20111007Sturtevant Direct.pdf

Peter J. Richardson (ISB # 3195)
Gregory M. Adams (ISB # 7454)
Richardson & O'Lear, PLLC
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(frichardsonandolear.com
greg(fichardsonandolear.com
RECE
inB Gei -1 PM 2: 31
Attorneys for the Industral Customers of Idaho Power
BEFORE THE IDAHO
PUBLIC UTILITIES COMMISSION
)IN THE MATTER OF IDAHO POWER )
COMPANY'S REQUEST TO INCREASE ITS )
RATES AND CHAGES FOR ELECTIC )SERVICE IN IDAHO )
)
CASE NO. IPC-E-II-08
INDUSTRIAL CUSTOMERS OF IDAHO POWER
DIRECT TESTIMONY OF DON STURTEVANT
October 7, 2011
1 Q.
2 A.
Please state your name, occupation, and business address.
My name is Don Stuevant, Corporate Energy Manger for the J.R. Simplot
3 Company headquaered at 999 Main Street, Boise, Idaho 83702.
4 Q.
5 A.
Please describe you educational background.
I'm a registered Professional Engineer, licensed in the State ofIdao and a
6 Certified Energy Manager. I hold a Bachelor's degree in Mechancal Engineering from the
7 University of Idaho and am a Masters of Business Administration student at Boise State
8 University.
9 Q.
10 A.
What is your work experience at the J.R. Simplot Company?
I've been the Corporate Energy Manager for five years, and have been with the
11 Company for the past eleven years. In my curent role, I work with twenty-two different
12 utilities in Nort America, Canada, and Australia.
13
14
Q.What is the purpose of your testimony?
A.The purose of my testiony is to shed light on the Idaho Power Facilties Charge
15 program, explain the effects on the J.R. Simplot Company, and propose a solution to what I
16 consider to be an unair business practice. J.R. Simplot Company is a member of the Industrial
17 Customers of Idaho Power (ICIP), and supports of the ICIP's position in this case.
18 Q.Please explain in general terms the location and products produced at J.R.
19 Simplot Company's plants taking service from Idaho Power as large power or special
20 contract customers.
21 A.We are one of Idaho Power's largest customers with industrial facilties located in
22 Pocatello, Aberdeen, Nampa, and Caldwell. We also have several commercial facilties
Don Stuevant, DI 1
Industral Customers of Idao Power
1 scattered thoughout the state. We are an AgrBusiness company and have faring and cattle
2 operations, produce fertilzer, and process potatoes into frozen french-fries.
3 Q.How many people are employed by J.R. Simplot Company in the State of
4 Idaho?
5 A.We curently employ over thee thousand (3,000) employees in Idao.
6 Q.How much does the J.R. Simplot Company spend on electricity bils to Idaho
7 Power annually?
8 A.J.R. Simplot Company spends approximately $16.5 milion anualy in Idaho
9 Power chages.
10 Q.Does J.R. Simplot Company pay Idaho Power a facilties charge for electrical
11 distribution equipment installed and maintained beyond the point of delivery by Idaho
12 Power at J.R. Simplot Company's plants and facilties?
13 A.Yes.
14 Q.Could you explain your understanding of the facilties charge?
15 A.The curent Schedule 19 tarff states tht at Idao Power's option, it may install
16 and maintain facilties beyond the point of delivery and chage 1.7% monthly or 20.4% anualy
17 for Company-owned facilties beyond the point of delivery.
18 Idaho Power has filed to reduce the facilties chage to 1.41 % monthy or 17.00%
19 anualy in ths case for Schedule 19 customers, but not for Special Contrct customers. In this
20 context, I would like to point out that although the Don Plant has a separate Special Contract
21 executed in 2004, section 15.2 of the contract specifically allows for changes to the Schedule 29
22 rates, which include the facilties chage rate.
Don Stuevant, DI 2
Industrial Customers of Idaho Power
1 Q.
2 A.
What types of equipment are included in the facilties charge?
The charge covers tyical higher-voltage equipment such as transformers, poles,
3 wires, and switches.
4 Q.
5 A.
6 Q.
7 A.
How much does J.R. Simplot Company currently pay as a facilties charge?
We have $4.252 milion in assets for which we pay $867,426 each year.
How did you become aware of the facilties charge?
I was investigating our bils and noticed the facilties charges. I began to
8 question what the chages were for and the tota amount we were paying. I was very surrised to
9 find out that the facilties charge was so large, that it never gets paid off, and we pay 20.4%
10 anualy forever.
11 Q.Has Idaho Power ever requested your written consent to install any facilties
12 beyond the point of delivery at your plants?
13
14
15 officials?
16
A.No.
Q.Are you aware of such consent given by any other J.R. Simplot Company
A.I am aware that section 10.1 of the Don Plant Special Contract approved in 2004
17 grants Idaho Power access to Simplot premises for instalation, removal, and maitenance of
18 distrbution facilties. I have reviewed the Schedule 19 taff, and it contains no provision
19 requing the customer to grant Idao Power access for puroses of installing or maitang
20 distrbution facilties. Idaho Power formerly required customers to execute a Uniform Schedule
21 19 Service Agreement, but the version from 2001 that I have reviewed likewise provides no
Don Stuevant, DI 3
Industral Customers of Idao Power
1 provision granting the Company access to customers' premises for puroses of instaling or
2 maitaining distrbution facilties.
3 Q.Does the Schedule 19 tariff appear to allow J.R. Simplot Company as an
4 Idaho Power customer to opt out of the facilties charge, and to take on the responsibilty
5 for electrcal distribution facilties on Simplot plants' propert?
6 A.No. The taff plainly states: "At the option of the Company, transformers and
7 other facilties instaled beyond the Point of Delivery to provide Primar or Transmission
8 Service may be owned, operated, and maintaned by the Company in consideration of the
9 Customer paying a Facilties Chage to the Company." This taiff implies the customer has no
10 choice and it does not state tht the customer ha the option to itself own and maintain the
11 facilties on its property.
12 Q.Does Idaho Power's ownership and management of electrical equipment on
13 plants owned by J.R. Simplot Company concern you from a liabilty perspective?
14 A.Absolutely. .In large industrial and commercial operations, safety is our highest
15 priority.
16 Q.What insurance requirements does J.R. Simplot Company require of
17 electrical contractors that conduct work on its propert?
18 A.We require tht every contractor working at any J.R. Simplot Company location
19 provide proof of $5 millon dollars in liabilty insurce.
20 Q.Has Idaho Power provided J.R. Simplot Company with assurance that these
21 Simplot policies are met by Idaho Power's liabilty coverage?
Don Stuevant, DI 4
Industral Customers of Idaho Power
1 A.No. We asked for insurance coverage documents prior to this rate case and did
2 not receive them. The attorney for the Industral Customers of Idaho Power was able to obtain
3 sumaries of Idao Power's insurance policies only though discovery in the general rate case.
4 The Company stated in its Response to ICIP Production Request No. 14 contained in ICIP
5 Exhibit No. 305 that "the insurce cared by the Company would cover any loss for which the
6 Company was deemed negligent in an accident or injur." It is not clear from this response, or
7 the documents describing the Company's insurance policies providing in its Response to ICIP
8 Production Request No. 16 contained in ICIP Exhibit No. 305, that the Company indemnifies or
9 co-insures J.R. Simplot for such negligent acts, or that the Commission requires it to do so.
10 The Schedule 19 tariff provides no requirement for Idaho Power to insure or indemnify
11 customers agaist any har that may be caused to the customer or third paries by Idaho Power's
12 intentional or negligent acts related to distrbution facilties on the customers' premises.
13 However, the Don Plant Special Contract approved in 2004 contains a general liabilty
14 requiement, in section 12.1, which states:
15 Each Par agrees to protect, defend, indemnify and hold harless the other Par,
16 its offcers directors, parent company, affliates, subsidiares, agents
17 representatives, and employees agaist and from any and all liabilty, suits, loss,
18 damage claims, actions, costs, and expenses of any natue, including cour costs
19 and reasonable attorney's fees, even if such suits or claims are completely
20 groundless, as a result of injur to or death of any person or destrction, loss or
21 daage to propert arsing in any way in connection with, or related to, this
22 Agreement, but only to the extent such injur to or death of any person or
Don Stuevant, D I 5
Industrial Customers of Idao Power
1 destrction, loss or daage to propert is not due to the negligence or other
2 breach of legal duty of such other Par; provided, however, tht each Par shall
3 be solely responsible for clais of and payment to its employees for injures
4 occurg in connection with their employment or arsing out of any worker's
5 compensation law. In no event shall either Par be liable to the other for any
6 indirect, incidenta, special, or consequential damages of any charcter including,
7 without limitation, damages for lost profits or work stoppages.
8 Q.Is this provision in the Don Plant Special Contract consistent with J.R.
9 Simplot Company's general insurance requirements for contractors performing work at
10 the plant?
11 A.No. Even this provision does not expressly require J.R. Simplot Company's $5
12 milion in insurance requirement I testified to above.
13 Q.Do you think it is reasonable for Idaho Power to agree to indemnify J.R.
14 Simplot at the Don Plant but not to agree to indemnify J.R. Simplot at any of the plants
15 taking Schedule 19 Service?
16 A.No.
17 Q.Please comment on the average age and overall rates paid by J.R. Simplot
18 Company for the equipment at any J.R. Simplot Company plants subject to the facilties
19 charge.
20 A.Based on the Distrbution Facilties Reports provided by Idao Power periodically
21 for each of our plants and an inventory of the equipment undertaken by myself and Idaho Power
22 representatives in the past year, we have 1,609 items on the facilties charge that were instaled at
Don Stuevant, DI 6
Industrial Customers of Idao Power
1 a tota initial investment of $4,252,088 and an anua charge of $867,426. Since ths equipment
2 has been instaled, we have paid around $14 milion or thee point four (3.4) times its instaled
3 investment already. We have two items that are sixty-six (66) years old and have paid for those
4 items almost seven (7) times. The average age of all our facilties charge equipment is twenty-
5 four (24) years old.
6 Q.You stated the average age of the equipment is nearly 24 years old, and you
7 have already paid for this equipment 3.4 times. Do you think it is fair for Idaho Power to
8 continue charging the facilties charge rate for Idaho Power's initial investment?
9 A.No, it is not fair at alL. I believe that Idaho Power has more than eared their rate
10 of retu that would have been fair and reasonable many times over. This falls under the
11 category of subsidization and unfair business practice.
12 Q.Does a reduction in the annual facilties charge from 20.4% of the initial
13 investment to 17.00% of the initial investment seem adequate to you for Schedule 19
14 Customers?
15 A.No, ths seems like a very high rate for operation, maintenance, and a retu on
16 investment, especially considering that the principal amount is never paid offby J.R. Simplot
17 Company and never goes away.
18 Q.Have you calculated the remaining book value of Idaho Power facilties
19 charge equipment at any J.R. Simp lot Company premises subject to the facilties charge.
20 A.Yes. The remaing book value for all of our equipment is listed below:
Don Stuevant, DI 7
Industral Customers of Idaho Power
25yr 2Oyr
lOon $998,570 $787,133 $615,726 $435,002
iCaldwell $189,774 $156,019 $127,704 $106,322
Aberdeen $161,120 $125,967 $85,810 $40,236
¡Irving $120,271 $118,553 $115,975 $111,68
Nampa $114,201 $102,401 $88,916 $69,405
. Grandview $74,086 $60,733 $46,379 $35,649
10Ouble-J $60,341 $55,714 $48,775 $37,209
Iwsi $17,546 $9,273 $1,506 $
i $17,475 $16,411 $14,816 $iPoc-Purn
1
2 Q.Do you think it would be fair for Idaho Power to sell this equipment to you
3 for that price?
4 A.No, I do not. We have many items that are much older than 30 years. We have
5 calculated that 520 items at our plants are over 30 years old, which is 32% of all of our facilties
6 charge equipment. We have paid for this equipment several times already, and if we paid the net
7 book value on the remaining items, we would not get fair credit for the overpayments that we
8 have. already made on equipment that should have been paid off long ago. Overall, we have paid
9 for the intial value of this equipment more than 3.4 times already and should be given ownership
10 of all items today.
11 Q.What is your understanding of the options provided by Idaho Power's
12 facilties charge for the customer to stop paying the charge?
13 A.Under the plai terms of the Schedule 19 taiff and sections 4.2 and 7.3 of the
14 2004 Don Plant Special Contract, we may require Idaho Power to "remove" the facilties. But
15 then we must pay Idaho Power for the remaing depreciated value of the facilities plus the cost
16 to remove the facilties minus a credit for the salvage value of the equipment. There is no
17 express provision allowing for purchase of facilties by the customer to avoid paying removal
Don Stuevant, DI 8
Industral Customers of Idao Power
1 costs and to avoid incuring additional costs that may arise if Idaho Power is unable to find a
2 willng buyer for the facilties or otherwse salvage the facilties. In other words, the facilties
3 charge does not allow for the customer to purchase the facilties from Idaho Power, even if the
4 customer has more than paid off the initial investment and provided Idaho Power with reasonable
5 fees to cover operation and maintenance and a reasonable retu.
6 Q.Has the J.R. Simplot Company paid similar facilties charges in other
7 jurisdictions, or with other utities?
8 A.Yes. At our Othello, Washington facilty, Avista was charging us 21 % anually,
9 which was paid off afer thirt years. When I leared of this, I approached the A vista sta and
10 requested that we be allowed to payoff ths charge and get out from under the exorbitat
11 payments. They agreed, we paid it off, and they have offered to do maintenance or repairs for
12 us at a ''tme and materials" rate. This is the only other utility with which we pay a facilties-tye
13 charge.
14 Q.If J.R. Simplot Company were soliciting competitive bids from private
15 companies to lease and manage the electrical facilties similar to those services provided by
16 Idaho Power under the facilties charge, would you consider a bid of an ongoing annual
17 charge of 17.00% of the initial investment to be a reasonable bid for your Schedule 19
18 facilties? How about the 20.4% for the Don Plant?
19 A.Not at alL. As you know, interest rates are very low. Anyone who approached us
20 with ths tye of financing option would not be considered.
Don Stuevant, DI 9
Industrial Customers of Idaho Power
1 Q.Has J.R. Simplot Company approached Idaho Power to request that Idaho
2 Power sell the facilties charge equipment, or otherwise allow J.R. Simplot Company to
3 stop paying Idaho Power for electrical equipment on J.R. Simplot Company propert?
4 A.Yes. In meetings and letters in the year prior to ths rate case, J.R. Simplot
5 Company requested tht it be allowed to exercise the option to own all of its distrbution
6 facilties beyond the point of delivery. In a letter from our attorney dated December 30, 2010,
7 we requested that Idaho Power provide the depreciated book value of those facilties so that we
8 could evaluate the option of ownership. We also requested that Idaho Power provide the costs
9 by the end of Janua 2011 because we needed the information by that time to adequately
10 evaluate it in time for internal financial decision timelines for the next fiscal year.
11 Idaho Power responded by letter on Janua 31, 2011, by stating that it would provide
12 J.R. Simplot Company with "buy-out" prices by mid-March 2011. It stated that it would only
13 provide such prices at the "fair market value price of those facilties, not at the depreciated book
14 value price." Idaho Power also indicated it would need to instal additional protective equipment
15 on its side of the meter if it sold these pieces of equipment to Simplot, and that it would provide
16 the cost for that equipment to us mid-March 2011 as well.
17 Idaho Power also stated it will not allow for mixed ownership, or an option whereby
18 Simplot owned the equipment and paid Idaho Power a limited facilties charge for maintenance
19 expenses, like the option offered by A vista in a similar sitution. These letters are included in
20 ICIP Exhibit No. 307, attached to Dr. Don Reading's direct testiony.
21 Q.Did Idaho Power provide such prices by mid-March?
Don Stuevant, DI 10
Industral Customers of Idaho Power
1 A.No. Idao Power contacted us at the end of March to set up a meeting in April
2 2011. Prior to the meeting, Idaho Power's attorney sent our attorney an email stating, for the
3 first time, that Idaho Power would not agree to sell the facilties to us. Ths email is included in
4 ICIP Exhbit No. 307 attched to the direct testimony of Dr. Don Reading. At a meeting on
5 April 11, 2011, attended by our representatives, Idaho Power took the position tht it caot sell
6 facilties to Simplot at a fair market price without increasing the rates of other Schedule 19
7 customers. The price Idaho Power stated, for discussion puroses only, that J.R. Simplot would
8 have to pay Idaho Power was approximately $10 milion for the facilties if they were to be sold,
9 which is over twce the initial investment in the facilties provided by Idaho Power of $4.25
10 milion.
11 Q.Does it seem fair to offer to sell the facilties at over twice the initial
12 investment?
13 A.No, but Idaho Power never actually stated that was an option. They just provided
14 the calculation of what they believed we would need to pay in order to purchase these facilties
15 after years of paying the facilties chage.
16 Q.Does Idaho Power's response that it cannot allow for mixed ownership make
17 sense to you?
18 A.Not at alL. They cite that safety is the reason, and we agree that safety of all
19 employees, theirs and ours, is of the most paramount concern. However, we have successfuly
20 had mixed ownership of equipment at our Caldwell facilty since 1945 without incident.
21 Additionally, in conversations with other customers that are paying facilties chages, they have
22 mixed ownership as well. Below is a pictue of the mixed ownership at our Caldwell facilty:
Don Stuevant, DI 11
Industral Customers of Idaho Power
Idaho Power-one:
Sendary transforers
Mixed Use - JR Simplot Plant, Caldwell, 10
Idaho power owns the transmission, substation, and meter. Simplot owns the
majority of the distribution lines, poles, etc. Idaho Power owns some secondary
transformers. Simplot owns the secondary service.
1 Don Stuevant, D I 12
Industrial Customers of Idaho Power
1 Q.Did Idaho Power ever provide J.R. Simplot Company with the cost to simply
2 remove the equipment subject to the facilties charge, as expressly allowed in the Don Plant
3 Special Contract and the Schedule 19 tari
4 A.We requested that cost in discovery in this case, and they requied us to request it
5 outside of the rate case. Our attorney then sent a letter to Idaho Power requestig the removal
6 costs. Idaho Power's response letter from their attorney to our attorney, contaed in ICIP
7 Exhibit No. 308 attched to Dr. Don Reading's direct testimony, said exercising the removal
8 option may require tuing the power off at our facilties, thus interrpting production. Removal
9 would also require J.R. Simplot Company to first pre-pay Idaho Power to engineer a plan to
10 remove the facilties in phases. I understad that the removal cost may increase if Idaho Power
11 is not able to find a good salvage use for the equipment. I believe that ths complicated removal
12 process is unecessar when we have already paid for the equipment and when it is already
13 being put to use at our facilties. It makes no sense to charge us to remove the equipment and
14 attempt to find some other use for it when we have repeatedly paid for its full initial value
15 aleady.
16 Q.What is the current status as you understand it?
17 A.J.R. Simplot Company is still paying the facilties charge at each of the plants
18 served by Idaho Power, and Idaho Power has provided no description satisfactory to the J.R.
19 Simplot Company of how it would stop paying the charge.
20 Q.If you had the choice, how would you propose Idaho Power address the
21 problems you see with its facilties charge?
Don Stuevant, DI 13
Industral Customers of Idao Power
1 A.We have paid for our curent facilties charge equipment more than thee ties
2 already. I believe that Idaho Power has aleady recoverd its initial costs and any authorized rate
3 of retu several times over. It would be fai to simply tu ownership of these facilities over to
4 J.R. Simplot Company.
5 Additionally, I believe it is imperative that the Commission seriously reform the facilties
6 charge according to the proposals and analysis contaned in Dr. Don Reading's testiony. I
7 fuly support the recommendations contaned in the direct testimony of Dr. Don Reading, which
8 would make the monthly charge fair for those customers who wish to pay it and would provide
9 reasonable mechansms by which customers may take over ownership of equipment on their own
10 propert.
11 Q.Does this conclude your testimony?
12 A.Yes.
Don Stuevant, DI 14
Industrial Customers of Idaho Power