20131101Youngblood Rebuttal.pdf

-KEffi*., .-.. i .' , , An lDAcoRP company
?ilil t'lt'j - | Pil t:: 55
LISA D. NORDSTROM t;.Lead Counsel
lnordstrom@idahopower'com 'ilii il;'''j'': ' :: ''
November 1,2013
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-13-16
Certificate for Public Convenience and NecessityforJim Bridger Units 3 and
4 - Replacement Pages 2,5, and 6 to the Rebuttal Testimony of Michael J.
Youngblood
Dear Ms. Jewell:
It has come to the attention of Idaho Power Company ("Company") that pages 2, 5,
and 6 of the Rebutta! Testimony of Michael J. Youngblood contain confidential information
that should have been redacted. Therefore, nine (9) copies of Mr. Youngblood's redacted
rebuttal testimony are enclosed for filing. Other than the redactions, no other changes
have been made to the testimony
ln addition, enclosed in a separate envelope are nine (9) copies of confidential
pages 2,5, and 6 to Mr. Youngblood's testimony.
lf you have any questions regarding the enclosed documents orthis matter, please
do not hesitate to contact me.
Very truly yours,
1221 W. ldaho St. (83702)
P.O. 8ox 70
Boise, lD 83707
X,^O(-u,*,
Lisa D. Nordstrom
LDN:evp
Enclosures
cc: Service List (w/encls.)
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 1" d.y of November 2013 ! served a true and
correct copy of the within and foregoing LETTER TO JEAN D. JEWELL DATED
NOVEMBER 1, 2013, upon the following named parties by the method indicated below,
and addressed to the following:
Commission Staff
Kristine A. Sasser
Deputy Attorney General
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
lndustrial Customers of ldaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27h Street (83702)
P.O. Box 7218
Boise, ldaho 83707
Dr. Don Reading
6070 Hill Road
Boise, ldaho 83703
ldaho Conservation League
Benjamin J. Otto
ldaho Conservation League
710 North Sixth Street
Boise, ldaho 83702
Snake River Alliance
Dean J. Miller
McDEVITT & MILLER LLP
420 West Bannock Street (83702)
P.O. Box 2564
Boise, ldaho 83701
kris. sasser@puc. idaho.oov
X Hand Delivered
U.S. Mail
Overnight Mail
_FAXX Email
Hand DeliveredX U.S. Mail
_Ovemight Mail
_FAXX Email [e-mail]
[e-mail]
_Hand DeliveredX U.S. Mail
Overnight Mail
FAX
Email [e-mail]
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U.S. Mail
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_Hand DeliveredX U.S. Mai!
_Ovemight Mai!
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x
CERTIFICATE OF SERVICE - 2
Ken Miller, CIean Energy Program Director
Snake RiverAlliance
P.O. Box 1731
Boise, ldaho 83701
_Hand DeliveredX U.S. Mail
Ovemight Mail
_FAXX Email [e-mail]
CERTIFICATE OF SERVICE - 3
i:l-/-'.
2*f :0CI Ag PFI L: 05
l ...
I I'j'l' .' , 1
. i:L! r r.- \i - .
BEFORE THE IDAHO PUBLIC UTTLTTIES COMMISSTON
rN THE MATTER OF rDAHO POWER )
COMPANY' S APPLICATION FOR A ) CASE NO. IPC-E-13-16
CERTIFICATE OF PUBLTC CONVENIENCE )
AND NECESSTTY FOR THE INVESTMENT )IN SELECTTVE CATAIYTTC REDUCTION )
CONTROLS ON JIM BRIDGER PO}IER )
PLANT UN]TS 3 AND 4. )
)
rDAHO POWER COMPANY
REBUTTAI TESTIMONY
OF
MICHAEL J. YOUNGBLOOD
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o.
A.
A.
O.
this matter?
A.
Pl-ease state your name and business
My name is Michael J. Youngblood and
address.
my
Idahobusiness address is l22L lrlest fdaho Street, Boise,
831 02 .
o.
capacity?
By whom are you employed and in what
A.I am employed by Idaho Power Company ("Idaho
Regulatory ProjectsPower" or "Company") as the Manager of
in the Regulatory Affairs Department.
o.Are you the same Michael Youngblood that
previously filed direct testi-mony in this docket?
Yes I am.
What is the purpose of your testimony in
The purpose of my rebuttal testimony is to
address certain lssues raised in the direct testimony of
Idaho Publ-ic Utilities Commlssion ("Commission") Staff
witness Mike Louis and the direct testimony of the
Industrial Customers of Idaho Power (*fCIP") wj-tness Dr.
Don Reading. Specifically, I will address the issues
raised concerning the authorization and binding ratemaking
treatment for the Company's Selective Catalytic Reduction
("SCR") investments in Jim Bridger Units 3 and 4 pursuant
to ldaho Code S 6L-541 and the j-ssue regardlng the
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suggestion of an adjustment to the Company's Return on
Equity (*ROE").
o.Please describe the recommendations of Staff
witness Mr. Louis.
A.The Company recognizes that Mr. Louis
supports the Company's decision to move forward with the
emission control investment project for Jim Bridger Units 3
and 4 as prudent action, and that he supports authorization
of a Certj-ficate of Public Convenience and Necessity
("CPCN") issued under ldaho Code S 6L-526. However, Mr.
Louis recommends that only of the
of direct costs requested by the Company be authorized for
binding ratemaking treatment under Idaho Code S 61-541.
O.What rational-e did Mr. Louis give for not
recoflrmending the ful-I of direct costs
requested by the Company for binding ratemaking treatment?
A.On page 20 of his direct testimony, Mr.
Louis states that he believes binding ratemaking treatment
shoul-d be l-imited to only those expense categories that are
necessary, and known and measurable, with a high l-evel of
certainty. Based upon that belief, Mr. Louis states that
uncertain budgeted amounts for individual project
categories shoul-d be excluded from preapproval because
preapproval of budgeted amounts that are set usj-ng "Ij-beral
estimating methods or that inc1ude sl-ack from contingency
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amounts" allow project managers to spend up to the amount
of their authorized budget without regard for potential
savings.
O. Does Mr. Louis offer any evidence that the
Company's budgeted amounts were establ-ished uslng "liberal-
estimating methods" or that the contingency dollars
included "sIack" amounts?
suggesting that if the expense categories he recommended to
be excluded from preapproved ratemaking were approved and
binding, that the project managers would disregard
opportunities to achieve reductions in costs rel-ative to
Company commitment estimates?
A.
o.
A.
o.
be incurred
A.
in the categories
Yes. While I
No, he did not.
Did Mr. Louj-s of fer any explanation for
No, he did not.
Is it realistic to assume that expenses will
that Mr. Louis has excluded?
agree with Mr. Louis that
preapproval shoul-d be based on expense categories that are
determined to be necessary, I believe that Mr. Louj-s'
standard for certainty of costs related to necessary
expense categories is unreasonabl-e. While the cost
magnitude of necessary expense categories that are yet to
be incurred may not be easily quantifiable, uncertainty
does not negate the necessity of those items as part of the
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installation cost of the SCRs. Mr. Tom Harvey describes
each of the expense categories excluded by Mr. Louis in
more detail in his rebuttal testj-mony and explains why they
are necessary.
0.What amount does the Company reconimend the
Commission consider for preapproved ratemaking treatment?
A.The Company st1ll requests the Commission
provide Idaho Power with authorization and binding
commitment to provide rate base treatment pursuant to ldaho
Code S 6l-54I, for the Company's capital investment in the
SCRs at Jim Bridger Units 3 and 4 in the amount of
$L29,837,393, which includes $11,889,431 in Allowance for
Funds Used Duri-ng Construction (*AFUDC"). However, if the
Commission were to consider another approach in determining
an appropriate amount for preapproval as suggested by Mr.
Louls, the Company would encourage the Commission to
consider an approach consistent with the way "uncertain"
expense categories were handled in Case No. IPC-E-09-03,
the Langley Gul-ch CPCN case. Whil-e some costs were
uncertain or not quantifiable at the time of the
appli-cation, Staff and the Commission recognized that those
cost categories were prudent and that some amount of
expense woul-d be incurred. In Order No. 30892, the
Commission approved Staff's recommendation of an amount for
preapproved ratemaking which reflected 50 percent of the
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costs that were known with reasonable certainty would
occur, but were not quantlfiable at that time. This
approach seems more reasonable than to include no costs at
all for expense estj-mates in categories that are certain to
be incurred.
O. Using this approach, what additional- amounts
should be inc]uded in the Staff's recommendation for
preapproved ratemaking?
A. With the uncertainty of whether or not the
Low Temperature Economizer wi-l-l- be necessary at all, and
with the unknown nature of the estimates for the
Contingency category, it is understandable that Mr. Louis
woul-d recommend excluding these two categorles. However,
in providing treatment consistent with that used in the
Langley Gulch CPCN docket, the additional amounts that
shoul-d appropriately be included in the Staff's
recommendation for preapproved ratemaking would incl-ude
hal-f of the amounts estimated for: the Boiler and Air Pre-
heater Rei-nforcement , the
the Flue GasEconomizer Upgrade
Reinforcement the Spare Parts
Allowance and Other Costs (which
include lubricants and ammonia reagent, contracted site
construction management and inspection services, cost for
removal- and disposal of exj-sting hazardous waste materj-als
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encountered,
communication
cost of supplementary plant securj-ty and
features, etc. ) expense
Under this approach, the
Company also recommends incl-uding half of the AFUDC amount
in excess of the I of AFUDC cal-culated for the actual-
costs incurred through May 31, 201-3
The sum of these reduced amounts
would be added to the Staff's recommendation,
resulting in an amount of
ratemaking treatment.
for preapproved
O. Do you agree with Mr. Louis' assertion that
excluding uncertain amounts protects against recovery of a
ful-I preapproved amount if actual costs are l-ess?
A. No. The asserti-on Mr. Louis makes assumes
that just because an amount is preapproved for binding
ratemakj-ng treatment, it is the amount that would then be
automatically inc1uded in rate base. Idaho Power does not
believe this is an accurate assumption. In factr ds Mr.
Louis later points out in the Company's applicatJ-on, Idaho
Power states that if the costs of the project are less than
the cost estimate, the savings would directly benefit the
customer through a lower amount in rate base. OnIy the
costs that are actually incurred wil-I be incl-uded in rate
base, regardl-ess of whether a higher amount was
preapproved.
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Idaho Power Company
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ICIP witness Dr
there is no compelling reason
treatment at this time because
issues could equally occur at
the i-nvestment be included in
this conclusion?
. Reading testified that
for preapproved ratemaking
a ful-1 vetting of contested
the time the Company requests
rates. Do you agree with
A.No. The risks inherent in these
construction investments are compelling and the subject of
national and local debate. The Company understands that
absent its CPCN application, a full vetting of the
contested issues cou1d have occurred post-constructj-on when
the Company requested the investments be included in rate
base. However, because of the magnitude of the investment,
the uncertainty surrounding coal-fired generation in
today's political and social environment, and the amount of
interest expressed by stakeholders, the Company chose to
request a CPCN with binding ratemaking treatment prior to
incurri-ng those expenses. This CPCN filing allows
interested parties to fulIy vet the controversial issues
prior to the Commission making a decisj-on. It is important
to the Company that customers and stakeholders have an
opportunity to participate in the public process before the
Company undertakes a significant investment like that
required for these SCRs. It is also important for the
Company to receive assurance from the Commission that its
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continued investment j-n coal-fired generation will obtain
rate base treatment prj-or to proceeding with such large
expendi-tures. By filing its application, the Company'
intended to provide the Commission with the ability to
evaluate whether this investment is economj-cal-1y, social-ly,
and politically prudent, and in the best interest of the
Company and its customers, before the investment is made.
o.Is the Company requesting a speclfj-ed ROE
related to this filing?
A. As I stated in my direct testimony, the ROE
the Company expects to earn on this investment is the
authorized rate in effect at the time the project is placed
in service.
o.Has the Commission typically addressed ROE
prior to completion of a capital project?
A.In the Commission's Order for the Langley
Gu1ch CPCN docket, Order No. 30892, the Commission found it
reasonabl-e to authorize an ROE that would be the same ROE
authorized for the rest of the Company's rate base when the
project was placed in service and achieved commercial
operation. The ROE would change over the l-ife of the plant
facilities with Commission-authorized changes to the
Company's ROE for other rate base items.
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O. Should the SCR lnvestment and ROE be
determined in tandem as ICIP' s witness Dr. Reading suggests
on page 8 of his direct testimony?
A. No. In a general rate case, the Commission
approves an overall rate of return that is applied to the
Company's rate base included in the rate case test year.
If approved, the SCRs should receive the same ROE
authorized for the rest of the Company's rate base at the
time the project is placed into servj-ce.
o.What is the purpose of setting a reasonable
ROE?
A.The ROE compensates investors for the use of
their capital to finance the plant and equipment necessary
to provide utility service. A reasonable ROE allows the
Company to fairly compensate its investors, attract new
capital on reasonable terms, and maintain the Company's
financial standing.
O. Do you agree with ICIP that an investment
with regulatory preapproval is Iess risky for the utility,
and therefore, should earn a lower return?
A. No, I do not. If the Company were to use
Dr. Reading's Iogic, all other investments, regardless of
size, without regulatory preapproval would be consi-dered
"riskier" and the ROE should be adjusted upward. The truth
of the matter may be that, based upon the current
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uncertainty surrounding coal-fired generation in today's
political- and social- environment and the amount of concern
expressed by stakehol-ders on this issue, the magnitude of
investment the Company anticipates making in the emission
control-s at the Jim Bridger plant may provide more risk to
the Company. That would suggest the Company's ROE, or at
l-east, the return on this investment, should be higher.
The Company's request for binding ratemaking treatment for
this investment helps bring the risk associated with this
investment back in line with the Company's overall risk and
return.
Regulatory preapproval under ldaho Code S 6l-541
does not reduce the overal-l- risk for the Company. By
issuing a CPCN under ldaho Code S 6l-526 and authori-zation
for preapproved binding ratemaking treatment under ldaho
Code S 61-54L, the Commission has determined that the
investment is prudent and in the best j-nterest of Idaho
Power's customers. The Company may then proceed with the
emissions project; however, it does not give the Company a
free pass to act in an imprudent manner simply because it
has regulatory preapproval. The Company must still-
initiate a regulatory proceeding with the Commission to
place the SCR investments into rates once they are
completed. At that time, the Commission wil-I conduct a
thorough review and audit of all- actual expenses incurred,
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and wiII determine the actual- amount to be added to rate
base and recoverabl-e through rates.
O. Do you believe that preapproved ratemaking
treatment for the SCRs at Jim Bridger Units 3 and 4 sets a
precedent for Units 1 and 2 at a later point in time?
A.Despite Dr. Reading's suggestion to the
contrary, I do not believe preapproved ratemaking treatment
at Jim Bridger Units 3 and 4 will establish a precedent for
future investments in SCRs at Units 1 and 2. The Company
will have to go through the same analysis to determine if
those j-nvestments, at that time, are the least cost and
l-owest risk alternative for compliance with environmental
laws and regulations. The Company would have to decide on
an appropriate course of acti-on based on the existing
political- and regulatory environment at that future time.
0. Does the Company need assurance of binding
ratemaking treatment for financing the SCRs?
A.Yes. A Commission order providing assurance
of recovery and binding ratemakj-ng treatment demonstrates
ongoing regulatory support to the rati-ng agencies and to
the external- financial community, thereby reducing the risk
of unfavorable financing costs not only for the SCR
controls, but al-so for Idaho Power's total construction
program. In this manner, Idaho Power and its customers
both benefit. But financing risk is not the primary reason
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o.
A.
the Company seeks preapproved ratemaking treatment - the
current social and regulatory risk associated with coal--
fired investments is.
Does this conclude your testimony?
Yes, it does.
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AITESTATION OE TESTIIDIIY
STATE OF
County of
IDAHO }) ss.
Ada )
T, Michael J. Youngblood, having been duly sworn to
testify truthfully, and based upon my personal knowledge,
state the following;
f am employed by Idaho Power Company as the
Regulatory Projects Manager in the Regulatory Affairs
Department and am competent to be a witness in this
proceeding.
I declare under penalty of perjury of the laws of
the state of Idaho that the foregoing pre-filed testimony
is true and correct to the best of my information and
belief.
DATED this 29th day of October 2013.
SUBSCRIBED AND
october 20L3.
Residing at:
My commission expiies:
YOUNGBLOOD, REB 13
Idaho Power Company
before
CERTIFIGATE OF SERVICE
I HEREBY CERTIFY that on this 29h day of October 2013 t served a true and
correct copy of the within and foregoing Rebuttal Testimony of Michael J. Youngblood,
upon the following named parties by the method indicated below, and addressed to the
following:
Commission Staff _Hand Delivered
Kristine A. Sasser U.S. Mail
Ovemight Mail
FAXX Email [e-mail]
lndustrial Customerc of ldaho Power Hand Delivered
Deputy Attomey General
ldaho Public Utilities Commission
47 2 W est Wash i ngt on (837 02)
P.O. Box 83720
Boise, ldaho 83720-007 4
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27m Street (83702)
P.O. Box 7218
Boise, ldaho 837A7
Dr. Don Reading
6070 Hill Road
Boise, ldaho 83703
ldaho Conservation League
Benjamin J. Otto
ldaho Conservation League
710 North Sixth Street
Boise, ldaho 83702
Snake River Alliance
Dean J. Miller
McDEVITT & MILLER LLP
420 West Bannock Street (83702)
P.O. Box 2564
Boise, ldaho 83701
_U.S- Mail
_Ovemight Mail
_FAXX Email [e-mail]
q rec@r:charCsonadarns, com
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CERTIFICATE OF SERVICE
Ken Miller, Clean Energy Program Director
Snake River Alliance
P.O. Box 1731
Boise, ldaho 83701
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U.S. Mail
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FAX
Email kmiller@gnake:'iveralliance.orq
CERTIFICATE OF SERV]CE