20161214Tatum Direct.pdf

RECElVED
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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-16-32
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
TIMOTHY E. TATUM
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 Timothy E. Tatum. My business 4
5 address is 1221 West Idaho Street, Boise, Idaho 83702.
6 am employed by Idaho Power as the Vice President of
7 Regulatory Affairs in the Regulatory Affairs Department.
I
Q. Please describe your educational background. 8
9 A. I earned a Bachelor of Business Administration
10 degree in Economics and a Master of Business Administration
11 degree from Boise State University. I have also attended
12 electric utility ratemaking courses, including "Practical
13 Skills for The Changing Electrical Industry," a course
14 offered through New Mexico State University's Center for
15 Public Utilities, "Introduction to Rate Design and Cost of
16 Service Concepts and Techniques" presented by Electric
17 Utilities Consultants, Inc., and Edison Electric
18 Institute's "Electric Rates Advanced Course." In 2012, I
19 attended the Utility Executive Course at the University of
20 Idaho.
21 Q. Please describe your work experience with
22 Idaho Power.
23 A. I began my employment with Idaho Power in 1996
24 as a Customer Service Representative in the Company's
25 Customer Service Center where I handled customer phone
TATUM, DI 1
Idaho Power Company
1 calls and other customer-related transactions. In 1999, I
2 began working in the Customer Account Management Center
3 where I was responsible for customer account maintenance in
4 the areas of billing and metering.
5 In June of 2003, I began working as an Economic
6 Analyst on the Energy Efficiency Team. As an Economic
7 Analyst, I was responsible for ensuring that the demand­
s side management ("DSM") expenses were accounted for
9 properly, preparing and reporting DSM program costs and
10 activities to management and various external stakeholders,
11 conducting cost-benefit analyses of DSM programs, and
12 providing DSM analysis support for the Company's Integrated
13 Resource Plan .
14 In August of 2004, I accepted a position as a
15 Regulat ory Analyst in the Regulatory Affairs Department.
16 As a Regulatory Analyst, I provided support for the
17 Company's various regulatory activities, including tariff
18 administration, regulatory ratemaking and compliance
19 filings, and the development of various pricing strategies
20 and policies.
21 In August of 2006, I was promoted to Senior
22 Regulatory Analyst. As a Senior Regulatory Analyst, my
23 responsibilities expanded to include the development of
24 complex financial studies to determine revenue recovery and
25
TATUM, DI 2
Idaho Power Company
1 pricing strategies, including the preparation of the
2 Company's cost-of-service studies.
3 In September of 2008, I was promoted to Manager of
4 Cost of Service and, in April of 2011, I was promoted to
5 Senior Manager of Cost of Service and oversaw the Company's
6 cost-of-service activities, such as power supply modeling,
7 jurisdictional separation studies, class cost-of-service
8 studies, and marginal cost studies. In March 2016, I was
9 promoted to Vice President of Regulatory Affairs. As Vice
10 President of Regulatory Affairs, I am responsible for the
11 overall coordination and direction of the Regulatory
12 Affairs Department, including development of jurisdictional
13 revenue requirements and class cost-of-service studies,
14 preparation of rate design analyses, and administration of
15 tariffs and customer contracts.
16
17
Q.
A.
What is the Company requesting in this case?
Idaho Power is requesting a determination for
18 prudence on Hells Canyon Complex ("HCC") relicensing costs
19 of $220,845,830 incurred through December 31, 2015.
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21
Q.
A.
How is the Company's case organized?
The purpose of my testimony is to present the
22 Company's request for a prudence determination regarding
23 the $220,845,830 of HCC relicensing costs incurred by Idaho
24 Power through December 31, 2015, and to explain why a
25 prudence review is appropriate at this time. Company
TATUM, DI 3
Idaho Power Company
1 witness Chris Randolph will then present a narrative of the
2 activities Idaho Power has participated in, studies
3 performed, and documents prepared since the Company began
4 work in 1991 towards relicensing of the HCC, detailing the
5 prudent nature of these investments. Finally, Company
6 witness Ken W. Petersen will present a summary of the
7 evaluation Idaho Power performed to review the transaction
8 data associated with costs incurred through December 31,
9 2015, and explain his conclusion from the transaction
10 review that the Company's documentation and record keeping
11 was thorough and within reasonable expectations.
12
13
14
Q.
A.
I . HCC OVERVIEW
Please describe the HCC.
The HCC consists of three hydroelectric
15 projects (dams, reservoirs, and powerhouses) on the segment
16 of the Snake River forming the border between Idaho and
17 Oregon. The three projects, Brownlee, Oxbow, and Hells
18 Canyon, lie approximately 90 miles northwest of Boise.
19 River mile 247 of the Snake River below Hells Canyon Dam
20 and river mile 343 just above the upstream margin of
21 Brownlee Reservoir mark the downstream and upstream
22 boundaries of the complex. Flow past Brownlee Dam
23 discharges into Oxbow Reservoir. Oxbow Dam is about 12
24 miles downstream of Brownlee Dam. Flow past Oxbow Dam
25 discharges into Hells Canyon reservoir. Hells Canyon Dam
TATUM, DI 4
Idaho Power Company
1 is about 25 miles downstream of Oxbow Dam. The river below
2 Hells Canyon Dam is unobstructed by artificial structures
3 until it reaches the headwaters of Lower Granite Reservoir,
4 approximately 100 miles downstream of Hells Canyon Dam.
5 The HCC represents approximately 1,167 megawatts ("MW") of
6 nameplate generation capacity or 34 percent of the
7 Company's total generating capacity and is an important
8 source of low cost, clean electric energy for Idaho Power's
9 customers.
10
11
Q.
A.
Is a license required to operate the HCC?
Yes. As fully detailed in the testimony of
12 Mr. Randolph, Idaho Power is required to obtain a license
13 from the Federal Energy Regulatory Commission ("FERC") to
14 operate the HCC. The licensing process includes extensive
15 public review and involves numerous natural resource and
16 environmental agencies.
17 Q. Please provide an overview of the HCC
18 relicensing activities Idaho Power has participated in to
19 date.
20
21
A. Idaho Power's previous long-term license was
set to expire on July 31, 2005. In anticipation of that
22 expiration, the Company's relicensing efforts began in 1991
23 in preparation for the filing of a new license application,
24 which ultimately occurred in July 2003. Because the
25 Company's relicensing application is still pending, Idaho
TATUM, DI 5
Idaho Power Company
1 Power has been operating under annual licenses issued by
2 FERC since July of 2005 as the Company and stakeholders
3 work through outstanding issues associated with the pending
4 license application. Mr. Randolph explains the timeline of
5 both pre-and post-license submittal events in greater
6 detail, and fully explains the costs associated with these
7 activities.
8 Q. When does Idaho Power estimate receiving a new
9 license from FERC?
10 A. Although Idaho Power is unable to predict with
11 certainty the timing of the issuance of a new license for
12 the HCC, the Company estimates issuance of the license will
13 be delayed until at least 2021 .
14 Q. Idaho Power has been involved in relicensing
15 activities since the early 1990s, thus incurring costs over
16 the last several decades. What is Idaho Power's focus when
17 investing in HCC relicensing?
18 A. Idaho Power takes its responsibility of
19 prudently managing costs seriously and the Company believes
20 it is important to get the maximum value for its customers.
21 The Company's relicensing activities over the course of the
22 last three decades provide evidence supporting the
23 conscientious work of Idaho Power employees and efforts
24 made in managing HCC relicensing costs.
25
TATUM, DI 6
Idaho Power Company
1
2 Q.
II. PRUDENCE REQUEST
What amount of HCC relicensing costs is the
3 Company requesting the Idaho Public Utilities Commission
4 ("Commission") find were prudently incurred?
5 A. Idaho Power is requesting a prudence
6 determination on $220,845 ,830 of HCC relicensing costs
7 incurred by Idaho Power through December 31, 2015 .
8 Q. Why is the Company requesting a prudence
9 determination outside of a general rate case process when
10 the long-term license has not yet been issued?
11 A. There are a number of reasons why Idaho Power
12 is requesting a prudence determination on the $220,845,830
13 in HCC relicensing costs through December 31, 2015, at this
14 time: (1) the project has spanned nearly three decades to
15 date and the HCC is currently providing customers with a
16 clean, reliable generating resource , (2) the transaction
17 data file through year-end 2015 exceeds 186,000 rows of
18 data providing the opportunity for an extensive transaction
19 review, (3) Idaho Power's subject matter experts and key
20 employees involved in relicensing efforts to date are
21 nearing retirement, and (4) handling the prudence
22 determination outside a general rate case will allow the
23 Commission Staff to narrow their focus to HCC relicensing
24 costs in this request rather than when the Company files
25
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Idaho Power Company
1 its next general rate case. I will describe each of these
2 reasons in more detail later in my testimony.
3 Q. Is Idaho Power asking for recovery of any or
4 all of the $220,845,830 in HCC relicensing costs at this
5 time?
6 A. No. The Company is not requesting an
7 adjustment to customer rates at this time. However, Idaho
8 Power is requesting the Commission authorize the costs as
9 prudently incurred and eligible for inclusion in customer
10 rates at a later date.
11 Q. When Idaho Power ultimately files a request to
12 adjust customer rates to include recovery of HCC
13 relicensing costs, would the Company ask for recovery of
14 the entire $220,845,830 at issue in this case?
15 A. No. When Idaho Power ultimately files a
16 request to adjust customer rates to include recovery of HCC
17 relicensing costs, amounts related to HCC project
18 activities through 2015 will be less than the $220,845,830
19 under review in this case for two reasons. First, the
20 $220,845,830 in HCC relicensing costs the Company is
21 requesting as prudently incurred is the cost Idaho Power
22 has incurred on a system basis; it is not the Idaho
23 jurisdictional share of costs. Secondly, in Order Nos.
24 30722 and 32426, the Commission authorized Idaho Power to
25 collect $6,520,122 annually from the Company's Idaho
TATUM, DI 8
Idaho Power Company
1 jurisdictional customers for recovery of Allowance for
2 Funds Used During Construction ("AFUDC") associated with
3 the HCC relicensing project . Because customers have
4 already contributed to HCC relicensing costs , Idaho Power's
5 future request for recovery would be net of those
6 previously collected amounts and therefore less than the
7 $220,845,830 the Company is requesting as prudently
8 incurred in this filing .
9 Q. What is the year-end 2015 HCC relicensing
10 Construction Work in Progress ("CWIP") balance net of the
11 AFUDC amounts previously collected in customer rates?
12 A. AFUDC amounts collected from customers as of
13 December 31 , 2015 , are $58 ,834 ,892 , resulting in a net HCC
14 relicensing CWIP balance of approximately $162.1 million ,
15 on a system basis. The Idaho jurisdictional share of that
16 net CWIP balance would represent the project investment
17 through 2015 that Idaho Power would seek to recover from
18 customers in a future rate making proceeding.
19 Q. In Order No . 30722, the Commission instructed
20 Idaho Power to file a status report with the Commission by
21 November 15 , 2009 , regarding relicensing of the Hells
22 Canyon facilities , including the accumulation of AFUDC .
23 Since 2009 , Idaho Power has filed a report annually. Does
24 Idaho Power intend to file a report in 2016?
25
TATUM, DI 9
Idaho Power Company
1 A. No. Idaho Power believes this filing provides
2 an even greater detail of relicensing activity and AFUDC
3 accumulation than that discussed in Order No. 30722.
4 Q. Idaho Power is requesting prudence of
5 $220,845,830 in HCC relicensing costs as it operates under
6 temporary, annual licenses. Has Idaho Power prepared an
7 estimate of total costs the Company anticipates incurring
8 as it awaits a longer-term operating license from FERC?
9 A. Yes. As of September 30, 2016, Idaho Power
10 has approximately $240 million in HCC relicensing costs in
11 CWIP. While Idaho Power is unable to predict with
12 certainty the financial or operational requirements of a
13 new license, the Company estimates that the annual costs it
14 will incur to obtain the new long-term license, including
15 AFUDC but excluding costs expected to be incurred for
16 complying with the license after issuance, are likely to
17 range from $20 million to $30 million until issuance of the
18 new license. If FERC does not issue a new license until
19 2021, Idaho Power estimates HCC relicensing costs to be
20 between $350 million to $400 million.
21 Q. With a potential cost of nearly $400 million
22 to relicense, are Idaho Power's efforts cost-effective?
23 A. Yes. Based on the Company's expectations,
24 Idaho Power's efforts are cost-effective.
25 Q. What is the HCC's estimated cost per MW?
TATUM, DI 10
Idaho Power Company
1 A. Assuming total HCC relicensing costs of $400
2 million and 1 ,167 MW generating capacity, Idaho Power
3 estimates the HCC cost per kilowatt ("kW") is $358 .
4 Q. How does this compare to Idaho Power's most
5 recent generation addition, the Langley Gulch power plant?
6 A. The capital-cost estimate used in the 2015
7 Integrated Resource Plan for a Combined Cycle Combustion
8 Turbine is $1 ,145 per kW , far higher than the estimated
9 cost of HCC once a new license is received.
III. USED AND USEFUL STANDARD 10
11 Q. To be eligible for recovery in customer rates,
12 the prudence determination must find the costs are
13 associated with electric plant -in-service that is currently
14 used and useful . However, Idaho Power is operating the HCC
15 on short-term , one-year licenses and has not yet received
16 the long-term operating license. Does Idaho Power consider
17 the HCC used and useful?
18 A. Yes. Atypical to investments the Company
19 makes in other generation units, the HCC can continue to
20 provide Idaho Power a low cost , clean energy source of over
21 1 ,100 MW of generating capacity throughout the relicensing
22 process . Unlike during the construction of the Langley
23 Gulch power plant or throughout a major overhaul of a coal
24 unit , for the duration of the relicensing process Idaho
25 Power continues operating the HCC to the full extent ,
TATUM, DI 11
Idaho Power Company
1 providing customers the benefit of a plant that is used and
2 useful even during the relicensing process. The HCC is
3 operational, and is expected to remain operational,
4 throughout the relicensing process.
5
6
Q. You indicated Idaho Power does not anticipate
a new license until at least 2021. If FERC does not grant
7 Idaho Power a new, longer-term operating license, does
8 Idaho Power still consider the HCC to be used and useful?
9 A. Yes. As Idaho Power operates under temporary,
10 annual licenses, the HCC continues to provide the Company a
11 low cost, clean source of energy. The costs Idaho Power
12 has incurred over the past three decades are directly
13 correlated to the Company's efforts to license the HCC,
14 both for a temporary, annual license as well as towards a
15 long-term license.
IV. TRANSACTION DATA REVIEW 16
17 Q. Idaho Power has been incurring HCC relicensing
18 costs since the early 1990s. What is the magnitude of the
19 number of transactions associated with the Company's
20 prudence request of $220,845,830?
21 A. As explained in more detail in the testimony
22 of Mr. Randolph, the transaction data includes over 186,000
23 rows of detail associated with expenses incurred in the
24 last three decades in various activities that can be
25 categorized as: aesthetic, aquatic,
TATUM, DI 12
Idaho Power Company
1 archaeological/cultural , recreation , admin and legal ,
2 terrestrial/botanical, and wildlife . While the cost s can
3 further be segregated by cost element , including labor ,
4 purchased services , materials , accounting entries ,
5 overheads , and other expenses , the transaction data
6 available for review is voluminous . Thus , Idaho Power is
7 requesting prudence of the $220 ,845,830 in HCC relicensing
8 costs at this time .
9 Q. How is a prudence determination at this time
10 beneficial to the Company, stakeholders , and its customers
11 with respect to the volume of data subject to review?
12 A. Idaho Power is currently operating the HCC
13 complex under annual licenses as it awaits a 40 to 50 -year
14 license . Until that time , the Company will continue to
15 incur costs associated with relicensing of the complex . A
16 request for a prudence determination on HCC relicensing
17 costs through Decemb er 31, 2015 , wi ll provide a point at
18 which the Commission Staff can contain the transaction data
19 and the associated activities within a specific time period
20 to complete a review of costs incurred between 1997 and
21 2015 . Delays in the request for prudence review would
22 re s ult in an even greater volume of data required to be
23 reviewed as the Company continues the relicensing process .
24 Thus , Idaho Power believes a review now of HCC relicensing
25 costs incurred through December 31 , 2015 , is valuable .
TATUM , DI 13
Idaho Power Company
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V. IDAHO POWER EMPLOYEE RETIREMENTS
Q. Idaho Power has been involved in relicensing
activities since the early 1990s. Please describe the
4 roles of the employees involved in relicensing activities.
5 A. The efforts towards relicensing of the HCC
6 require expertise from several departments within Idaho
7 Power, including the relicensing department, environmental
8 affairs, water management, legal, finance, and generation
9 engineering. The oversight of the relicensing process
10 transitioned from a separate relicensing department to a
11 combined Relicensing and Environmental Affairs department,
12 which is overseen by Company witness Mr. Randolph. In
13 addition, the Idaho Power legal department, and when
14 required, outside legal counsel, have been an integral part
15 of the HCC relicensing team in the HCC relicensing process.
16 A number of key employees have spent a significant portion
17 of their careers working on relicensing efforts and are
18 nearing retirement.
19 Q. How does the retirement of Idaho Power
20 employees impact the Company's relicensing efforts?
21 A. Idaho Power will continue its relicensing
22 efforts following the retirement of any individuals
23 involved in relicensing efforts and has appropriate
24 successors in place to ensure continued progress on
25 securing a license. However, because key subject matter
TATUM, DI 14
Idaho Power Company
1 experts that have been involved in activities since the
2 time the relicensing efforts began, including Company
3 witness Mr. Randolph, have announced plans to retire, Idaho
4 Power determined a prudence filing at this time is timely
5 and appropriate.
6 Q. Why does Idaho Power believe a prudence filing
7 prior to employee retirements is important?
8 A. A prudence filing prior to the retirement of
9 key Idaho Power employees will allow the Commission access
10 to the wealth of knowledge the employees can provide
11 regarding the expenditures the Company has incurred, and
12 the activities associated with those costs, since
13 relicensing efforts began in the early 1990s. These
14 employees have firsthand experience with the relicensing
15 activities that occurred prior to filing the application
16 for a new license in July 2003 as well as an understanding
17 of subsequent efforts put forth to obtain the license.
18 VI. SINGLE ISSUE FILING FOR A PRUDENCE DETERMINATION
19 Q. You indicated Idaho Power is not requesting
20 the $220,845,830 in HCC relicensing costs be included in
21 customer rates until a later date. Why then is Idaho Power
22 requesting a prudence determination prior to filing a
23 general rate case?
24 A. As I discussed earlier, the transaction detail
25 associated with the costs incurred on HCC relicensing
TATUM, DI 15
Idaho Power Company
1 activities through December 31, 2015 is voluminous as it
2 covers expenses related to nearly three decades of
3 activities. As such, review of the transaction data by
4 Commission Staff will require some time. If the Company ·
5 waits until it files its next general rate case to request
6 prudence of HCC relicensing expenditures, a prudence
7 determination would be required at a time when the Company
8 is presenting a comprehensive test year requiring review by
9 the Commission Staff, resulting in a potentially burdensome
10 request.
11 Q. What other items would the Commission be
12 reviewing if the Company waited to file its prudence
13 request until its next general rate case?
14 A. Idaho Power filed its last general rate case
15 using a 2011 test year. The longer the Company goes
16 between the filing of rate cases, the more transaction data
17 the Commission has to consider for inclusion in customer
18 rates. If the Company did not request prudence regarding
19 HCC relicensing costs until that time, the Commission would
20 be tasked with reviewing at least 30 years of HCC
21 transaction data in addition to the multitude of other
22 issues typically included in a general rate case
23 proceeding. Separating the review of HCC relicensing
24 expenditures through December 31, 2015, into a prudence
25
TATUM, DI 16
Idaho Power Company
1 filing will afford Conunission Staff the ability for a more
2 focused, thorough prudence review.
3 Q. If the Conunission grants the Company's request
4 in this case, do you expect that any administrative
5 efficiency will be gained the next time the Company files a
6 general rate case?
7 A. Yes. If the Conunission grants the Company's
8 request for a prudence review of HCC relicensing costs
9 incurred through December 31, 2015, in this case, any
10 future request for a prudence review would include only
11 expenditures after 2015, resulting in a much smaller
12 transaction data file thus more manageable to review
13 alongside other general rate case issues.
VIII. CONCLUSION 14
15 Q. Please sununarize the Company's request in this
16 case.
17 A. Idaho Power is requesting a prudence
18 determination on the $220,845,830 in HCC relicensing costs
19 through December 31, 2015. The Company's relicensing
20 efforts have spanned nearly three decades to date while the
21 HCC continues to provide a clean, reliable generating
22 resource. The size of the transaction data file and the
23 scheduled retirements of key subject matter experts present
24 a timely opportunity for the prudence of expenditures to be
25 determined outside of a general rate case.
TATUM, DI 17
Idaho Power Company
1 Q. Does this complete your testimony?
2 A. Yes , it does.
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TATUM , DI 18
Idaho Power Company
1 ATTESTATION OF TESTIMONY
2
3 STATE OF IDAHO
4
5 County of Ada
6
ss.
7 I, Timothy E. Tatum, 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 of Regulatory Affairs in the Regulatory Affairs
12 Department 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.
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SUBSCRIBED AND SWORN to before me this 14 th day of
December 2016.
£'1fr!J;;fi}z1,y;;tdl
Residing at: Boise, Idaho
My commission expires: 12/20/20 2 0
TATUM, DI
Idaho Power Company