20161214Petersen Direct & Exhibits 5-6.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR A
DETERMINATION OF HELLS CANYON
COMPLEX RELICENSING COSTS THROUGH
2015 AS PRUDENTLY INCURRED.
CASE NO. IPC-E-16-3 2
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
KEN W. PETERSEN
1 Q. Please state your name , business address, and
2 present position with Idaho Power Company ("Idaho Power" or
3 "Company")
A . My name is Ken W. Petersen and my business 4
5 address is 1221 West Idaho Street, Boise, Idaho 83702. I
6 am employed by Idaho Power as the Vice President, Corporate
7 Controller and Chief Accounting Officer.
8
9
Q.
A.
Please describe your educational background.
I graduated with honors in 1987 from Boise
10 State University, Boise, Idaho, receiving a Bachelor of
11 Science degree with a double major in Accounting and
12 Computer Information Systems. I also received a Masters in
13 Business Administration with honors from Boise State
14 University in 1995. I have attended numerous accounting
15 and regulatory courses, including the University of Idaho's
16 Public Utility Executive Course in June 2 006. I am
17 currently licensed in Idaho as a Certified Public
18 Accountant.
19
20
Q.
A.
Please outline your business experience.
Before joining Idaho Power, I spent 11 years
21 in various accounting and finance leadership roles with
22 both private and publicly traded companies. In 1998, I
23 joined Idaho Power as Finance Team Leader and was promoted
24 to Delivery Business Unit Controller in 1999. In 2005 , I
25 was promoted to General Manager of Delivery Services and
PETERSEN, DI 1
Idaho Power Company
1 Delivery Controller. In 2007, I was promoted to Corporate
2 Controller, in May 2010 I was promoted to Corporate
3 Controller and Chief Accounting Officer, and in January
4 2014 I was promoted to my current position, Vice President,
5 Corporate Controller and Chief Accounting Officer.
6 Q. Please describe your current duties as Vice
7 President, Corporate Controller and Chief Accounting
8 Officer.
9 A. I am responsible for the Company's accounting
10 and external financial reporting processes. Additionally,
11 I oversee the corporate budgeting, load and financial
12 forecasting, treasury, and internal reporting functions,
13 including financial support for the business units.
14 Q. What is the purpose of your testimony in this
15 case?
16 A. The purpose of my testimony is to describe the
17 Company's comprehensive internal review of the transaction
18 data associated with Hells Canyon Complex ("HCC")
19 relicensing costs incurred through December 31, 2015, and
20 the independent review performed under my direction and to
21 present the Company's conclusion that the documentation and
22 record keeping was thorough and within reasonable
23 expectations. I will also describe certain cost components
24 related to the project that received additional review and
25
PETERSEN, DI 2
Idaho Power Company
1 consideration, resulting in two adjustments to the HCC
2 relicensing balance at issue in this case.
3 Q. What was the Company's objective in performing
4 the transaction review discussed in your testimony?
5 A. The Company's objective in performing the
6 transaction review was to ensure the availability and
7 validity of supporting documentation.
8 Q. Was the Company able to satisfy this objective
9 through the transaction review?
10 A. Yes. As detailed in my testimony, the
11 transaction review resulted in the Company's conclusion
12 that the costs associated with HCC relicensing are
13 appropriately supported.
How is your testimony organized? 14
15
Q.
A. My testimony begins with a general description
16 of the review process that occurred through the life of the
17 project. I then detail the efforts by a cross-functional
18 team to review and validate the cost of the project through
19 December 31, 2015. I provide an explanation of the HCC
20 relicensing cost transaction data used in an independent
21 review. I will then present the methodology for
22 determining the sample sizes and the process for selecting
23 the sample transaction data used in the Company's review.
24 Next, I will present the results of the independent
25 transaction review. Finally, I will discuss the review and
PETERSEN, DI 3
Idaho Power Company
1 consideration of fou r specific cost components within the
2 HCC relicensing project balance , along with two adjustments
3 to the balance resulting from that review.
I . HELLS CANYON RELICENSING COST TRANSACTION DATA 4
5 Q. Please describe the overall process to prepare
6 HCC relicensing cost data for this case .
7 A. As work on relicensing has progressed over the
8 years, charges to work orders were reviewed by the
9 appropriate members of Finance , Legal , and Environmental
10 Affairs annually . Prior to moving those costs into a plant
11 specific "rollup" work order, the charges are reviewed by
12 the work order planner, with assistance from Finance, for
13 accuracy and validity . Therefore, throughout the life of
14 the project, the cost data has had an ongoing review
15 process similar to any other shorter term work order within
16 Idaho Power.
17 Q. Aside from the reviews that were performed
18 over the life of the project, have there been any other
19 reviews by Idaho Power employees that have first-hand
20 knowledge of the relicensing efforts?
21 A. Yes. Because the relicensing efforts that
22 Idaho Power has undertaken date back to the early 1990s and
23 there have been many different individuals who have worked
24 on the relicensing effort since then , many have retired or
25 otherwise left the Company . This inherently creates
PETERSEN, DI 4
Idaho Power Company
1 challenges when assessing the prudency of transactions as
2 people with institutional knowledge of meaningful
3 commentary on the projects and the rationale for
4 expenditures may no longer be available to answer
5 questions.
6 To address this challenge, Idaho Power assembled a
7 cross-functional team that included Finance members that
8 have supported the relicensing effort, as well as key
9 members from the Environmental Affairs and Legal
10 departments. This team reviewed transactional cost data,
11 as well as a description of the work related to the cost
12
13
data. The description of the work is included in the
direct testimony of Company Witness Chris Randolph. The
14 related cost data was reviewed by members of the Finance
15 team with assistance from Legal and Environmental Affairs
16 under my direction.
17 Q. Did Idaho Power do anything further to assure
18 that the transactional cost data was reasonable?
19 A. Yes. Because the review was completed by the
20 cross-functional team that has been affiliated with the
21 relicensing process, Idaho Power determined that an
22 independent review of the transaction data, including audit
23 procedures, would be appropriate.
24
25
Q. How was this independent review conducted?
PETERSEN, DI 5
Idaho Power Company
1 A. Idaho Power created a temporary duty
2 assignment within the Finance department for the Audit
3 Manager to independently develop an audit plan that would
4 test the cost data and provide reasonable assurance that
5 the transaction data is supported and the balances are
6 reasonable. I will describe the independent review of the
7 transaction data in more detail later in my testimony.
8 Q. What were the conclusions of the cross-
9 functional team?
10 A. The cross-functional team concluded that the
11 transactional data represents valid expense transactions
12 and all costs were in support of the relicensing process.
13 Q. Did the team investigate any issues in their
14 review process?
15 A. Yes, due to the Company's record retention
16 policy, some original receipts for purchasing cards were no
17 longer available since they were beyond the retention date
18 per the policy, which is six years after the calendar year.
19 Q. Is Idaho Power concerned about not being able
20 to produce these original receipts?
21 A. No. The Company reviewed the evidence data
22 that is available and is confident that there is strong
23 evidence for each transaction. The Company's electronic
24 records and processes contain a great level of detail
25 regarding each transaction including: vendor name, date of
PETERSEN, DI 6
Idaho Power Company
1 the transaction , business purpose of the transaction ,
2 review and approval process completed by supervisor , and a
3 review or auditing process by Accounts Payable ("AP").
4 Finally , due to the nature of purchasing card receipts ,
5 most receipts beyond six years are unreadable due to their
6 age as the thermal paper used is sensitive to ultraviolet
7 light and several other factors , such as temperature , in
8 order to retain the image on the receipt .
9
10
Q.
A .
Please describe the auditing process by AP.
The AP process includes comparing the receipts
11 to the purchasing card statement and confirming the
12 descriptions were valid . If AP detects an issue with
13 anything on the statement, the employee is emailed asking
14 for a receipt or a better description . The audit by AP is
15 in addition to the review by the work order planner
16 discussed earlier .
17
18
19
II . INDEPENDENT REVIEW OF HELLS CANYON RELICENSING
COST TRANSACTION DATA
Q. Please describe the HCC relicensing cost data
20 used in the independent transaction review.
21 A. Idaho Power queried its accounting
22 transaction data to extract transactions related to work
23 orders associated with HCC relicensing efforts from 1997
24 through 2015. The transaction data file , which is over
25 186 ,000 records , includes the original transactions from
26 the detail work orders and the Allowance for Funds Used
PETERSEN, DI 7
Idaho Power Company
1 During Construction ("AFUDC") that has accrued on the HCC
2 relicensing balances in the work orders .
3 Q. Did Idaho Power segment the transaction data
4 prior to performing the transaction review?
5
6
A. Yes. Idaho Power segmented the transaction
data into three categories. First, Idaho Power extracted a
7 data file that included all credit transactions. Most of
8 the credits that appear in the transaction data are system
9 reversals of accrual entries, while there are also credits
10 for accounting reclassifications and correction entries.
11 The review of credits is discussed later in my testimony.
12 Idaho Power then split the remaining transactions in the
13 original transaction data file between work order charge
14 transactions and AFUDC transactions.
15 Q. Why did Idaho Power segment the transaction
16 data in this manner?
17 A. Idaho Power segmented the transaction data in
18 this manner because the nature of each of the three
19 segments warranted differing review methodologies. These
20 methodologies, and the logic behind applying them to the
21 respective segments, are detailed later in my testimony.
22 Q. What is the total amount of HCC relicensing
23 costs included in the transaction data file used in the
24 transaction review?
25
PETERSEN, DI 8
Idaho Power Company
1
2
A. The total HCC relicensing costs included in
the transaction file is $220,730,311. Figure 1 shows the
3 breakdown of the transaction data amounts into each of the
4 three previously mentioned categories:
5 Figure 1: HCC Relicensing Cost Segmentation
Statistical Sample -
Judgmental High
Dollar Sample
104,933,145
a AFUIX
WO Charges
Tot al HCC Re lie ensing
Costs $220,730,311
Reduced Statistical
Sample + Substantive
Analytical Procedure
6
7 Q. How does this compare to total HCC relicensing
8 costs associated with the 1997-2015 time period in
9 Construction Work in Progress ("CWIPu) at December 31,
10 2015?
11 A. The current HCC reli censing cost balance as of
12 December 31, 2015 , is $220,905,435 as compared to the
13 $220,730,311 included in the transaction data file,
14 resulting in a variance of $175,124, or 0.08 percent.
15 variance will be discussed later in my testimony.
16
17
PETERSEN, DI
The
9
Idaho Power Company
1 Q. What controls are in place to reinforce the
2 validity of the transaction data used in the Company's
3 review?
4 A. As mentioned earlier in my testimony, there
5 are a number of internal controls in place that validate
6 the transaction data. First, Company managers review and
7 approve employee time sheets and purchasing card
8 transactions prior to entry into the general ledger.
9 Further, beginning in 2004 additional controls were
10 developed to comply with the Sarbanes-Oxley Act of 2002.
11 One such control requires a quarterly review by a project
12 manager or supervisor of active work orders with balances
13 greater than $200,000, attesting to the reasonableness of
14 those charges or submitting corrections if one is
15 necessary. Additionally, beginning in 2004, work order
16 cost summaries are run for each project before c harges are
17 reclassified to a consolidated work order. The project
18 manager or supervisor reviews all charges and signs off on
19 them indicating the charges are correct, or, if necessary,
20 reclassifications are recorded. These signed copies are
21 retained in the permanent work order file.
22
23
24
III. SAMPLE CALCULATION METHODOLOGY
Work Order Cost S~1e Se1ection Methodo1ogy
Q. Please describe the methodology utilized for
25 Idaho Power's transaction review performed on the
PETERSEN, DI 10
Idaho Power Company
1 relicensing costs incurred from 1997 through December 31 ,
2 2015 , related to work order charge s.
3 A. Idaho Power used a stat i stical samp l e a s well
4 as a judgmental sample to evaluate HCC relicensing work
5 order charges . As the name implies , judgmental sampling is
6 a non -probability sampling technique where the reviewer
7 selects units to be tested based on their knowledge a nd
8 professional judgment . The testing of the transact i on data
9 covered the period of 1997 through December 31 , 2015 .
10 Q. What methodology did Idaho Power use to design
11 the statistical sample for the work order charges?
12 A. Idaho Power followed the procedures in the
13 Financial Audit Manual published by the U.S . Government
14 Accountability Office ("GAO Audit Manualn) when designing
15 the statistical sample , specifically guidance related to
16 planning materiality . Materiality i s one of several tools
17 used in audit procedu res and is based on t he concept that
18 items of little importance , which do not affect the
19 judgment or conduct of a reasonable user , do not require
20 investigation . Materiality has both quantitative and
21 qualitative aspects .
22
23
Q.
A.
What is Planning Mater i ality?
The GAO Audit Manual at page 230-1 defines
24 Planning Materiality as "a preliminary estimate of
25 materiality , in relation to the financial statements taken
PETERSEN , DI 11
Idaho Power Company
1 as a whole, primarily based on quantitative measures.
2 is used to determine design materiality and tolerable
3 misstatement, which in turn are used to determine the
It
4 nature, extent, and timing of substantive audit procedures.
5 It is also used to identify significant laws and
6 regulations for compliance testing."
7 Q. Did Idaho Power quantify the Planning
8 Materiality of the work order charge transaction data?
9 A. Yes. The GAO Audit Manual gives general
10 guidance that Planning Materiality should be 3 percent of
11 the materiality base (p. 230-3). The materiality base
12 generally should be "the greater of total assets or
13 expenses . ." (p. 230-1). For the HCC relicensing work
14 order charges sample, Idaho Power used the total work order
15 charge dollars for HCC relicensing costs of $104,933,145 as
16 detailed in Figure 1. Therefore, the Planning Materiality
17 of the HCC relicensing costs statistical sample is
18 $3,147,994 ($104,933,145 x 3 percent).
19 Q. What is the resulting sample size based on a
20 Planning Materiality of $3,147,994?
21 A. Utilizing a statistical sampling methodology,
22 a Planning Materiality of $3,147,994 results in a sample
23 size of 110. To arrive at the sample size, the Planning
24 Materiality is first reduced by the expected error, which
PETERSEN, DI 12
Idaho Power Company
1 Idaho Power judgmentally set at $180,000 1 times the
2 expansion factor of 1.60 ($180,000 x 1.60 = $288,000),
3 resulting in a sample working materiality of $2,859,994.
4 The $2,859,994 is then divided by the R factor 2 of 3.0 to
5 arrive at the sampling interval of $953,331. Finally, the
6 population of dollars ($104,933,145) is divided by the
7 sampling interval ($953,331) to arrive at a sample size of
8 110.
9 Q. Please describe the process for selecting the
10 wo rk order charges sample once Planning Materiality was
11 set.
12 A. The results of the work order cost sample
13 selection, which I will walk through, can be found in
14 Exhibit No. 5 to my testimony. The first step of the
15 process was to separate the work order charges sample size
16 between labor and non-labor work order costs.
17 Q. Why was the sample size split between labor
18 and non-labor costs?
19 A. Labor is a large component of the total
20 relicensing costs; however, labor charges have additional
21 operational controls in place relative to non-labor
22 charges. For example, time entry is approved by a
1 Idaho Power judgmentall y set the expected error at $180 ,000
based on a combination of audit industry practices .
2 The expansion factor and R facto r are determined from the
statistical sampling form based on a 95 percent confidence level .
PETERSEN, DI 13
Idaho Power Company
1 supervisor, labor is reviewed through the work order
2 reconciliation process, and Human Resources controls pay
3 rates. As a result of the additional controls around labor
4 charges and the reduced risk, Idaho Power made a judgmental
5 decision to limit the sample of total labor charges to 25
6 of the 110 to ensure that the non-labor transactions were
7 thoroughly reviewed.
8 Q. After the sample size was split between labor
9 and non-labor work order charges, what steps did Idaho
10 Power take to select the sample transaction data?
11 A. Next, total HCC relicensing work order costs
12 were separated by year, identified as labor or non-labor,
13 and weighted.
14
15
Q.
A.
Please describe the weighting process.
A weighting of dollars per year to total
16 dollars was calculated. Each year's weighting was
17 multiplied by the sample, either 25 of the 110 for labor
18 charges or 85 of the 110 for non-labor charges. The result
19 is a sample that focuses on years with more dollars, step
20 one of the weighting process. The following example, taken
21 from Exhibit No. 5, presents the results of the first step
22 in the weighting process applied to the year 2000 costs:
23
24
25
PETERSEN, DI 14
Idaho Power Company
2000 Weighting Sample
Direct charges, less labor $5,687,638 9.1% 8
Labor $3,257,614 7.7% 2
Total direct charges $8,945,252
AFUDC $1,584,357 1.4%
Total $10,529,609
1 In the second step of the weighting process, Idaho
2 Power separated non-labor charges by cost element and
3 further weighted the cost e lements by year. The intent of
4 the second step is to avoid skewing the sample toward high
5 volume, low dollar transactions. This weighting was then
6 multiplied by the associated year's sample ca lculated in
7 the first step of the process. The result is a sample that
8 focuses on the cost elements by year with the most dollars.
9 The sample size by cost element that results after the
10 second step of the weighting process for the year 2000 is
11 illustrated below :
2000 Weighting Sample
Materials 272,145 5%
Purchased Services 4,662,552 82% 7
Accounting Entries 137,372 2%
General Overheads 11,109 0%
Other Expenses 604,460 11% I
5,687,638 8
IPCO Labor 3,257,614 2
Total 8,945,252
AFUDC 1,584,357
Grand Total HCC Costs 10,529,609
12 Q. Once Idaho Power determined the number of
13 transactions by year and by cost element to be included in
14 the sample selection, how did Idaho Power select the sample
15 transactions from the transaction detail?
PETERSEN, DI 15
Idaho Power Company
1 A. The transaction detail was randomly sampled
2 based on the sample sizes by year and cost element
3 illustrated above. To randomly select the sample from the
4 transaction data, Idaho Power applied the random number
5 function in Microsoft Excel to each set of transaction data
6 and sorted from smallest to largest. The sample size
7 calculated as part of the weighting process was then
8 selected from the top of the sorted data. For example,
9 using the same set of data illustrated earlier, the
10 transactions in the costs from the year 2000 purchased
11 services data that were sorted smallest to largest based on
12 the random number generated were assigned numbers and
13 transactions one through seven were selected as part of the
14 sample. This yields a random sample at the cost element
15 level.
16 Q. Was there any data in the transaction files
17 that was excluded from the sample if selected through the
18 work order cost sample process?
19 A. Yes. If the random number function resulted
20 in selections in the sample of credits, or debits with
21 correctly offsetting credits, they were verified as correct
22 and then replaced with the next sequential transaction in
23 the random number sort.
24 Q. Did Idaho Power make any additional
25 adjustments to the sample data?
PETERSEN, DI 16
Idaho Power Company
1 A. Yes. Idaho Power judgmentally selected an
2 additional 33 high dollar items to obtain more coverage
3 over the HCC relicensing costs and ensure thorough review
4 of the highest cost i terns.
5 AFUDC Cost Samp.le Se.lection Methodo.logy
6 Q. Please describe the process for selecting the
7 AFUDC cost sample.
8 A. Idaho Power utilized the same methodology
9 selecting the statistical sample of AFUDC charges as used
10 in the work order cost sample selection. Idaho Power began
11 accruing AFUDC on HCC relicensing costs in 1999. From 1999
12 through December 31, 2015, $115,797,166 of AFUDC was
13 booked.
14 Q. What would the Planning Materiality of
15 $115,797,166 in AFUDC costs be?
16 A. Planning Materiality, 3 percent of base, is
17 $3,473,915.
18 Q. Did Idaho Power use the same process described
19 above for selecting the AFUDC cost sample size?
20 A. No. Idaho Power determined that a reduced
21 statistical sample size of 35 was appropriate because of
22 the results of a substantive analytical procedure. In
23 addition, the mechanical, simple nature of the AFUDC
24 calculation presents less risk than work order costs.
25
PETERSEN, DI 17
Idaho Power Company
1 Q. How did Idaho Power select the AFUDC cost
2 sample size?
3 A. First, Idaho Power performed a substantive
4 analytical procedure to justify the reduced statistical
5 sample for the AFUDC cost sample. For an analytical test
6 to be substantive, expectations and thresholds are
7 established.
8 Q. What expectations and thresholds were
9 established?
10 A. Based on the nature of the charges and level
11 of precision used in the recalculation, the Company
12 expected the recalculated HCC relicensing AFUDC costs by
13 year would be within $200,000 and 3 percent of the recorded
14 AFUDC amounts.
15 Q. How did Idaho Power determine the expectations
16 and thresholds?
17 A. To determine the expectations and thresholds,
18 Idaho Power divided the materiality of $3,473,915 by 17,
19 the total number of analytical periods covered. In
20 addition, an expectation that the recalculation would be
21 within 3 percent is a reasonable level of precision when
22 performing similar analytical tests.
23 Q.
24 calculation.
25
Please explain the sample selection
PETERSEN, DI 18
Idaho Power Company
1 A. Similar to step one in the work order cost
2 sample calculation methodology, a weighting of the AFUDC
3 costs per year to total AFUDC costs was calculated. Each
4 year's weighting was multiplied by the sample of 35. This
5
6
7
8
9
ensures the sample selection focuses on years with higher
amounts of AFUDC, therefore providing assurance that the
largest dollar periods received a thorough review.
Credit Sa.IZ£1e Se1ection Methodo1ogy
Q. Why did Idaho Power separately test the credit
10 transactions?
11 A. The Company tested the credit transactions on
12 their own to gain assurance that the credit amounts within
13 the transaction data were valid and that there was not a
14 larger, unreconciled difference. As discussed previously
15 in my testimony, most of the credits that appear in the
16 transaction data are system reversals of accrual entries,
17 while there are also credits for accounting
18 reclassifications and correction entries.
19 Q. How did Idaho Power design the sample for the
20 testing of credit amounts?
21 A. The total credit population was 15,017 rows of
22 data for ($14,516,292), resulting in a statistical sample
23 of 106 transactions, based on the Planning Materiality
24 procedures defined by the GAO Audit Manual. In addition,
25 Idaho Power judgmentally selected 14 high dollar credit
PETERSEN, DI 19
Idaho Power Company
1 transactions to test. The total dollar amount tested was
2 ($738,073).
3
4 Q.
5 was performed.
6 A.
IV. TRANSACTION REVIEW RESULTS
Please summarize how the transaction review
As previously mentioned, Idaho Power tested
7 three subsets of the transaction data: the work order
8 charges, AFUDC dollars, and the credit amounts. Each
9 subset of the transaction data was tested slightly
10 differently due to the nature of the costs as discussed in
11 more detail below. The testing of the transaction data
12 included an examination of both the appropriateness of the
13 documentation and the reasonableness of the charges for
14 which the documentation applied. A summary of the results
15 can be found in Exhibit No. 6 to my testimony.
16 Q. Was the Company aware of any matters prior to
17 performing the transaction review that had the potential to
18 impact Idaho Power's ability to review the appropriateness
19 of the documentation and reasonableness of the charges?
20 A. Yes. As I described earlier, Idaho Power was
21 aware that the Company's current record retention policy
22 could impact the ability to examine a hard copy of
23 transaction support in the transaction data associated with
24 early years. However, the Company knew it had the
25 electronic accounting system to support the transaction
PETERSEN, DI 20
Idaho Power Company
1 data. One objective of the independent review was to
2 determine if the independent reviewer was satisfied with
3 the detailed data in the electronic accounting system when
4 original receipts were no longer available due to the
5 Company's record retention policy.
6 Work Order Charges Transaction Review
7 Q. What were the results of the work order
8 charges transaction review?
9 A. The total HCC relicensing costs included in
10 the work order charge transaction review was a population
11 of $104,933,145. As explained earlier in my testimony, the
12 statistical sample resulted in 110 transactions while the
13 high dollar sample was 33 transactions, for a total of
14 $4,113,296 tested. The transactions were separated into
15 the following categories: purchased services, materials,
16 labor, general overheads, other expenses, and accounting
17
18
entries. Overall, the results indicated 2 1 exceptions for
a total of $33,243. These exceptions were investigated
19 further and supported by electronic system records.
20 Q. What is an exception as used in the context of
21 this transaction review?
22 A. An exception indicates a transaction occurring
23 outside of normal auditing parameters and provides an easy,
24 clear way to identify potential risk exposures, alerting to
25 activities that are not normal.
PETERSEN, DI 21
Idaho Power Company
1 Q. Does an exception indicate that the data is
2 incorrect or contains an error?
3
4
A. No. An exception indicates that the results
of the testing require further investigation. In other
5 words, exceptions indicate that a particular transaction
6 should be reviewed in more detail, not that an error has
7 occurred.
8 Q. Please describe the costs included in each of
9 the categories previously mentioned.
10
11
A. The purchased services, materials, labor, and
general overheads categories are self explanatory. The HCC
12 relicensing costs included in the other expenses work order
13 charge transaction data are all costs that did not fall
14 into a previously identified cost element category. The
15 accounting entries transaction data reflect costs
16 associated with payments made to the Oregon Water Resources
17 Department pursuant to ORS 543A.415.
18 Q. What were the results of the purchased
19 services testing?
20 A. Of the total population, $51,275,974 was
21 associated with purchased services, resulting in 67
22 transactions of the sample data and 19 high dollar samples.
23 The statistical sample included transaction data totaling
24 $440,178 while the high dollar sample transaction data
25 totaled $2,764,946. There were eight exceptions noted in
PETERSEN, DI 22
Idaho Power Company
1 the statistical sample review and zero exceptions noted in
2 the high dollar sample review.
3 Q. Please describe the exceptions noted in the
4 purchased services statistical sample.
5 A . Seven of the exceptions noted were associated
6 with Idaho Power purchasing card transactions for which
7 original documentation, i.e., paper receipts, had been
8 destroyed in conformance with the Company's record
9 retention policy. The eighth exception was a miscellaneous
10 cash receipt transaction, also in which original
11 documentation had been destroyed in accordance with the
12 Company's record retention policy. The total statistical
13 sample net dollars without origina l documentation was
14 $1,152.
15 Q. What is the Company's record retention policy
16 for purchasing card and miscellaneous cash receipt
17 transaction documentation?
18 A. Idaho Power's record retention policy is six
19 years beyond the calendar year for these items.
20 Q. Was Idaho Power able to verify these
21 transactions through means other than the original paper
22 receipts?
23 A. Yes. To further verify these transactions,
24 the Company's independent reviewer pulled electronic
25
PETERSEN, DI 23
Idaho Power Company
1 records from the Company's accounting system. This detail
2 provided the necessary support for the transactions.
3 Q. Please summarize the results of the materials
4 testing.
5 A. The HCC relicensing costs associated with
6 materials was $2,450,885 out of the total $104,933,145
7 population. Materials accounted for three statistical
8 samples, totaling $125, and three high dollar samples,
9 totaling $85,985.
10 Q. Were any exceptions noted in either the
11 statistical or high dollar samples?
12 A. Yes. Two exceptions were noted in the
13 statistical sample review. Similar to purchased services,
14 the exceptions were purchasing card transactions that
15 occurred in 1999 and 2005 totaling $58.49 for which
16 original documentation had been destroyed.
17 Q. Was the independent reviewer able to verify
18 these charges through means other than viewing the original
19 documentation?
20 A. Yes. Similar to purchased services, the
21 independent reviewer obtained support for these charges
22 through Idaho Power's electronic accounting system.
23 Q. How did Idaho Power test support for the labor
24 c harges included in the transaction data statistical
25 sample?
PETERSEN , DI 24
Idaho Power Company
1 A. To test support for labor charges, Idaho Power
2 confirmed the hours worked by the employee for each
3 transaction included in the statistical sample with the
4 labor entry detail in the Company's time entry software
5 system.
6 Q. What were the results of the transaction
7 review of labor charges?
8 A. Labor charges were $42,233,061 of the total
9 $104,933,145 population. As noted above, due to the
10 additional controls around labor charges, Idaho Power
11 limited the sample of total labor charges to 25 of the
12 total 110. The statistical sample totaled $10,376 and all
13 transactions in the statistical sample agreed with
14 supporting detail, resulting in no labor charge exceptions.
15 Q. Please describe the results of the general
16 overheads transaction review.
17 A. Included in the transaction data population
18 was $342,802 of general overhead amounts of the total
19 $104,933,145. The statistical sample included one item,
20 for $67, and no high dollar samples. The transaction
21 amount was adequately supported by a voucher; therefore, no
22 exceptions were noted.
23 Q. What were the results of the transaction
24 review of other expenses?
25
PETERSEN, DI 25
Idaho Power Company
1 A. Other expenses included $6,432,455 of the
2 total population, resulting in a statistical sample of 13
3 and a high dollar sample of 11. The statistical sample
4 included transaction data totaling $8,561 while the high
5 dollar sample totaled $791,610. The statistical and high
6 dollar sample review resulted in eight and three
7 exceptions, respectively.
8 Q. Please describe the exceptions noted in the
9 other services statistical sample.
10 A. The statistical sample included a total of 13
11 transactions of which eight resulted in an exception.
12 Similar to exceptions in other categories, six of the
13 exceptions were associated with transactions for which
14 original documentation had been destroyed due to the
15 Company's records retention policy. For the two remaining
16 transactions, no underlying scanned or paper source
17 document exists. The total amount of all exceptions was
18 $7,748.
19 Q. Was the independent reviewer able to obtain
20 other support for these transactions through means other
21 than the original documentation?
22 A. Yes. While the original scanned or paper
23 documents no longer exist, the Company was able to verify
24 the transaction records in Idaho Power's electronic
25 accounting systems, either Asset Suite or PeopleSoft.
PETERSEN, DI 26
Idaho Power Company
1 Q. What were the exceptions noted in the high
2 dollar sample?
3 A. Of the two exceptions noted in the high dollar
4 sample of other services transaction data, one was the
5 result of documentation that had been destroyed due to the
6 Company's record retention policy and one lacked a scanned
7 or paper copy supporting documentation. The total of the
8 two transactions was $24,285.
9 Q. Similar to previous exceptions, was the
10 independent reviewer able to obtain support for these
11 transactions?
1 2 A. Yes. The independent reviewer was able to
13 verify these transactions through electronic means in the
14 same manner previously detailed.
15 Q. Please describe the results of the accounting
16 entry transaction review.
17 A. The transaction data included in the
18 population associated with accounting entries was
19 $2,197,968. The statistical sample included one item, for
20 $11,448, and no high dollar samples. The transaction
21 amount was adequately supported by a voucher; therefore, no
22 exceptions were noted.
23 AFUDC Transaction Review
24 Q. What analytical procedures were performed to
25 test AFUDC costs?
PETERSEN, DI 27
Idaho Power Company
1 A. As mentioned previously in my testimony, Idaho
2 Power designed a substantive analytical test of AFUDC
3 charges by year in order to test the reasonableness of
4 recorded HCC relicensing AFUDC costs. The Company
5 determined that recalculating AFUDC based on set criteria
6 and comparing those amounts to the recorded amount would be
7 an appropriate test.
8 Q. What expectations did Idaho Power have with
9 regard to the results of the testing?
10 A. As explained earlier in my testimony, Idaho
11 Power expected the recalculated HCC relicensing AFUDC costs
12 would be within $200,000 and 3 percent of the recorded
13 AFUDC amounts. The statistical sample included 35
14 transactions, resulting in $146,072 of the total
15 $115,797,166 population.
16 Q. Were there any changes to the way Idaho Power
17 calculated AFUDC that had to be taken into account when
18 testing the transaction data?
19 A. Yes. First, prior to August 2007, Idaho Power
20 applied a simple rate to the accrual of AFUDC and did not
21 compound capitalized AFUDC. Beginning in August 2007,
22 Idaho Power changed the AFUDC calculation methodology based
23 on an interpretation of the Federal Energy Regulatory
24 Commission's ("FERC") Electric Plant Instructions and FERC
25 Order No. 561. Under the new methodology, Idaho Power
PETERSEN, DI 28
Idaho Power Company
1 began using a monthly compounding rate that equates to a
2 semi-annual compounding rate and applied the rate to the
3 appropriate construction costs, including overheads. Thus,
4 when testing the AFUDC transaction data prior to third
5 quarter 2007, the Company removed AFUDC and overhead
6 amounts from total charges before recalculating the AFUDC
7 during that period.
8 Q. What was the first step of the analytical
9 testing of AFUDC amounts?
10 A. Idaho Power began the analytical testing with
11 the 1999 beginning cumulative balance of total HCC
12 relicensing costs excluding AFUDC and overheads. Next, the
13 1999 c harges were added. The total was added to the prior
14 year's ending cumulative balance and divided by two
15 resulting in the average cumulative balances. This amount
16 was multiplied by the average monthly AFUDC rate for 1999.
17 The result was compared to the recorded AFUDC amount for
18 1999. If a variance of $200,000 and 3 percent was
19 identified, further investigation was performed.
20 Q. Please describe the next step in the
21 analytical testing of AFUDC amounts.
22 A. Next, the testing rolls forward by year.
23 Cumulative recalculated AFUDC amounts are also rolled
24 forward. When the testing reached August 2007 amounts, the
25 cumulative recalculated AFUDC was added to the
PETERSEN, DI 29
Idaho Power Company
1 recalculation to adjust for the change in methodology that
2 occurred. Thus, the results of the analytical testing were
3 further strengthened as recorded AFUDC was not used to
4 calculate compounding.
5 Q. What were the results of the substantive
6 analytical test?
7 A. Idaho Power's analytical testing noted 15 of
8 the 17 years were within the expected threshold. However,
9 two of the 17 years, 2001 and 2002, had variances greater
10 than the threshold. Upon further investigation, it was
11 determined that in July 2001, the Company inadvertently
12 stopped calculating AFUDC for all HCC relicensing costs.
13 The issue was identified in May 2002 and a correcting entry
14 was recorded. When the correction amount is applied to the
15 correct year, the analytical testing amounts are under
16 threshold for both 2001 and 2002; the total recalculated
17 AFUDC amount for all years was 0.66 percent different from
18 the recorded AFUDC amount.
19 Credit Transaction Review
20 Q. Please explain the credit testing performed on
21 the HCC relicensing cost transaction data.
22 A. In order to gain assurance that the credit
23 amounts within the transaction data are valid, and there is
24 not a larger unreconciled difference, a sample of the
25 credits was tested. There are over 15,000 rows of credits
PETERSEN, DI 30
Idaho Power Company
1 in the transaction data totaling $14,516,292 that should
2 have equal and offsetting debits . The purpose of the
3 credit testing is to verify that the credits net to zero
4 within the population and that there is not a larger
5 unreconciled difference.
6 Q. Were there any known variances in the credit
7 data prior to the corrunencement of Idaho Power's credit
8 transaction review?
9 A. Yes. As discussed previously, there is
10 currently an unreconciled difference of approximately
11 $170,000 between the total population of transaction review
12 data and amounts currently booked in CWIP.
13 Q. What does Idaho Power believe is the cause of
14 this variance?
15 A. Idaho Power believes this variance is the
16 result of certain credits contained in the data compiled
17 for the transaction review that are appropriately excluded
18 from the Company's actual CWIP balance.
19 Q. Is Idaho Power working to verify this
20 assumption?
21 A. Yes . The total credit transaction data is
22 comprised of 15,017 rows of data that are currently being
23 reviewed to verify this assumption.
24
25
PETERSEN, DI 31
Idaho Power Company
1 Q. Does this variance impact the results or
2 conclusions of the Company's comprehensive transaction
3 review?
4 A. No. As stated previously, the Company
5 believes this variance is the result of credits included in
6 the transaction review data that are appropriately excluded
7 from the Company's actual CWIP balance. Therefore, the
8 $170,000 variance does not impact the review of the work
9 order and AFUDC transactions, or the review of the
10 remaining credit transactions.
11 Q. What were the results of the credit testing of
12 the statistical sample?
13 A. Of the 106 transactions tested, three
14 transactions had a differing debit amount resulting in
15 exceptions. The first difference was the result of
16 inventory that had been charged to a HCC relicensing cost
17 work order but subsequently returned to inventory. Between
18 that time, the inventory had a price change, resulting in a
19 difference between the credit and debit amounts within the
20 transaction data. The second difference was similar; a
21 labor correction was performed through a time sheet
22 correction and between the time the two transactions
23 occurred, the benefits loading rate changed slightly.
24 Finally, the third difference was the result of an AFUDC
25 rate applied to a negative work order balance incorrectly
PETERSEN, DI 32
Idaho Power Company
1 resulting in a negative AFUDC amount. The sum of the three
2 differences was an overstatement of $7.89 in the credit
3 amounts . All three exceptions would be considered widely
4 accepted conventional accounting practices for an
5 accounting system as large and complex as I daho Power's
6 accounting system.
7 Q. What were the results of the credit testing of
8 the high dollar sample?
9 A. Of the 14 high dollar credit transactions
10 tested, there were two exceptions due to differing debit
11 amounts. The first difference was the result of a
12 materials credit to a HCC relicensing cost work order that
13 was $1.95 different than the debit amount due to price
14 changes that had occurred . The second was the result of an
15 error in the data pulled for t he transaction data file
16 overstating t he credit population by $26,216. Once the
17 transaction was removed, the variance between the
18 transaction data and the CWIP balance was reduced to
19 $148,908.
20
21
Q.
A.
What did you conclude from the credit testing?
Based on the credit testing performed, and the
22 evaluation of the error, the credit transactions appear
23 reasonable. As discussed previously, Idaho Power believes
24 that the remaining variance is t he result of credits
25 incorrectly included in the transaction data and the
PETERSEN, DI 33
Idaho Power Company
1 Company will continue to review the credit transactions to
2 find the source of the variance.
3
4
5
Q.
A.
V. SUMMARY OF RESULTS
Please summarize the results of the testing.
The following table summarizes the HCC
6 relicensing cost amounts tested and the results of the
7 testing:
Total CWIP dollars December 31, 2015 $ 220,905,435
Total dollars in master file population $ 220,730,311
Unreconciled difference $ 175,124
Error identified in credit testing $ (26,216)
Adjusted unreconciled difference $ 148,908
Corrected dollars in master file population after testing $ 220,756,527
Number of rows in master file population 186,309
Total AFUDC dollars in population $ 115,797,166
Total non-AFUDC dollars in population $ 104,933,145
8 In total, the work order charge testing reviewed a
9 statistical sample of 110 transactions and a high dollar
10 sample of 33 transactions. Of the transactions, 21 items
11 no longer have original supporting documentation due to the
12 Company's record retention policy totaling $33,243.
13 However, the Company's independent reviewer was able to
14 obtain support for each of these transactions through
15 electronic records. The AFUDC statistical sample included
16 35 transactions. While six errors were identified for a
17 total of $22, four were determined to be an isolated
PETERSEN, DI 34
Idaho Power Company
1 incident , and the remaining two were immaterial . Finally ,
2 the credit testing included a statistical sample of 106
3 transactions and a high do l lar sampl e of 1 4 , for a total
4 population of ($738 ,073). While the testing identified an
5 incorrect credit transaction in the data file, the errors
6 identified were considered immaterial.
7 Q. What did the overall transaction review
8 conclude?
9 A. Idaho Power 's transaction review of the HCC
10 relicensing costs confirmed that the testing resulted in no
11 material errors individually or in aggregate , and the
12 dollar amounts reviewed were reasonable with respect to the
13 corresponding documentation. Based on these results , the
14 Company 's transaction review concluded that the Company 's
15 documentation and record keeping was thorough and within
16 reasonable expectations .
17 VI. DISCUSSION OF CERTAIN HCC PROJECT COST COMPONENTS
18 Q. Did Idaho Power review any additional
19 components of the transaction data?
20 A . Yes. In addition to the review of the
21 transaction data described earlier in my testimony , there
22 were four specific transactional categories that received
23 additional review and consideration . Two of the areas of
24 further review considered specific accounting
25 methodological changes that occurred during the course of
PETERSEN , DI 35
Idaho Power Company
1 the relicensing project. The other two areas of review
2 considered two specific cost categories that the Company
3 determined warranted adjustment.
4 Q. Will you please summarize the four specific
5 areas that received further review and consideration?
6 A. Yes. The following four specific cost
7 categories received additional review and consideration by
8 the Company: (1) HCC relicensing costs during the 1991 -
9 1996 time period, (2) an AFUDC computational methodology
10 change that occurred in 2007 , (3) capitalized employee
11 incentive amounts within the HCC relicensing CWIP balance,
12 and (4) AFUDC amounts that were inadvertently not accrued
13 in 1997 and 1998.
14 Q. Please explain your additional review of the
15 HCC relicensing costs between 1991 and 1996.
16 A. As described in Mr. Randolph's testimony,
17 prior to 1997 relicensing activity was recognized for
18 accounting purposes as operations and maintenance expenses
19 or "expensed" in the year incurred. The Company began
20 capitalizing HCC relicensing costs in 1997. Idaho Power
21 performed an additional review of the expenses incurred
22 between 1994 and 1996 to confirm whether or not the amounts
23 expensed could have been cap italized, and if the current
24 HCC CWIP balance appropriately captures the current
25 accounting methodology that was applied.
PETERSEN, DI 36
Idaho Power Company
1 Q. What was the total of the HCC relicensing
2 costs expensed between 1994 and 1996?
3 A. Idaho Power expensed $2,763,674 in HCC
4 relicensing costs between 1994 and 1996.
5
6
Q.
A.
What was the result of the additional review?
Idaho Power determined that while the Company
7 could have capitalized costs associated with HCC
8 relicensing activities beginning in 1991, when the Company
9 made its determination to begin capitalizing costs in 1997,
10 a reclassification of 1994 through 1996 costs that Idaho
11 Power reviewed was not performed. Because these project
12 costs were treated as expense prior to 1997 and reflected
13 in the Company 's profit and loss statements for those
14 years, the Company has determined it is appropriate to
15 exclude those amounts from the balance for which it seeks a
16 prudence determination in this case.
17 Q. Please describe your additional review of the
18 AFUDC computational methodology change that occurred in
19 2007.
20 A. As described earlier in my testimony, Idaho
21 Power made a change to the AFUDC calculation methodology in
22 2007 to comply with FERC's guidance. Prior to August 2007,
23 Idaho Power applied a simple rate to the accrual of AFUDC
24 and did not compound interest on capitalized AFUDC.
25 Beginning in August 2007, Idaho Power changed the AFUDC
PETERSEN, DI 37
Idaho Power Company
1 calculation methodology to correspond with an
2 interpretation of FERC's Electric Plant Instructions and
3 FERC Order No. 561. Under the new methodology, Idaho Power
4 began using a monthly compounding rate that equates to a
5 semi-annual compounding rate and applied the rate to the
6 appropriate construction costs, including overheads. Under
7 my direction, the Company further reviewed this change in
8 methodology.
9 Q. What were the results of the Company's
10 additional review of this methodological change?
11 A. Idaho Power's additional review determined
12 that FERC's Electric Plant Instructions, along with FERC
13 Order No. 561 issued in 1977, provides for the semi-annual
14 compounding of AFUDC. Thus, Idaho Power was eligible to
15 begin compounding AFUDC when the Company first began
16 recording AFUDC. The review also determined that, in
17 August 2007 when Idaho Power began compounding AFUDC, the
18 Company chose not to make a retroactive adjustment to total
19 AFUDC amounts accrued to date.
20 Q. Has the Company quantified what the AFUDC
21 correction amount would have been had the Company made a
22 retroactive adjustment?
23 A. Yes. If, the Company had chosen to make a
24 retroactive adjustment to begin the compounding of AFUDC in
25 late 2007 when Idaho Power began booking AFUDC amounts, the
PETERSEN, DI 38
Idaho Power Company
1 Company would have made an adjustment of approximately $11
2 million through December 31, 2015.
3 Q. Is Idaho Power proposing an adjustment to the
4 HCC relicensing costs the Company is requesting a prudence
5 determination on to account for the compounding of AFUDC
6 prior to late 2007?
7 A. No. Even though it would have been acceptable
8 to make a retroactive adjustment, because the Company in
9 2007 chose to only apply the compounding methodology on a
10 prospective basis, the Company is not recommending
11 retroactive application of that methodology in the case of
12 the HCC project CWIP balances at issue in this case.
13 Q. Please explain the Company's review and
14 consideration of capitalized employee incentive amounts
15 included in the HCC relicensing costs currently in CWIP.
16 A. During the compilation and review of the
17 transaction data, Idaho Power discovered capitalized
18 employee incentive amounts included in the 1999 through
19 2002 work order cost charges totaling $681,153. These
20 capitalized employee incentive amounts are comparable to
21 incentive amounts the Idaho Public Utilities Commission
22 ("Commission") removed from the test year revenue
23 requirement in the Company's 2003 general rate case, Case
24 No. IPC-E-03-13. In Order No. 29505 (p. 15) the Commission
25 concluded that, based on the then current structure of the
PETERSEN, DI 39
Idaho Power Company
1 Company's employee incentive plan, incentive plan costs
2 should not be included in the test year. The revenue
3 requirement approved in Order No. 29505 included an
4 adjustment that removed from the 2003 test year all
5 employee incentive amounts included in rate base and
6 operations and maintenance expense. In recognition and
7 consideration of the regulatory treatment applied in Order
8 No. 29505, Idaho Power has removed $1,564,618 in
9 capitalized incentive accrued from 1999 through 2002,
10 including AFUDC, from the HCC relicensing costs currently
11 in CWIP.
12 Q. What was the nature of the Company's review
13 and consideration of AFUDC amounts related to HCC
14 relicensing costs during 1997 and 1998?
15 A. When Idaho Power first began capitalizing HCC
16 relicensing costs, the Company began investigating whether
17 or not AFUDC should accrue on relicensing costs because the
18 costs were not associated with a project physically under
19 construction. In 1999, the Company received an answer to
20 an inquiry to FERC regarding the question. Based on FERC
21 guidelines, Idaho Power determined it was appropriate to
22 accrue AFUDC on relicensing costs. The Company, however,
23 failed to make a correction to the 1997 and 1998 AFUDC
24 amounts. When discovered in the transaction review, Idaho
25 Power determined that it would be appropriate to correct
PETERSEN, DI 4 0
Idaho Power Company
1 the total HCC relicensing costs included in CWIP by
2 applying the 1997 and 1998 AFUDC amounts as this is common
3 practice when adjustments need to be made to AFUDC on work
4 orders.
5 Q. What was the amount of the AFUDC adjustment
6 related to the 1997 and 1998 HCC relicensing costs
7 currently in CWIP?
8 A. Idaho Power added $1,505,013 in AFUDC
9 associated with 1997 and 1998 capitalized relicensing costs
10 to the total HCC relicensing costs in CWIP.
VII. CONCLUSION 11
12 Q. Please summarize the conclusion you reached
13 following your comprehensive review and consideration of
14 the HCC project costs .
15 A. Idaho Power's transaction review of the HCC
16 relicensing costs confirmed that the testing resulted in no
17 material errors individually or in aggregate, and the
18 dollar amounts reviewed were reasonable with respect to the
19 corresponding documentation. Based on these results, and
20 the two adjustments I described earlier, I have concluded
21 that the HCC relicensing costs contained in the CWIP
22 balance appear reasonable.
23 Having reached this conclusion, Idaho Power is
24 requesting prudence of $220,845,830. This includes the
25 $220,905,435, less the removal of $1,564,618 associated
PETERSEN, DI 41
Idaho Power Company
1 with capitalized incentive amounts , plus the $1,505 ,013 in
2 1997 and 1998 AFUDC amounts.
3
4
Q.
A.
Does this complete your testimony?
Yes , it does.
PETERSEN , DI 42
Idaho Power Company
1 ATTESTATION OF TESTIMONY
2
3 STATE OF IDAHO
4 ss.
5 County of Ada
6
7 I, Ken W. Petersen, 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 Vice
11 President, Corporate Controller and Chief Accounting
12 Officer and am competent to be a witness in this
13 proceeding.
14 I declare under penalty of perjury of the laws of
15 the state of Idaho that the foregoing pre-filed testimony
16 and exhibits are true and correct to the best of my
17 information and belief.
18 DATED this 14 th day of December 2016.
19
20
21
22
23
24
25
26
27
28
29
----=---
SUBSCRIBED AND SWORN to before me this 14 th day of
December 2016.
ary
Residing at. Boise, Idaho
My commission expires: 12/20/2020
PETERSEN, DI
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-16-32
IDAHO POWER COMPANY
PETERSEN, DI
TESTIMONY
EXHIBIT NO. 5
Idaho Power Company
Hells Canyon Complex Relicensing Cost Testing
Sample Selection Summary
Total dollars in population 220,730,31 1
Total AFUDC in population 115,797,166
Non AFUDC charges 104,933,145
Non AFUDC charges sample size 110
Judgmentally reduced labor sample size 25
Remaining sample 85
AFUDC sample size 35
Level J: Dollars are separated by year and weighted. This weighting is then applied to the sample above. The sample is now weighted for years
with more dollars.
1997 [!:evel 11 1998 ILevel lj 1999 [!:ev•l lj
Direct charges, less labor 1,431,434 2.3% 2 3,040,820 4.8% 4 4,851,281 7.7%
Labor 1,466,131 3.5% I 2,218,132 5.3% I 2,801156 6.6%
Tota] direct charges 2,898, 11 I 5,258,952 1,659,031
AFUDC 0.0% 0.0% 947,720 0.8%
Total 2,898.11 I 5.258.952 8,606,757
Level 2: Because the number of transactions could skew the sample towards high volume transaction types, the sample is further weighted by
cost element within each year. This weighting is then applied to the sample per year above. The sample now targets the high dollar cost elements.
1997 [!:evel lj 1998 [Level lj 1999 [!:evel lj
Materials 55,926 4% 141.858 5% 261.063 6%
Purchased Services 1,015,612 71% I 2.209.089 73% 3 3,610,234 74%
Accounting Entries 0% 0% 0%
General Overheads 0% 141,796 5% 191,050 4%
Other Expenses 359,896 25% I 548,077 18% I 782,934 16%
1,431,434 2 3,040,820 4 4,851,281
IPCO Labor 1,466.737 I 2,218.132 I 2.807,756
Total 2.898.171 5.258.952 7.659.037
1
2
I
I
5
I
1
2
TRUE TRUE TRUE TRUE TRUE TRUE
()
II> (/)
(I)
AZ . 0 "U . ro -m -u.-.."Ux II> (I) () ::::,­
(0 ci1 I CT
(I) (I) r;n ;:::;.: _. _::, .... z
o -'?>o -"U w. W () N o,
AFUDC 947,720
Grand Total HCC Costs 2,898,171 5,258.952 8,606,757
TRUE TRUE TRUE
Level 3: Detail of the individual cost elements was randomly sampled based on the above sample sizes.
2000 [Level II 2001 !Level II 2002 [!:evel lj
5,681,638 9.1% 8 4,089,513 6.5% 6 3,336,641 5.3%
3,257,614 7.7% 2 3,461,087 8.2% 2 3,723,963 8.8%
8,945,252 7,550,660 1,060,604
1,584,351 1.4% 1,038,181 0.9% 1,695 37K 1.5%
10,529,609 8,588,841 8,155.982
2000 [Levell! 2001 [Levell! 2002 ILevellj
212.145 5% 128,837 3% 111.139 3%
4,662.552 82% 7 3,511,806 86% 5 2,659.034 80% 4
137.312 2% 160.267 4% 114.476 3%
11,109 0% (5,935) 0% 478 0%
604,460 11% I 294,598 7% I 451,514 14% I
5,687,638 8 4,089,573 6 3,336,641 5
3.257,614 2 3,461,087 2 3,123.963
8.945.252 7.550.660 7.060.604
TRUE TRUE TRUE TRUE TRUE TRUE
1,584,357 1,038,181 1,695,378
10,529,609 8,588,841 8,755.982
TRUE TRUE TRUE
Idaho Power Company
Hells Canyon Complex Relicensing Cost Testing
Sample Selection Summary
Total dollars in population 220,730,31 1
Total AFUDC in population 115,797,166
Non AFUDC charges 104,933,145
Non AFUDC charges sample size 110
Judgmentally reduced labor sample size 25
Remaining sample 85
AFUDC sample size 35
Level 1: Dollars are separated by year and weighted. This weighting is then applied to the sample above. The sample is now
weighted for years with more dollars.
2003 Jan..Julz [!;eve! II 2003 Aut:Dec [!;evel 11 2004 [!;evtl 11 2005
2,063,445 3.3% 3 1,425,181 2.3% 2 3,983,913 6.4% ; 3,667.062
2,323,600 5.5% t I 262,351 3.0% I 2,351,334 5.6% 2 1,866,506
4,387,045 2,687,532 6,335,247 5,533,568
2,059,toO 1.8% t 1,635,975 1.4% 3,686,275 3.2% I 4,364,757
6,446,145 4,323,507 10.02 1.522 9.898.325
[Level II
5.8%
4.4%
3.8%
Level 2: Because the number of transactions could skew the sample towards high volume transaction types, the sample is further weighted by cost
element within each year. This weighting is then applied to the sample per year above. The sample now targets the high dollar cost elements.
2003 Jan-Jut:.
112,198
1,674,467
80,133
196,647
2,063,445
2,323,600
[Level 2J
5%
81%
4%
0%
10%
2003 Au1:Dec
62,549
I, 150,036
57,238
J<;<; 158 ----------~ 1,425,181
1,262,351
2,687,532
[Levell!
4%
81% 2
4%
0%
11%
2
l
2004 ILevel 21 2005 (Levell!
163.021 4% 232.404 6%
3.150.562 79% 4 3.035.967 83%
137.372 3% 137.371 4%
271 0% t,193 0%
532,687 13% I 260,127 7%
3,983,913 5 3,667,062
2.351.334 2 1.866.506
6.335.247 5.533.568
5
t
I
I
3
I
5
I
4,387,045
TRUE TRUE TRUE TRUE TRUE TRUE TRUE TRUE
2,059,100 1,635,975 3,686,275
6,446,145 4,323,507 10.021.522
TRUE TRUE TRUE
Level 3: Detail of the individual cost elements was randomly sampled based on the above sample sizes.
()
Ill (/)
CD /\ z . 0 "U .
CD -m -u---ux Ill CD () ::J"
(0 iii I CT CD CD m -·
N .::J ..'....;
o -'f>o -"U (,,). W () N 01
4,364,757
9.898.325
TRUE
2006 [!;eve! II 2007 [Level II 2008 [!;ev•l 11 2009 [!;evel 11
3,766.392 6.0% 5 3,080,641 4.9% 4 2,361,603 3.8% 3 2,238,484 3.6%
1,947.026 4.6% t 1,558,748 3.7% I l,5!0,309 3.6% t 1,727,286 4.1%
5,713.418 4,639,389 3,871,912 3,965,770
4,758,349 4.1% t 5,497,226 4.7% 2 5,376,024 4.6% 2~ 6.7%
10.471.767 10.136.615 9,247.936 11,751.081
2006 [Levell! 2007 [Levell! 2008 (Level 21 2009 [Level 21
165.369 4% 147.002 5% 132.155 6% 59.847 3%
3.541.054 94% 5 2.548,725 83% 3 1.878.054 80% 2 1.825-°95 82%
137.37 1 4% 137.372 4% 137.372 6% I 137.372 6%
1,948 0% 892 0% 0% 0%
(79,350) -2% 246,650 8% I 214,022 9% 216,170 10% l
3,766,392 5 3,080,641 4 2,361,603 3 2,238,484 3
1.947.026 l 1.558.748 l 1,510,309 I 1,727.286
5.713.418 4.639.389 3.871.912 3.965. 770
TRUE TRUE TRUE TRUE TRUE TRUE TRUE TRUE
4,758,349 5,497,226 5,376,024 7,785,311
10.471.767 10,136,615 9,247.936 11,751.081
TRUE TRUE TRUE TRUE
Idaho Power Company
Hell! Canyon Complex Relicen!ing Co5l Testing
Sample Selection Summary
Total dollars in population 220,730,311
Total AFUDC in population 11 5,797,166
Non AFUDC charges 104,933,145
Non AFUDC charges sample siu 110
Judgmentally reduced labor sample siu 25
Remaining sample 85
AFUDC sample size 35
Level 1: Dollars are separated by year and weighted. This weighting is then applied to the sample above. The sample is now weighted for
years with more dollars.
2010 !Level II 2011 [!:eve! II 2012 !Level II 2013
1,939,350 3.1% 3 2,21U,82U 3.5% 3 2,909,372 4.6% 4 3,532,482
1,722,792 4.1% I 1,636,181 3.9% I I 682 368 4.0% I 1,791,924
3,662,142 3,847,001 4,591,740 5,324,406
9,436,561 8.1% 3 IU,803,541 9.3% 3 11,764,225 10.2% 4 12,975,564
13,098,703 14.650.542 16,355,965 18,299,970
~.111
5.6%
4.2%
11.2%
Level 2: Because the number of transactions could skew the sample towards high volume transaction types, the sample is further weighted by cost element
within each year. This weighting is then applied to the sample per year above. The sample now targets the high dollar cost elements.
2010 [!;:evel21 2011 1Level21 2012 [!;:evel2J 2013 [Level2J
119,463 6% I 35.321 2% 43.294 1% 80.246 2%
1,523,125 79% 2 1,890,164 85% 3 2.537.427 87% 3 3,086,994 87%
137,372 7% 137.376 6% 137.376 5% 137.376 4%
0% 0% 0% 0%
159,390 8% 147,959 7% 191,275 7% I 227,866 6%
1,939,350 3 2,210,820 3 2,909,372 4 3,532,482
1,722,792 I J.636,181 I 1,682,368 I 1,791,924
3,662,142 3.847.001 4.591.740 5.324.406
5
I
4
4
I
5
I
TRUE TRUE TRUE TRUE TRUE TRUE TRUE TRUE
9,436,561 10,803,541 11,764,225
13,098,703 14.650,542 16.355,965
TRUE TRUE TRUE
Level 3: Detail of the individual cost elements was randomly sampled based on the above sample sizes.
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18.299.970
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2014 (L•nl 1) 2015 (!;:ev•l 11 Total Som el• Total
3,115,338 5.0% 4 3,%8,614 6.3% 4 62,700,084 85 TRUE
1,846,305 4.4% I 2,071,042 4.9% I 42,233,061 25 TRUE
4,%1,643 6,039,656 104,933,145
14,534,803 12.6% 4 15,853,819 13.7% 5 115 797 166 35 TRUE
19,496,446 21,893.475 220,730,3 11 145
2014 (Level2J 2015 JLevellJ Total Somel• Total
44.976 1% 76,072 2% 2,450,885
2,729,017 81S% 4 3,036.960 77% 3 51,275,974 67
137.376 4% 137.376 3% 2,197.968
0% 0% 342,802
203,969 7% 718,206 18% I 6,432,455 13
3,115,338 4 3,968,614 4 62,700,084 85 TRUE
1,846,305 I 2.071,042 I 42,233,061 25 TRUE
4.961.643 6.039.656 104.933.145
TRUE TRUE TRUE TRUE TRUE
14,534,803 15,853,819 115,797.166
19,496,446 21.893.475 220,730,311
TRUE TRUE TRUE
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-16-32
IDAHO POWER COMPANY
PETERSEN, DI
TESTIMONY ..
EXHIBIT NO. 6
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Idaho Power Company
Hells Canyon Complex Relicensing Cost Testing
Summary of Testing & Results
1. WO charge testing (non-AFUDC): In order to gain assurance over the WO charges in the HCC relicensing balance a statistical
sample was tested. The WO charge population is broken into several cost elements which were considered in sampling.
Total dollars in population
Number of stat sample selections
Number of judgmental selections
Cost Elements:
Materials
Purchased Services
Sample details:
PoEulation
$ I 04,933, 145
110
33
Accounting Entries
General Overheads
Materials
$ 2,450,885 $
3
3
Dollars tested $ 4,113,296 $ 86,110 $
Results:
Population Materials
Purchasing card transactions w/o hard copy support 12 2
Fleet vehicle usage w/o hard copy support 5 0
Other unsupported 4 0
Dollars w/o hard copy support $ 33,243 $ 58 $
Purchased
Services
51,275,975
67
19
3,205,124
Purchased
Services
1
7
0
1,152
Other Expenses
Labor
$
$
$
Accounting
Entries
2,197,969
11,448
Accounting
Entries
-
I
0
0
0
0
General
Overheads
$ 342,802
1
0
$ 67
General
Overheads
$ -
0
0
0
Other
ExEenses
$ 6,432,455
$
$
13
11
800,171
Other
ExEenses
3
5
3
32,033
Labor
$ 42,233,061
25
0
$ 10,376
Labor
0
0
0
$ -
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Idaho Power Company
Hells Canyon Complex Relicensing Cost Testing
Summary of Testing & Results
2. AFUDC Testing: AFUDC was tested separately from other costs due to its mechanical calculated nature. A substantive
analytical procedure, in combination with a recalculation ofa statistical sample was performed.
The analytical procedure was performed with the expectation that a recalculation of AFUDC by year should be within + or -
$200,000 and 3% of the recorded AFUDC.
Substantive analytical results:
I) IPC noted two of the 17 years, 2001 & 2002, (no AFUDC in 1997-98) with variances greater than threshold. Upon further
investigation it was determined in July 2001 AFUDC was inadvertently stopped calculating for the Hells Canyon Complex.
The issue was identified and entry recorded in May 2002. When the amount is included in its correct year both 2001 & 2002
are under threshold. In total the recalculated AFUDC was -.66% from the recorded AFUDC.
Sample details:
Total dollars in population
Number of sample selections
Dollars tested
Results:
Errors identified
Isolated incident*
$
$
$
Po_l)_ulation
115,797,166
146,072
Total
Dollars
Immaterial
22
$
Statistical
Sam_1J_le
35
146,072
Statistical
Sam_1J_ie
2
4
*!PC noted four of the 35 in our sample affected by an isolated incident. During deficiency testing in 2015 an error in the
AFUDC system calculation was detected. The system was applying the AFUDC rate to the average of the ending balance and
ending balance vs. correctly averaging the beginning and ending balance. The error was evaluated and deemed immaterial and
therefore not corrected. The error only affected the period of April 2014 through detection. The total error across all WOs in
the company was $153,418 overstatement of CWIP and AFUDC revenue. As this is a known isolated incident extrapolation is
deemed inappropriate. The $ I 53k is across all WOs of the company not just HCC WOs, therefore the potential exposure is
much less.
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Idaho Power Company
Hells Canyon Complex Relicensing Cost Testing
Summary of Testing & Results
3. Credit Testing: In order to gain assurance that the credit amounts within the data are valid, and there is not a larger
unreconciled difference, a sample of credits was tested.
Sample details:
Total number of transactions
Total dollars in population $
Number of sample selections
Dollars tested $
Results:
Errors identified*
Po_1rnlation
15,017
14,516,292
120
738,073
Total
Dollars
Immaterial
$
Statistical
Samp_le
106
161,552
Statistical
Samp_le
31
Judgmental
Samp_le
14
$ 576,521
Judgmental
Samp_le
1J
Note: In the judgmental high dollar sample $26,216 was identified as improperly included in the HCC transaction file.
Removing the amount reduces the unreconciled difference between the transaction file and 2015 amount included in CWIP to
$148,906. This is not an error in the HCC dollars, only an error item in the transaction file.