3 settlement with Hoku?
4 A.Yes. As a result of a series of settlement
5 discussions moderated by Commission Staff, Idaho Power has
6 reached a Proposed Settlement that we believe gives Hoku
7 the flexibility it is seeking while at the same time
8 financially protecting Idaho Power and its customers.
9 Q.Please describe, from the Company's
10 perspective, some of the salient points of the Settlement
11 Stipulation.
12 A.The Settlement Stipulation provides Hoku
13 relief in the form of reduced minimum payments under its
14 current special contract for up to the next 18 months while
15 at the same time protecting Idaho Power and its customers
16 by requiring a one-time, up-front payment of $3.8 million
17 and repayment of deferred amounts during the final year of
18 the contract.The $3.8 million up-front payment is an
19 amount the Company believes will allow it to recover the
20 net revenues it would have received had Hoku performed
21 under the special contract as it had represented to the
22 Company between January 2012 and June 2013.The deferred
23 amounts that Hoku will be obligated to pay during the final
24 year of the contract represent the billed minimum energy
25 charge revenues,in addition to a carrying charge,
YOUNGBLOOD, DI-STIP 7
Idaho Power Company
1 customers would have received had Hoku continued to make
2 the billed minimum energy charge payments during the period
3 of January 2012 through June 2013.Further, both the
4 Company and customers have additional protection in the
5 form of the $2 million Hoku deposit that Idaho Power will
6 retain.
7 Q.How will Hoku make the $3.8 million up-front
8 payment?
9 A.Hoku will make the up-front payment by
10 allowing the Company to apply $2 million of the existing $4
11 million deposit Idaho Power currently has to the up-front
12 payment. The remaining $1.8 million will be recovered over
13 the next 18 months in the form of a $100,000 per month
14 charges assessed on Hoku's invoice.
15 Q.How will Idaho Power track the deferred
16 amounts Hoku will be required to pay during the final year
17 of the contract?
18 A.Idaho Power will establish a balancing
19 mechanism which will track the difference between what Hoku
20 would have paid as minimum billed energy charges applicable
21 to the Company's Idaho jurisdictional customers had the
22 special contract not been modified and the greater of
23 either (1) the minimum amount they have to pay under the
24 revised special contract or (2) the amount Hoku pays to
25 Idaho Power for total energy consumption up to the amount
YOUNGBLOOD, DI-STIP 8
Idaho Power Company
1 of the Company's Idaho jurisdictional customers' portion of
2 the minimum billed energy charge in the current special
3 contract.Idaho Power will track that difference each
4 month, including a 6.0 percent carrying charge.Beginning
5 with its January 2014 invoice for services rendered in
6 December 2013, Idaho Power will begin amortization of the
7 total amount of the deferred balance over 12 months.The
8 amortization will be an additional charge on Hoku's monthly
9 invoice, and continue until such time as Hoku pays back the
10 full amount of the deferred charge.
11 Q.Has the term of the special contract been
12 modified?
13 A.Yes.The Settlement Stipulation proposes to
14 extend the term of the contract for one year to December 1,
15 2014.
16 Q.Does Hoku still have the ability to receive up
17 to the 82 MW of capacity agreed upon under the special
18 contract?
19 A.Yes, with conditions.Prior to using more
20 than 20 MW of energy in any given month, Hoku must have
21 provided to Idaho Power a ramp-up schedule at least six
22 months earlier than the requested additional energy
23 delivery date. More specifically, Hoku must provide Idaho
24 Power with a firm, 12-month forward looking forecast of
25 Hoku's anticipated monthly power consumption.If Hoku
YOUNGBLOOD, DI-STIP 9
Idaho Power Company
1 fails to provide at least six months prior notice to using
2 more than 20 MW or if Hoku fails to make any additional
3 required customer deposits within 30 days of when they
4 anticipate their power consumption will be more than 20 MW,
5 Idaho Power will not be under any obligation to provide
6 that additional requested energy.
7 Q.Do you believe that the Proposed Settlement is
8 in the public interest?
9 A.Yes. The Parties have agreed to settle their
10 disputes indentified in the Settlement Stipulation, thus
11 indicating their satisfaction with the outcome. From the
12 Company's perspective, the Proposed Settlement provides the
13 Company with the up-front revenue anticipated to be
14 recovered from Hoku in the Company's PCA and general rate
15 case filings, thereby satisfying Hoku's portion of the
16 Company's revenue requirement. In addition, recovery of
17 the deferred revenue plus a carrying charge through the
18 balancing mechanism will enable Idaho Power's customers to
19 receive the benefit of the marginal-cost based pricing of
20 the current Hoku agreement at a later date, thus mitigating
21 any adverse impacts to our customers. Accordingly, the
22 Company recommends the Commission accept and approve the
23 Proposed Settlement as submitted by the parties.
24 Q.Does this conclude your testimony?
25 A.Yes, it does.
YOUNGBLOOD, DI-STIP 10
Idaho Power Company
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 17th day of February 2012 I served a true and
correct copy of the within and foregoing DIRECT TESTIMONY IN SUPPORT OF
SETTLEMENT STIPULATION OF MICHAEL J. YOUNGBLOOD upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Donald L. Howell, II
Deputy Attorneys General
Idaho Public Utilties Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
-. Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-. Email Don.Howell(âpuc.idaho.gov
Hoku Materials, Inc.
Dean J. Miller
McDEVITT & MILLER LLP
420 East Bannock (83702)
P.O. Box 2564
Boise, Idaho 83701
Hand Delivered
--U.S. Mail
_ Overnight Mail
FAX
-. Email joe(âmcdevitt-miller.com
heather(âmcdevitt-miller.com
\"
CERTIFICATE OF SERVICE