20161021Larkin Direct.pdf

RECE IVED
20 ! , ~;T 2 I P 3: I /
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
AUTHORITY TO INCREASE ITS RATES
FOR ELECTRIC SERVICE TO RECOVER
COSTS ASSOCIATED WITH THE NORTH
VALMY POWER PLANT.
CASE NO. IPC-E-16-24
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
MATTHEW T. LARKIN
1 Q. Please state you r name, business address , and
2 present position with Idaho Power Company ("Idaho Poweru or
4
5
A. My name is Matthew T. Larkin. My business
address is 1221 West Idaho Street , Boise , Idaho 83702.
6 am employed by Idaho Power as the Revenue Requirement
7 Manager in the Regulatory Affairs Department .
I
8
9
Q.
A.
Please describe your educational background .
I received a Bachelor of Business
10 Administration degree in Finance from the University of
11
12
Oregon in 2007. In 2008 , I earned a Master of Business
Administration degree from the University of Oregon . I
13 have also attended electric utility ratemaking courses,
14 including the Electric Rates Advanced Course , offered by
15 the Edison Electric Institute , and Estimation of
16 Electricity Marginal Costs and Application to Pricing,
17 presented by National Economic Research Associates, Inc .
18 Q. Please describe your work experience with
19 Idaho Power.
20 A. I began my employment with Idaho Power as a
21 Regulatory Analyst I in January 2009 . As a Regulatory
22 Analyst I , I provided support for the Company's regul atory
23 activities , including compliance reporting , financial
24 analysis, and the development of revenue forecasts for
25 regulatory filings .
LARKIN , DI 1
Idaho Power Company
1 In January 2012, I was promoted to Regulatory
2 Anal yst II , and , i n January 2014 , I was promoted to Senior
3 Regulatory Analyst. As a Senior Regulatory Analyst , my
4 responsibi l ities expanded to include the development of
5 complex cost-related studies and the analysis of strategic
6 regulatory issues .
7 In March of 2016 , I was promoted to my current
8 position of Revenue Requirement Manager . As Revenue
9 Requirement Manager , I oversee the Company 's regulatory
10 activities related to revenue requirement , such as power
11 supply expense modeling , jurisdictional separation studies ,
12 and Idaho Power 's Open Access Transmission Tariff formula
13 rate .
14
15
16
Q.
A .
I. OVERVIEW
What is the Company requesting in this case?
The Company is requesting the Idaho Pub l ic
17 Utilities Commission ("Commission") authorize Idaho Power
18 to (1) accelerate the depreciation schedule for the North
19 Valmy power plant ("Valmy") to allow the plant to be fully
20 depreciated by December 31 , 2025 , (2) establish a balancing
21 account to track the incremental costs and benefits
22 associated with the accelerated Valmy end-of -life date , and
23 (3) adjust customer rates to recover the associated
24 incremental annual levelized revenue requirement of $28 .50
25 million with an effective date of June 1, 2017 .
LARKIN , DI 2
Idaho Power Company
1
2
Q.
A.
How is the Company's case organized?
My testimony begins with a discussion of why
3 the 2025 end-of-life date for the Valrny plant is
4 appropriate and describes why the Valrny depreciation
5 schedule should be accelerated at this time. My testimony
6 then details the proposed balancing account intended to
7 recover incremental costs and benefits associated with a
8 2025 end-of-life assumption for Valrny. My testimony
9 concludes with a quantification of the proposed $28.50
10 million increase to rates with a requested effective date
11 of June 1, 2017, and a summary of why the Company's request
12 is in the public interest.
13 The direct testimony of Company witness Torn Harvey
14 discusses the prudence of investments made at Valrny that
15 have added to the associated plant balances since the
16 Company's last depreciation update became effective on June
17 1, 2012, and informs the Commission of necessary future
18 investments at the plant to ensure Valrny continues to be
19 available for reliable load service through the end of
20 2025. Mr. Harvey's testimony then presents the analysis
21 relied upon by Idaho Power to determine that the proposed
22 depreciable life at Valrny reflecting a 2025 end-of-life
23 date is appropriate.
24
25
Q. Please summarize your exhibits.
LARKIN, DI 3
Idaho Power Company
1 A. Exhibit No. 1 illustrates the magnitude of
2 potential future revenue requirement increases that would
3 exist if the acceleration of Valmy's depreciation schedule
4 is delayed beyond the proposed effective date of June 1,
5 2017. Exhibit No. 2 details the derivation of the
6 levelized revenue requirement to be tracked in a Valmy
7 balancing account and the Idaho jurisdictional share of the
8 revenue requirement that the Company is proposing in this
9 case to include in customer rates. Exhibit No. 3 details
10 the development of the current Valmy revenue requirement
11 based upon the Company's 2011 test year filed in Case No.
12 IPC-E-11-08.
13
14 Q.
II. VALMY ACCELERATED DEPRECIATION
Why is the Company proposing to modify the
15 depreciable life of Valmy at this time?
16 A. Pursuant to Commission Staff's recommendation
17 in Case No. IPC-E-03-07, Idaho Power is to file an updated
18 depreciation study within five years of the Company's
19 previous depreciation study. The Company's most recent
20 update, approved by Order No. 32559 in Case No.
21 IPC-E-12-08, went into effect on June 1, 2012. Because
22 nearly five years have passed since the last update, the
23 Company began preparations in early 2016 to file a new
24 depreciation study. Through these preparations, the
25 Company identified that significant changes had occurred
LARKIN, DI 4
Idaho Power Company
1 wi th regard to the economic life of the Valmy plant ,
2 warranting the need for specific review separate from the
3 Company's general depreciation filing . Given the
4 requirement to file an updated depreciation study within
5 the next year, the Company believes it is appropriate to
6 consider Valmy-related issues concurrently with the
7 comprehensive depreciation study filed in Case No . IPC-E-
8 16-23. The requested effective date in both cases is June
9 1, 2017, which is five years from the effective date of the
10 Company 's last depreciation rate update .
11 Q. Why does Idaho Power believe it is appropriate
12 to address depreciation for Val my in a separate proceeding
13 rather than through the general depreciation study update
1 4 filed in Case No . IPC-E -16-23?
1 5 A. As discussed in detail in Mr . Harvey 's
16 testimony , circumstances surrounding the Valmy plant have
17 changed since the Company last updated its depreciation
18 rates in 2012 , resulting in the Company 's request for the
19 proposed accounting treatment detailed in my testimony.
20 Similar to the circumstances surrounding the Boardman plant
21 ("Boardman ") in 2012 , changing conditions have resulted in
22 an expected end -of-l ife at Valmy that is several years
23 earlier than what is currently r eflected in customer rates .
24 Given the complexity associated with the acceleration of
25 Valmy 's depreciation schedule , the Company fe l t that a
LARKIN , DI 5
Idaho Power Company
1 separate proceeding was appropriate to allow for a full
2 review of the issues presented herein.
3 Q. What is Valmy's currently approved depreciable
4 life for ratemaking purposes?
5 A. Currently approved depreciation rates reflect
6 a plant life of 50 years for each unit, resulting in a
7 retirement year of 2031 for Unit 1 and 2035 for Unit 2.
8 Q. What analysis led Idaho Power to determine
9 that the end-of-life assumption for Valmy should be
10 accelerated to year-end 2025?
11 A. As detailed in the direct testimony of Mr.
12 Harvey, Idaho Power's preferred portfolio from the 2015
13 Integrated Resource Plan ("IRP") included the shutdown of
14 Valmy Units 1 and 2 in 2025 to coincide with the completion
15 of the Boardman to Hemingway ("B2H") transmission line.
16 addition to the 2015 IRP analysis, in 2016, Idaho Power
17 completed an assessment of the operating future of Valmy
18 with respect to economics of production and system
19 reliability. As discussed by Mr. Harvey, the assessment
20 indicates that Valmy is not expected to operate beyond
In
21 2025.
22 Q. In addition to the analyses performed by Idaho
23 Power, are there any other factors that support the use of
24 2025 as the appropriate end-of-life date for Valmy?
25
LARKIN, DI 6
Idaho Power Company
1 A. Yes. In 2013, Idaho Power's co-owner in
2 Valmy , NV Energy, filed a request with the Public Utilities
3 Commission of Nevada ("PUCN") for a 2021 end-of-life date
4 for Unit 1 at Valmy . The request did not include a change
5 to NV Energy 's existing end-of-life date of 2025 for Unit
6 2 . Because of concerns about the increase in common costs
7 that would result from operating only one of the two units
8 beginning in 2021, the PUCN instead approved a 2025 end-of-
9 life date for both Unit 1 and Unit 2 (Docket No . 13-06002 ,
10 Modified Final Order dated January 29 , 2014). Likewise , in
11 its most recent depreciation study filed with the PUCN on
12 June 6, 2016 , in Docket No . 16 -06008 , NV Energy used the
13 same end-of -life date for both units . As discussed in more
14 detail in the testimony of Mr . Harvey, the 2025 shutdown
15 date currently utilized by NV Energy provides an additional
16 indication that the Valmy plant will not be operational
1 7 beyond 2025 .
18 Q. Has Idaho Power considered utilizing an end-
19 of-life date for Valmy earlier than 2025?
20 A. Yes. As part of the 2015 IRP , Idaho Power
21 considered the impact to customers of an end -of-life at
22 both Valmy units earlier than 2025 . However , Idaho Power 's
23 analysis concluded that an end -of-li fe assumption of 2025
24 would result in net present value revenue requirement
25 savings as compared to the existing operating assumption
LARKIN, DI 7
Idaho Power Company
1 while mitigating the customer rate impacts associated with
2 a 20 1 9 end-of-life.
3 Q. Please summarize why a 2025 end-of-life date
4 is appropriate for the Valmy plant .
5 A. There are multiple aspects of the current
6 circumstances surroundi ng the Valmy plant that support the
7 use of a 2025 end -of-l ife date for depreciation purposes .
8 First , Idaho Power 's 2015 IRP led to the use of a 2025
9 c l osure date for both Valmy units as part of the Company's
10 preferred portfolio , balancing the short-term rate impacts
11 of an earlier shutdown with long -term revenue requirement
12 savings . The 2025 date was further supported by the
13 assessment performed by the Company in 2016, which
14 concluded that a 2025 end -of-life date for Valmy is
15 preferable with respect to reliability and revenue
16 requirement impacts. Lastly , the currently approved
17 depreciable life util i zed by the Company's co-owner at the
18 Valmy plant, NV Energy , reflects a 2025 end-of-life date.
19 This body of evidence strongly supports the modification of
20 the existing Valmy depreciation schedule to ref l ect a 2025
21 shutdown date .
22
23
24 Q.
III . BENEFITS OF ACCELERATED RECOVERY
OF VALMY-RELATED COSTS
Why is it beneficial to accelerate the
25 depreciation schedule at Valmy to reflect the 2025 end-of-
26 life date as requ ested?
LARKIN , DI 8
Idaho Power Company
1 A. There are two primary reasons why it is
2 beneficial to accelerate Valmy's depreciation schedule at
3 this time: (1) doing so will result in the appropriate
4 matching of cost recovery with the remaining operating life
5 of the plant and (2) accelerating the deprecation schedule
6 at this time will mitigate future rate impacts associated
7 with the earlier shutdown of the plant .
8 Q. Please explain why the Company 's proposal
9 results in the appropriate matching of costs and rate
10 recovery .
11 A. For the reasons summarized above , customers
12 will continue to be served by the Valmy plant until year-
13 end 2025 , at which point the plant is no longer expected to
14 be used . By accelerating the depreciation schedule to
15 reflect a 2025 shutdown date , the recovery of Val my-re l ated
16 costs will align with the remaining operating life o f the
17 plant , resulting in cost recovery from customers who are
18 served by the plant . Without accelerating the depreciation
19 schedule to reflect the 2025 shutdown date , cost recovery
20 from customers could extend beyond the plant 's operat ing
21 life , resulting in cost recovery from future customers for
22 a p lan t that will no longer be providing service at that
23 time .
24
25
LARKIN , DI 9
Idaho Power Company
1 Q. How does the acceleration of Valmy's
2 depreciation schedule mitigate future rate impacts to
3 customers?
4 A. From a ratemaking perspective, depreciation
5 expense represents the recovery of investment in plant and
6 equipment over time. When the life of an asset is adjusted
7 to reflect an earlier retirement date, it results in a
8 shorter time period over which costs can be recovered,
9 meaning more costs must be recovered in each year to
10 provide for full recovery of the investment over its useful
11 life. Therefore, the more time that passes before the
12 depreciation schedule at Valmy is adjusted to reflect the
13 2025 retirement date, the larger the revenue requirement
14 increase will be to allow for full cost recovery.
15 Q. Have you quantified the potential customer
16 impact of delaying the acceleration of Valmy's depreciation
17 schedule beyond the requested June 1, 2017, effective date?
18 A . Yes. Exhibit No. 1 presents the impact of
19 delaying the acceleration of Valmy's depreciation schedule
20 beyond the requested June 1, 2017, effective date. As can
21 be seen in Exhibit No. 1, a delay of just 12 months would
22 result in an annual levelized revenue requirement of over
23 $30 .54 million and a delay of four years results in an
24 annual levelized revenue requirement amount of over $43 .75
25 million.
LARKIN, DI 10
Idaho Power Company
1
2
3
4 Q.
IV . RECOMMENDED REGULATORY ACCOUNTING
AND RATEMAKING TREATMENT
Please describe the need for the Va l my
5 balancing account.
6 A. As stated above , the Company believes the
7 operating life of Valmy will end i n 2025 , earlier than the
8 current depreciable end-of -life of 2031 for Unit 1 and 2035
9 for Unit 2 . In addition to the earlier end-of -life date ,
10 Valmy will also require incremental investments to maintain
11 operations prior to ultimately decommissioning the plant .
12 However , the specific timing and exact amounts of these
13 future investments are not yet known . For these reasons ,
14 Idaho Power proposes the establishment of a balancing
15 account that would allow flexib i lity for the timing and
16 recovery of the remaining Valmy revenue requirement.
17 Q. Has the Commission authorized the Company to
18 implement the requested recovery treatment in any other
19 cases?
20 A . Yes . In Order No. 32457 (Case No .
21 IPC -E-11 -18), the Commission approved a cost recovery
22 approach for incremental annual costs associated with the
23 early retirement of the Boardman power plant . Idaho
24 Power 's proposal in this case mirrors the cost recovery
25 approach approved in Case No . IPC -E-11-1 8 and implemented
26 in Case No . IPC -E-12 -09 .
LARKIN , DI 11
Idaho Power Company
1 Q. Please provide an overview of the Company's
2 proposed cost recovery approach for Valmy.
3
4
A. There are three types of costs the Company
anticipates booking to the balancing account: (1) the
5 accelerated depreciation associated with existing Valmy
6 plant investments, ( 2) the return on the undepreciated
7 capital investments at Valmy until its end-of-life, and (3)
8 decommissioning costs related to the Valmy shutdown. Under
9 the proposed approach, the Company will replace the base
10 rate revenue recovery associated with Idaho Power's
11 existing investment in Valmy with a levelized revenue
12 requirement to be tracked in the Valmy balancing account.
13 Q. What are the benefits associated with this
14 approach?
15 A. Like the Boardman balancing account, the Valmy
16 balancing account will smooth revenue requirement impacts
17 of a 2025 Valmy shutdown over the remaining eight and a
18 half years of Valmy plant's life and allow for full
19 recovery of Valmy-related costs by its end-of-life. As
20 discussed earlier in my testimony, this will effectively
21 align the cost recovery period with the remaining operating
22 life of the plant, resulting in an appropriate matching of
23 cost recovery from customers who benefit from the plant's
24 operations while mitigating the risk of future customers
25 bearing the costs of a plant that will no longer be
LARKIN, DI 12
Idaho Power Company
1 providing service . Additionally , through the proposed
2 accounting treatment, customers will pay no more or no less
3 than the actual capital -related costs of the Valmy plant
4 between the proposed effective date of June 1 , 2017 , and
5 the proposed end-of-life date in 2025 .
6 Q. Please describe the tracking of the
7 accelerated depreciation associated with existing Valmy
8 plant investments .
9 A. The proposed accounting treatment wil l result
10 in accelerated depreciation expense re l ated to all Valmy
11 plant investments as compared to current depreciation that
12 is based on a retirement date of 2031 for Unit 1 and 2035
13 for Unit 2. The Company is proposing to track and recover
14 the accelerated depreciation expense associated with
15 Valmy 's 2025 end-of-life through the Valmy balancing
16 account as quantified later in my testimony.
17 Q. Please explain the return on undepreciated
18 capital investments at Valmy that will be tracked in the
19 balancing account .
20 A. Although Valmy 's end -of-life is expected to
21 occur in 2025 , there will be required investments at the
22 plant in addition to its normal maintenance in order to
2 3 keep the plant operational until that time . The return and
24 associated depreciation expense will be tracked in the
25 balancing account .
LARKIN , DI 13
Idaho Power Company
1 Q. Please describe the proposed tracking of the
2 Valmy decommissioning costs.
3
4
A. Idaho Power will incur decommissioning costs
related to the Valmy 2025 end-of-life. Currently,
5 estimated decommissioning costs are accounted for as an
6 Asset Retirement Obligation ("AROu), which considers costs
7 to decommission and remove plant components, including the
8 power plant and associated ponds and material handling
9 facilities. The ARO also includes a 15 percent contingency
10 estimate and is partially offset by expected salvage
11 proceeds associated with decommissioning the plant. The
12 Company's current base rates do not include any recovery of
13 ARO related to Valmy.
14 Q. Does the Company account for the Valmy ARO
15 under Accounting Standards Codification ("ASCu) 410?
16 A. Yes. In accordance with Order No. 29414,
17 Idaho Power records (1) a regulatory asset for the
18 cumulative financial statement impact resulting from the
19 Company's implementation of ASC 410 and (2) the ongoing
20 annual differences between the ASC 410 depreciation and
21 accretion expenses and the annual depreciation expenses
22 that are currently authorized by the Commission in
23 depreciation rates and accruals. If the Commission
24 approves the Company's proposal related to Valmy
25 decommissioning costs, Idaho Power would begin collecting
LARKIN, DI 14
Idaho Power Company
1 revenues to cover the existing ARO-related liabilities, as
2 well as non-ARO decommissioning costs. Therefore, Idaho
3 Power requests Valmy-related ARO balances be exempted from
4 the deferral treatment under Order No. 29414 and that
5 previously deferred amounts be amortized over the expected
6 remaining life of Valmy.
7 Q. Has the Company determined the levelized
8 revenue requirement associated with the costs proposed to
9 be tracked in the Valmy balancing account?
10 A. Yes. The annual levelized revenue requirement
11 associated with the recovery of both existing investments
12 in Valmy on an accelerated basis as well as incremental,
13 forecasted investments between August 1, 2016, and December
14 31, 2025, is $45.97 million on an Idaho jurisdictional
15 basis. Exhibit No. 2 details the development of the
16 levelized revenue requirement.
17
18
Q.
A.
Please explain your levelizing calculation.
The levelized revenue requirement includes the
19 costs of accelerating the depreciation of the Valmy plant
20 items, the return associated with capital investments net
21 of accumulated depreciation forecasted through the
22 remaining life of Valmy, and the decommissioning costs
23 associated with Valmy's end-of-life. The levelized revenue
24 requirement was determined by calculating the present value
25 of each of the individual items and converting the values
LARKIN, DI 15
Idaho Power Company
1 into a level payment stream from customers over the eight
2 and a half year recovery period beginning June 1, 2017.
3 Q. Please quantify the accelerated depreciation
4 component of the levelized revenue requirement amount.
5 A. The Company's proposal will result in
6 accelerated depreciation expense related to all Valmy plant
7 investments. As previously mentioned, concurrent with this
8 filing, Idaho Power has filed its updated depreciation
9 study in Case No. IPC-E-16-23 that incorporates Valmy's
10 2025 end-of-life date and adjusts depreciation rates
11 accordingly, anticipating a proposed change in rates
12 effective June 1, 2017. In that filing, however, the
13 Company is proposing to exclude the impacts of the
14 accelerated depreciation for Valmy and instead track these
15 incremental expenses in the Valmy balancing account
16 proposed in this case. As of July 31, 2016, the Valmy net
17 plant investment is approximately $222 million and the
18 Company estimates the net plant investment as of May 31,
19 2017, will be $217 million. The total accelerated
20 depreciation associated with the Valmy 2025 end-of-life
21 date included in the levelized revenue requirement
22 calculation is approximately $39.73 million on an Idaho
23 jurisdictional basis.
24
25
LARKIN, DI 16
Idaho Power Company
1 Q. Please quantify the revenue requirement
2 ass o ciated with the return on undepreciated capital
3 investments at Valmy .
4 A. The accelerated depreciation component of the
5 levelized revenue requirement computation includes net
6 Valmy investments as of May 31 , 2017. As explained in more
7 detail in the testimony of Mr. Harvey, Idaho Power
8 anticipates the capital expenditures made at Valmy through
9 2025 will be for routine repairs. The Idaho jurisdictional
10 levelized revenue requirement associated with expected
11 incremental investments at Valmy from August 1, 2016 ,
12 through December 31 , 2025 , is $4.45 million. The Revenue
13 Requirement on Incremental Investments section of Exhibit
14 No . 2 details this computation .
15 Q. Please quantify the annual revenue requi rement
16 associated with the Valmy decommissioning costs .
17 A. Idaho Power estimated its share of the
18 decommissioning costs by applying the Company 's 50 percent
19 ownership percentage to the decommissioning study performed
20 by URS Corporation for NV Energy . The total included in
21 the Idaho jurisdictional levelized revenue requirement
22 calculation is $1 .79 million .
23 Q. What is the resulting total levelized revenue
24 requirement?
25
LARKIN , DI 17
Idaho Power Company
1 A. The levelized revenue requirement associated
2 wi th Valmy includes $39.73 million in accelerated
3 depreciation of existing investments , $4.45 million related
4 to incremental investments , and $1 .79 million in
5 decommissioning costs, for a total levelized revenue
6 requirement of $45 .97 million on an Idaho jurisdictional
7 basis .
8 Q. What is the existing revenue requirement
9 associated with Valmy that is currently included in the
10 Company's base rates?
11 A. Exhibit No. 3 details the development of the
12 $17.47 million Idaho jurisdictional share of the existing
13 revenue requirement . This amount will be replaced with the
14 levelized revenue requirement amount detailed in Exhibit
15 No . 2 .
16 Q. How does the total levelized revenue
17 requirement compare to the existing revenue requirement
18 currently in customer rates?
19 A. The total levelized revenue requirement of
20 $45.97 million less the Idaho jurisdictional share of the
21 existing revenue requirement of $17.47 million results in
22 an incremental annual levelized revenue requirement of
23 approximately $28 .50 million on an Idaho jurisdictional
24 basis .
25
LARKIN , DI 18
Idaho Power Company
1 Q. What level of return on equity ("ROE'') have
2 you incorporated into your revenue requirement
3 quantifications?
4 A. Consistent with the current treatment of
5 Boardman-related revenue requirement computations, the
6 Company proposes to use a 9 .5 percent ROE in the
7 quantification of the levelized revenue requirement for
8 Valmy . In Case No. IPC-E-11-18, the Commission agreed with
9 Commission Staff's proposal to use a 9 .5 percent ROE to
10 calculate the levelized payments for Boardman. Because the
11 regulatory treatment requested in this case mirrors that
12 applied for recovery of Boardman plant investments, the
13 Company believes it is reasonable and appropriate to apply
14 the same ROE to Valmy investments. The 9.5 percent ROE is
15 also the same level of ROE currently applied as the
16 Accumulated Deferred Investment Tax Credit trigger approved
17 by Order No. 32424 (Case No. IPC-E-11-22).
18 Q. How does the Company plan to administer the
19 Valmy balancing account on an annual basis?
20 A. Idaho Power is proposing to administer the
21 Valmy balancing account in the same way the Company
22 administers the Boardman balancing account. On an annual
23 basis, Idaho Power will recalculate the levelized revenue
24 requirement for Valmy based upon actual investments to date
25 and an updated forecast of future investments at the plant.
LARKIN, DI 19
Idaho Power Company
1 The Company will also track (1) the monthly deviations
2 between forecasted revenue collection and actual revenue
3 collection and (2) deviations between existing levelized
4 revenue requirement calculations and updated levelized
5 revenue requirement calculations. These two tracked
6 components, along with the revised levelized revenue
7 requirement, would be reviewed annually to determine
8 whether or not a rate adjustment is needed. If the Company
9 determines that a rate adjustment is needed, a new rate
10 would be determined that would recover the newly calculated
11 levelized revenue requirement as well as provide for
12 recovery or refund of the amounts tracked in the balancing
13 account. Should the Company choose not to recommend an
14 adjustment to rates in a given year, amounts previously
15 recorded in the balancing account would remain in the
16 balancing account for future recovery or refund. Under
17 this approach, customers will pay the capital-related costs
18 of the plant until its assumed end-of-life of 2025, no more
19 and no less.
20 Q. Has Idaho Power updated the Boardman-related
21 levelized revenue requirement amounts included in customer
22 rates since the Boardman balancing account was implemented
23 in June 1, 2012?
24 A. No. Idaho Power has filed a report with the
25 Commission annually detailing the updated levelized revenue
LARKIN, DI 20
Idaho Power Company
1 requirement amount based on more current investment amounts
2 and new forecast information , as well as deviations in
3 collections and changes in the levelized revenue
4 requirement amounts since 2012 . However , because the
5 difference in the annual revenue requirement amounts has
6 been quite small as a percentage of the Company's Idaho
7 jurisdictional retail revenues each year , and because any
8 such differences are tracked through the Boardman balancing
9 account, the Company has not requested to adjust base rates
10 to recover such differences . To date, the balancing
11 account approach to cost recovery associated with the early
12 shutdown of Boardman has effectively smoothed or
13 "levelized" related rate impacts to customers.
14 Q. How does the Company propose to allocate the
15 incremental annual levelized revenue requirement amount of
16 approximately $28.50 million to each class of customers?
17 A. The Company requests that the incremental
18 revenue requirement of approximately $28 .50 million be
19 recovered from all customer classes through a uniform
20 percentage increase to all base rate components except the
21 service charge.
22 Q. Has the Company prepared a schedule that
23 presents the revenue spread results for each customer class
24 under the Company 's proposed allocation methodology?
25
LARKIN, DI 21
Idaho Power Company
1 A. Yes. Attachment No. 1 to the Application
2 presents a summary of the proposed revenue impact for each
3 customer class.
4
5
6
Q.
A.
V. CONCLUSION
Please summarize your testimony.
Multiple studies support the use of 2025 as
7 the end-of-life date for the Valmy plant, including Idaho
8 Power's 2015 IRP and the 2016 analysis detailed in the
9 testimony of Mr. Harvey. In addition, the currently
10 approved depreciable life for the Company's co-owner at
11 Valmy, NV Energy, also reflects a 2025 end-of-life date.
12 Given this body of evidence, Idaho Power is proposing to
13 accelerate the depreciation schedule for the Valmy plant to
14 reflect this earlier shutdown of year-end 2025. The
15 Company's proposal will result in the appropriate matching
16 of cost recovery with the remaining operations of the
17 plant, and mitigate future rate increases that will be
18 required if Valmy's depreciable life is not updated at this
19 time.
20 Additionally, Valmy will require incremental
21 investments to maintain operations prior to ultimately
22 decommissioning the plant. However, the specific timing
23 and exact amounts of these future investments are not yet
24 known. For that reason, Idaho Power proposes the
25 establishment of a balancing account that would allow
LARKIN, DI 22
Idaho Power Company
1 flexibility for the timing and recovery of the remaining
2 Valmy revenue requirement, and appropriately align the cost
3 recovery period with the remaining operational life of the
4 plant. The requested treatment is identical to the
5 currently approved methodology related to the early closure
6 of the Boardman power plant, which has proven to be an
7 effective method to provide for cost recovery while
8 smoothing out rate impacts to customers. Under the
9 proposed methodology, Idaho Power seeks approval of an
10 adjustment of $28.50 million to the Company's Idaho
11 jurisdictional revenue requirement to take place on June 1,
12 2017.
13
14
15
16
17
18
19
20
21
22
23
24
25
Q.
A.
Does this complete your testimony?
Yes, it does.
LARKIN, DI 23
Idaho Power Company
1 ATTESTATION OF TESTIMONY
2
3 STATE OF IDAHO
4
5 County of Ada
6
ss.
7 I, Matthew T. Larkin, having been duly sworn to
8 testify truthfully, and based upon my personal knowledge,
9 state the following:
10 I am employed by Idaho Power Company as the Revenue
11 Requirement Manager in the Regulatory Affairs Department
12 and am competent to be a witness in this proceeding.
13 I declare under penalty of perjury of the laws of
14 the state of Idaho that the foregoing pre-filed testimony
15 and exhibits are true and correct to the best of my
16 information and belief.
17 DATED this 21 st day of October 2016.
18
19
20
21
Matthew T. Larkin
22 SUBSCRIBED AND SWORN to before me this 21st day of
23 October 2016.
24
25
26
27
28
·SD
Notary for Idaho
Residing at: Boise, Idaho
My commission expires: 02/04
LARKIN, DI 24
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-16-24
IDAHO POWER COMPANY
LARKIN, DI
TESTIMONY
EXHIBIT NO. 1
FUTURE REVENUE REQUIREMENT INCREASES ABSENT ACCELERATION AS FILED
VALMY LEVELIZED REVENUE REQUIREMENT
RATE CHANGE
As Filed:
June 1, 2017 $
If Delayed Until:
June 1, 2018 $
June 1, 2019 $
June 1, 2020 $
June 1, 2021 $
LEVELIZED
REVENUE
REQUIREMENT
28,497,934
30,539,150
33,528,173
37,661 ,623
43,750,797
$
$
$
$
$
INCREASE
2,041 ,216
5,030,239
9,163,689
15,252,863
Exhibit No. 1
Case No. IPC-E-16-24
M. Larkin , IPC
Page 1 of 1
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-16-24
IDAHO POWER COMPANY
LARKIN, DI
TESTIMONY
EXHIBIT NO. 2
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Levelized Revenue Requirement for the Valmy Plant
at May 31, 2017
Revenue Requirement On Existing Investments at May 31. 2017
Existing Accelerated
2017 48,182,681
2018 46,081,959
2019 44,205,352
2020 42,280,012
2021 40,351 ,208
2022 38,444,002
2023 36,588,245
2024 34,826,858
2025 32,851,514
Total
PV
Payment
363,811,831
273,860,088
41,787,659
Revenue Requirement On Incremental Investments
Capital Additions & Forecast Life (years!
June, 2017 1,680,976 9
January, 2018 9,140,126 8
January, 2019 6,572,775 7
January, 2020 5,301,763 6
January, 2021 3,826,243 5
January, 2022 2,981,229 4
January, 2023 2,776,522 3
January, 2024 2,500,000 2
January, 2025 500,000 1
Total
PV
Payment
Des.ommissioning Co11§
2025 Costs
Decommissioning Costs (Estimated in 2025 dollars) 21,583,188
Total System Summary
Levelized Rev Rqmt -Existing Investment
Levelized Rev Rqmt -Incremental Investments
Levelized Rev Rqmt -Decommissioning Costs & Salvage
New Levelized Rev Rqmt (To be tracked through the balancing account)
Estimated Rev Rqmt Currently in Base Rates (2011)
Net Change in Levelized Rev Rqmt
True-Up of Prior Year Collections
True-Up of Levelized Rev Rqmt
Annual Rev Rqmt. Impact to Customers
Layer
2017
260,976
317,838
299,848
282,024
264,354
246,826
229,430
212,156
194,950
2,308,402
1,738,113
265,215
Payment
1,880,690
41 ,787,659
4,679,260
1,880,690
48,347,609
18,170,111
30,177,498
30,177,498
Layer Layer Layer Layer Layer Layer Layer Layer
2018 2019 2020 2021 2022 2023 2024 2025
1,557,288
1,871,156 1,244,266
1,760,176 1,471,134 1,153,582
1,650,281 1,379,654 1,352,751 954,673
1,541,390 1,289,085 1,264,079 1,087,611 886,586
1,433,427 1,199,359 1,176,456 1,012,817 977,542 1,047,288
1,326,325 1,110,411 1,089,803 938,779 906,643 1,112,405 1,342,010
1,220,017 1,022,185 1,004,048 865,442 836 333 1,026,780 1,365,357 507,817
12,360,059 8,716,094 7,040,720 4,859,321 3,607,105 3,186,474 2,707,367 507,817
8,948,404 6,072,362 4,723,138 3,143,103 2,251,924 1,922,153 1,579,838 287,016
1,365,416 926,567 720,692 479,599 343,616 293,297 241,064 43,795
Idaho Jurisdictional Summary
Levelized Rev Rqmt -Existing Investment
Levelized Rev Rqmt -Incremental Investments
Levelized Rev Rqmt -Decommissioning Costs & Salvage
New Levelized Rev Rqmt (To be tracked through the balancing account)
Estimated Rev Rqmt Currently in Base Rates (2011)
Net Change in Levelized Rev Rqmt
True-Up of Prior Year Collections
True-Up of Levelized Rev Rqmt
Annual Rev Rqmt. Impact to Customers
Total
Payments
4,679,260
39,733,117
4,449,198
1,788,223
45,970,539
17,472,605
28,497,934
28,497,934
------~-~~~ -------------------
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-16-24
IDAHO POWER COMPANY
LARKIN, DI
TESTIMONY
EXHIBIT NO. 3
Idaho Power Company
Summary of Revenue Requirement -Idaho
Valmy: 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 Prag
Add: Subsidiary Rate Base
TOTAL COMBINED RATE BASE
NET INCOME
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
Authorized Rate of Return
Earnings Deficiency
Net-to-Gross Tax Multiplier
REVENUE REQUIREMENT
$
$ 327,426,389
$ 6,868,673
$
$ 1,028,151
$ 335,323,213
$ 194,167,721
$ 141,155,492
$ 54,387,522
$ 86,767,970
8,200,950
967,295
$ 4,705,764
$ (10,052,922)
$ 3,821,088
$ (3,821,088)
$ (3,821,088)
7.86%
$ 10,641,051
1.642
$ 17,472,605
Exhibit No. 3
Case No. IPC-E-16-24
M. Larkin, IPC
Page 1 of 1