20131011Direct P. Harms.pdf

BEFORE THE
A. '! '?li=':ii 1i "" "'"'
IDAHO PUBLIC UTILITIES COMMISSION r ,
IN THE MATTER OF IDAHO POWER )
GOMPANY'S AppLtCATtON FOR A ) CASE NO. tpc-E-l3-16
cERTtFICATE OF PUBLTC CONVENTENCE )
AND NECESSITY FOR THE INVESTMENT )
lN SELECTIVE CATALYTTC REDUCTTON )
CoNTROLS ON JtM BRTDGER UNTTS 3 )
AND 4.
DIRECT TESTIMONY OF PATRICIA HARMS
IDAHO PUBLIC UTILITIES COMMISSION
ocToBER 11 ,2013
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O. Please state your name and address for the
record.
A. My name is Patricia Harms. My business address
is 472 West Washington Street, Boise, Idaho.
a. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Utilities
Commisslon (Commission) as a Principal Financial
Specialist/Senior Auditor.
O. Please give a brief description of your
educational background and experj-ence.
A. I graduated from Boj-se State University, Boise,
fdaho in l-981 with a B.A. degree in Business
Administration, emphasis in Accounting. I am a Certified
Public Accountant licensed by the State of Idaho. Prior
to joining the Commission Staff in 2000, f was employed
by the State of Alaska as an In Charge Auditor and
performed both financial and performance audits of
governmental agencies. I was responsible for project
management of many of those audj-ts. I have attended many
seminars and classes involving auditing and accountj-ng.
While at the Commission f have audited a number of
utilities including water, electric, gas and telephone
utilit.ies and provided comments and testj-mony j-n a number
of cases that dealt with general rates, hook-up fees,
accounting issues, and other regulatory issues includj-ng
cAsE NO. rPC-E-13-15
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HARMS, P. (Di) 1
STAFF
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Certificates of Public Convenience and Necessity (CPCNs).
I have also completed the National Association of
Regulatory Utility Commissioners' (NARUC) annual
regulatory studies program at Michigan State University.
I also regularly attend meetings of NARUC's Staff
Subcommittee on Accounting and Finance and serve as
secretary for the Subcommittee.
O. What is the purpose of your testj-mony?
A. The purpose of my testimony is to present
Staff's recommendations regarding the treatment of return
on equity, depreciation and the Allowance for Funds Used
During Construction (AFUDC) ln Idaho Power's request for
a CPCN authorizing investment j-n Selective Catalytic
Reduction (SCR) controls in Jim Bridger Units 3 and 4
(Project) and inclusj-on of the Project's costs j-n rate
base once the SCR controls are installed and operational.
A. Please explain Staff's recommendation for the
return on equity in this case.
A. The ratemaking treatment requested by fdaho
Power for the Project under ldaho Code S 51-541 includes
a determinati-on of the method or the actual return on
common eguity for the Project in section (2) (b) (i) "The
return on common equity investment or method of
determining the return on common equity investment."
Staff supports Company witness Youngblood's expectation
CASE NO. IPC-E-13-].5
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HARMS, P. (Di)
STAFF
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that the Project earn the authorized return in effect at
the time the Project is placed in service. Adopting the
methodology where the return on equity (ROE) for the
Project is the same as authorized for other rate base
i-tems is consistent with normal rate base treatment and
is appropriate. Staff recommends the Order for a CPCN
and ratemaking Ereatment, if approved, authorize a reEurn
on equity for the Project the same as the ROE authorized
for the rest of the Company's rate base when the Project
is placed in service. Staff also recommends that the ROE
change with Commission-authorized changes to the
Company's ROE over the life of the pIant.
O. Please explain Staff's recommendation for
depreciation in this case.
A. The ratemaking treatment requested by Idaho
Power for the Project under ldaho Code S 51-541 (sectj-on
(2) (b) (ii) ) includes "the depreciation life or schedule."
Staff supports Company witness Youngblood's statement
t,hat Idaho Power will depreciate Ehe investments over the
remaining life of the Jim Bridger Plant in accordance
with the Commission-approved depreciation rates in effect
at the time the investment j-s closed-to-pIant. Staff
also recommends that the depreciation rates change wit,h
Commission-authorized changes to the Company' s
depreciation rates over the life of the plant whether
cAsE NO. rPC-E-l_3-L5to/t!/1-3 HARMS, P. (Di)
STAFF
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those changes occur as a result of depreciation rate
cases like Case No. IPC-E-12-08 or as part of other
cases.
o.
in this
A.
Please explaj-n Staff's recommendation for AFUDC
case.
Staff witness Louis is the primary witness
t,he Project and, among other things,
issuance of a CPCN and the ratemaking
including Staff's proposed Commitment Estj-mate.
Staff recommends that the Company accrue actual
addressing
recommends
treatment
CASE NO. IPC-E-13-15
t0/1-1-/13
AFUDC based upon the actual capital expenditures of the
Project (excluding PacifiCorp's AFUDC) as it is under
construction. This is Staff's understanding of the
method Idaho Power currently uses to accrue AFUDC on the
Project. When Idaho Power seeks cost recovery in rates
after the Project is placed in service, the monthly
expenditures would be subjected to a prudency review of
the amounts to which the AFUDC rate is applied except for
those plant amounts approved in this proceedJ-ng. Absent
specific ratemaking authority, AFUDC will cease when the
plant is placed in service. Staff also recommends that
the actual AFUDC rates applied during the course of the
Project be reviewed by Staff when the Project is brought
before the Commission for inclusion within rates.
O. What is AFUDC?
HARMS, P. (Di)
STAFF
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A. AFUDC is an accounting mechanism which
recognizes capital costs associated with financing
consEruction. Generally, the capital costs recognized by
AFUDC include interest charges on borrowed funds and the
cost of equity funds used by a utility for purposes of
construction. The main purposes of AFUDC are to
capitalize with each project the costs of financing that
consEruction; separat€ the effects of the construction
program from current operations; and to allocate current
capital costs to future periods when these capital
facilitles are in service, useful and producing revenue.
AFUDC represents the cost of funds used during the
construction period before plant and plant additions go
into service. When it is placed in service, the entire
cost of the plant and plant addj-tions, including AFUDC,
is added to rate base, where it earns a rate of return
and is depreciated over the life of Ehe plant/plant
addit.ion.
A. How does Idaho Power calculate the AFUDC rate
it applies to projects?
A. Idaho Power calculates the Company's AFUDC rate
on a monthly basis consistent. with the AFUDC formula
establj-shed by the Federal Energy Regulatory Commission
(FERC). Annually the annualized AFUDC rates are
calculated and compared to the monthly AFUDC rates to
CASE NO. IPC-E-].3-151o/La/B HARMS, P. (Di)
STAFF
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determine reasonableness and ensure the AFUDC amounts are
calculated using the method set by the Idaho Commj-ssion.
O. What has Idaho Power requested in this case for
AFUDC?
A. Idaho Power has included in its request for a
CPCN and binding ratemaking treatment a Commitment
Estimate including $11,889,43r- in AFUDC.
O. How has Idaho Power calculated the $l-1,889,431?
A. Generally speaking, Idaho Power has taken the
current Project estimates by year (less current charges
t,hrough May 30, 20L3) and calculated a monthly amount on
which they applied an AFUDC rate. The AFUDC rate applied
was calculated from actual charges through May 30, 2013.
O. Has any portion of fdaho Power's Commitment
Estimate of $11-,889,431- in AFUDC actually been incurred?
A. Yes. According to the Company's response to
Production Request No. 15, approximately $40,000 of the
almost $12 million AFUDC has been incurred as of May 30,
201,3. If the Commission chooses to include any AFUDC
wit,hin binding ratemaking in this case, Staff recommends
that t.he actual AFUDC incurred (approximately $40,000) be
the amount included for binding ratemaking treatment.
O. Does this conclude your direct testimony in
this proceeding?
A. Yes, it does.
cAsE NO. rPC-E-13-15
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HARMS, P. (Di)
STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS I ITH DAY OF OCTOBER 2013,
SERVED THE FOREGOING DIRECT TESTIMONY OF PATRICIA HARMS, IN CASE
NO. IPC-E.13.I6, BY E-MAILING AND MAILING A COPY THEREOF, POSTAGE
PREPAID, TO THE FOLLOWING:
LISA D NORDSTROM
JENNIFER REINHARDT-TES SMER
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
i reinhardt@ idahopower. com
dockets@idahopower. coln
C Bearry@ idahopower. com
PETER J RICHARDSON
GREGORY M ADAMS
RICHARDSON ADAMS
5I5 N 27TH ST
BOISE ID 836I6
E-MAIL : peter@r:ichardsonadams.com
gre g@richardsonadams. com
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
7IO N 6TH ST
BOISE ID 83702
E-MAIL: [e-mail]
KEN MILLER
SNAKE RIVER ALLIANCE
BOX 1731
BOISE ID 83701
E-MAIL: [e-mail]
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL : [e-mail]
DEAN J MILLER
MoDEVITT & MILLER LLP
420 W BANNOCK
BOISE ID 83702
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE