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HomeMy WebLinkAbout20230601Direct Tatum.pdf BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION OF IDAHO POWER COMPANY FOR AUTHORITY TO INCREASE ITS RATES AND CHARGES FOR ELECTRIC SERVICE IN THE STATE OF IDAHO AND FOR ASSOCIATED REGULATORY ACCOUNTING TREATMENT. ) ))) )) CASE NO. IPC-E-23-11 IDAHO POWER COMPANY DIRECT TESTIMONY OF TIMOTHY E. TATUM TATUM, DI 1 Idaho Power Company Q. Please state your name, business address, and 1 present position with Idaho Power Company (“Idaho Power” or 2 “Company”). 3 A. My name is Timothy E. Tatum. My business 4 address is 1221 West Idaho Street, Boise, Idaho 83702. I am 5 employed by Idaho Power as Vice President of Regulatory 6 Affairs. 7 Q. Please describe your educational background. 8 A. I earned a Bachelor of Business Administration 9 degree in Economics and a Master of Business Administration 10 degree from Boise State University. I have also attended 11 electric utility ratemaking courses, including “Practical 12 Skills for The Changing Electric Industry,” a course 13 offered through the New Mexico State University’s Center 14 for Public Utilities, “Introduction to Rate Design and Cost 15 of Service Concepts and Techniques” presented by Edison 16 Electric Utilities Consultants, Inc., and Edison Electric 17 Institute’s “Electric Rates Advanced Course.” In 2012, I 18 attended the Utility Executive Course (“UEC”) at the 19 University of Idaho. 20 Q. Please describe your work experience with 21 Idaho Power. 22 A. I began my employment with Idaho Power in 1996 23 in the Company’s Customer Service Center where I handled 24 customer phone calls, customer-related transactions, and 25 TATUM, DI 2 Idaho Power Company general customer account maintenance in the areas of 1 billing and metering. 2 In June of 2003, I began working as an Economic 3 Analyst on the Energy Efficiency Team. As an Economic 4 Analyst, I was responsible for ensuring that the demand-5 side management (“DSM”) expenses were accounted for 6 properly, preparing and reporting DSM program costs and 7 activities to management and various external stakeholders, 8 conducting cost-benefit analyses of DSM programs, and 9 providing DSM analysis support for the Company’s Integrated 10 Resource Plan. 11 In August 2004, I accepted a position as a 12 Regulatory Analyst and in August of 2006, I was promoted to 13 Senior Regulatory Analyst. As a Senior Regulatory Analyst, 14 my responsibilities included the development of complex 15 financial studies to determine revenue recovery and pricing 16 strategies, including preparation of the Company’s cost-of-17 service studies. 18 In September of 2008, I was promoted to Manager of 19 Cost of Service, and in 2011, I was promoted to Senior 20 Manager of Cost of Service and oversaw the Company’s cost-21 of-service activities, such as power supply modeling, 22 jurisdictional separation studies, class cost-of-service 23 studies, and marginal cost studies. 24 TATUM, DI 3 Idaho Power Company In March 2016, I was promoted to Vice President of 1 Regulatory Affairs. As Vice President of Regulatory 2 Affairs, I am responsible for the overall coordination and 3 direction of the Regulatory Affairs Department, including 4 development of jurisdictional revenue requirements and 5 class cost-of-service studies, preparation of rate design 6 analyses, and administration of tariffs and customer 7 contracts. 8 I. CASE OVERVIEW 9 Q. What role did you play in the preparation of 10 the general rate case (“GRC”)? 11 A. My role in the preparation of the GRC was to 12 oversee, manage, and coordinate the filing and to make the 13 policy decisions related to regulatory matters in 14 consultation with Ms. Lisa Grow, our Company’s President 15 and Chief Executive Officer, along with other senior 16 officers within Idaho Power. 17 Q. What is Idaho Power’s requested revenue 18 increase this case? 19 A. The Company is requesting rate relief of 20 approximately $111.3 million, which is net of a 21 corresponding proposed Power Cost Adjustment (“PCA”) 22 decrease of $173.4 million and a reduction to annual Energy 23 Efficiency Rider collection of $3.5 million. If approved, 24 this request would result in an overall increase to 25 TATUM, DI 4 Idaho Power Company adjusted base revenue of 8.61 percent effective January 1, 1 2024. The Company’s request is based on a proposed rate of 2 return of 7.702 percent, with a capital structure comprised 3 of 51 percent equity and 49 percent debt, a 4.895 percent 4 cost of debt, and a 10.40 percent return on equity (“ROE”). 5 Q. What is the Company’s test year? 6 A. The test year is the 12 months ending December 7 31, 2023. 8 Q. Why is Idaho Power requesting a corresponding 9 PCA decrease of $173.4 million in this case? 10 A. Idaho Power’s current Idaho base rates collect 11 approximately $300 million annually to fund normalized or 12 “base level” net power supply expense (“NPSE”). This level 13 of NPSE collection authorized by Order No. 33000 in Case 14 No. IPC-E-13-20 became effective June 1, 2014, based on a 15 2013 calendar year. Since that time, the Company’s 16 normalized NPSE has increased largely because of load 17 growth and changes in fuel costs, market energy prices, and 18 increased power purchase agreement costs. Currently, 19 incremental NPSE over the base level NPSE established in 20 2014 are collected annually through the PCA forecast 21 component. Because the Company’s requested Idaho-22 jurisdictional revenue requirement in this case reflects 23 updated base level NPSE based on the 2023 test year, the 24 Company is requesting a corresponding decrease in annual 25 TATUM, DI 5 Idaho Power Company PCA collection to ensure customers do not pay twice for the 1 same NPSE. Simply put, this necessary PCA reduction will 2 facilitate the transfer of base level NPSE collection from 3 the PCA into base rates. 4 Q. How is energy efficiency currently funded at 5 Idaho Power? 6 A. The Company’s energy efficiency activities, 7 also referred to as DSM, are primarily funded through the 8 Energy Efficiency Rider, Schedule 91 (“Rider”), which is 9 applied as a fixed percentage of each customer’s billed 10 base revenue. Idaho Power is currently authorized to 11 collect 3.1 percent of base revenue annually through the 12 Rider. 13 Q. What is the Company’s proposal regarding 14 annual Rider collection? 15 A. Idaho Power is proposing to transfer 16 approximately $3.5 million in ongoing Rider-funded labor 17 costs into base rates, while otherwise maintaining the same 18 level of annual DSM funding as measured in dollars that 19 exists today. To achieve this goal, the Company is 20 proposing a decrease in Rider collection from the current 21 3.1 percent to 2.25 percent. 22 Q. Why is the Company proposing to transfer 23 approximately $3.5 million in ongoing DSM labor costs in 24 this rate filing? 25 TATUM, DI 6 Idaho Power Company A. There are two reasons for this proposal. 1 First, energy efficiency has been a core business activity 2 at Idaho Power for over 20 years, since the Rider was 3 established in 2002. At the time the Rider was established, 4 the Company identified all incremental costs associated 5 with implementing and managing new DSM programs, including 6 incremental labor-related costs, to be funded through that 7 mechanism. Over time, DSM program management and 8 administration staffing has reached a relatively steady 9 state, both from a cost and head-count perspective. For 10 these reasons, it is appropriate to treat DSM labor the 11 same as any other Company labor costs for ratemaking 12 purposes. 13 Secondly, DSM labor costs have been a point of 14 concern for the Commission Staff (“Staff”) in past prudence 15 review cases. My understanding of Staff’s concern is that 16 Rider-funded labor, under the annual prudence review 17 process, has allowed for recovery of labor-related costs 18 annually without the rigorous, comprehensive review applied 19 in general rate cases. By treating DSM labor the same as 20 all other labor costs for cost recovery purposes, Idaho 21 Power believes this will address Staff’s concern. 22 Q. What is the implication of this proposal for 23 energy efficiency activities going forward? 24 A. The proposed reduction in energy efficiency 25 TATUM, DI 7 Idaho Power Company Rider funding will have no impact on the Company’s pursuit 1 of cost-effective energy efficiency activities. This 2 adjustment is only intended to transfer the collection of 3 energy efficiency labor costs to base rates and to ensure 4 that the increase to base rate revenue requested in this 5 case does not result in an increase to the annual revenue 6 collected under the Rider. As always, Idaho Power will 7 monitor the need for energy efficiency funding and will 8 propose adjustments to funding levels as warranted to allow 9 for the Company’s continued pursuit of all cost-effective 10 energy efficiency. 11 Q. Is Company seeking any specific regulatory 12 treatment related to wildfire mitigation and insurance 13 costs as part of this case? 14 A. Yes. Idaho Power requests the Commission 15 continue to authorize the Company to defer incremental 16 wildfire mitigation and insurance costs as measured from a 17 new base level of costs established in this case. This 18 proposed treatment is consistent with the authority granted 19 by the Commission in Case Nos. IPC-E-21-02 and IPC-E-22-27, 20 with certain limited modifications. 21 In this case, the Company is only requesting 22 authority to defer incremental costs associated with two 23 previously authorized cost deferral categories of 24 vegetation management and insurance. 25 TATUM, DI 8 Idaho Power Company Q. Why is Idaho Power requesting ongoing deferral 1 authority for incremental vegetation management and 2 insurance expenses above the baseline levels set in this 3 case? 4 A. As discussed in the Direct Testimony of 5 Company Witness Mr. Brian Buckham, insurance costs have 6 increased in recent years and continue to rise. Further, 7 insurance costs are increasingly difficult to forecast due 8 to price volatility. While Idaho Power undertakes 9 significant efforts to ensure it receives the greatest 10 insurance value possible for its customers, the Company is 11 largely a price-taker in the insurance market and must 12 absorb price increases as insurers raise premiums due to 13 losses. Therefore, the Company believes it is appropriate 14 to request a new baseline level of insurance in rates and 15 also to establish a new deferral to capture incremental 16 insurance premium costs above the new baseline. 17 Similarly, as addressed in detail in the Direct 18 Testimony of Company Witness Mr. Mitch Colburn, vegetation 19 management costs continue to rise. These costs constitute 20 the largest single expense associated with the Company’s 21 wildfire mitigation efforts. As such, the Company requests 22 the authority to continue to defer incremental vegetation 23 management above the new baseline established in this case 24 until such a time that these costs stabilize. 25 TATUM, DI 9 Idaho Power Company Q. Is the Company requesting new deferral 1 authority for wildfire-mitigation related capital items? 2 A. No. Because the Company has already made the 3 majority of necessary incremental capital investments 4 related to the implementation of its Wildfire Mitigation 5 Plan, there is no longer a need to defer related 6 depreciation expense amounts. 7 Q. Is the Company requesting any other specific 8 regulatory treatment as part of this case? 9 A. Yes. The Company has several requests for 10 specific regulatory treatment and necessary regulatory 11 accounting as part of this case that I will cover in detail 12 later in my testimony. At the end of my testimony, I will 13 provide a summary listing each of those requests for 14 clarity and transparency. 15 II. TEST YEAR 16 Q. How did the Company prepare its test year in 17 this proceeding? 18 A. Idaho Power prepared its 2023 test year in 19 this case using the same general forecast methodology used 20 in the Company’s last two general rate cases, IPC-E-08-10 21 and IPC-E-11-08. The Company’s test year methodology starts 22 with actual 12-month financial results adjusted to include 23 typical and traditional ratemaking adjustments consistent 24 with a historical test year. The adjusted 2022 actual 25 TATUM, DI 10 Idaho Power Company financial information was then further adjusted to reflect 1 2023 results through the use of known and measurable 2 adjustments appropriate for the particular revenue, 3 expense, or asset classification. 4 Q. What attributes should be considered when 5 selecting a test year? 6 A. In practice, in every rate case, a test year 7 must be selected. Whether the test year selected is 8 historical, future, or some hybrid, the most important 9 attribute of the selected test year should be that it 10 accurately reflects the best expectation of the cost of 11 service. 12 Regardless of which test year is adopted, the 13 ratemaking process is inherently prospective and requires 14 reliance upon projections. Whether the test year is 15 completely historical or based totally on future results, 16 the ratemaking process requires an informed determination 17 of what conditions will prevail in the future. As of the 18 date of filing, Idaho Power has used its best financial and 19 operational information to construct its forecast test 20 year. 21 Utility commissions and policy makers throughout the 22 country, and particularly in the West, are increasingly 23 recognizing that in times of high inflation and heavy 24 construction, future test years are necessary to allow 25 TATUM, DI 11 Idaho Power Company utilities a reasonable opportunity to earn their authorized 1 rate of return. Utilities that operate in a period of rapid 2 expansion and rate base growth will chronically under-earn 3 if test years are historical in nature and fail to 4 synchronize the matching of expenses and revenues. 5 Ultimately, Idaho Power must apply a test year 6 approach that is both timely and reflective of the costs 7 that the Company can reasonably expect to incur going 8 forward. A historical test year is by definition not timely 9 and may not be a reflection of costs going forward. 10 Similarly, a test year based on a reasonable forecast may 11 be more indicative of the costs the Company will be 12 experiencing during the time rates are in place, thereby 13 reducing the effects of “regulatory lag”. 14 Q. Why is regulatory lag such a critical issue 15 to Idaho Power at this time? 16 A. During periods of escalating costs where 17 marginal costs are higher than average costs, new rates are 18 already inadequate by the time they go into place. If this 19 situation continues for a prolonged period of time, the 20 Company will be denied a reasonable opportunity to earn its 21 authorized rate of return. The effects of regulatory lag 22 are particularly pronounced in periods where the Company is 23 engaged in capital-intensive projects and where interest 24 rates to finance capital projects are rising. 25 TATUM, DI 12 Idaho Power Company Q. Is regulatory lag always harmful to a 1 utility? 2 A. No. The impact of regulatory lag is 3 dependent upon the situation – if overall revenue growth is 4 keeping pace with cost escalation, and the Company is not 5 engaged in capital-intensive projects and procuring debt 6 and equity financing for those projects, then the Company 7 is not typically harmed by regulatory lag. Unfortunately, 8 Idaho Power is not in that situation currently, and will 9 not likely be for the foreseeable future. 10 III. REVENUE REQUIREMENT MITIGATION ADJUSTMENTS 11 Q. Did you receive any specific instructions from 12 Ms. Grow in preparing this general rate case filing? 13 A. Yes. In recognition of the broader economic 14 conditions and concern for the impact that any rate 15 increase has on customers, Ms. Grow asked me to identify 16 specific areas where the Company could reduce the requested 17 increase at this time. As a result, I identified the 18 following areas where the Company is not asking for 19 incremental increases or has otherwise taken action to 20 minimize the overall requested revenue increase: 21 • Reduce return on equity (“ROE”) from the 22 recommended level of 10.60 percent to 10.40 percent; 23 • Hold test year non-labor operations and 24 maintenance (“O&M”) expenses to the 2022 actual level with 25 TATUM, DI 13 Idaho Power Company the exception of a limited number of known and measurable 1 adjustments; 2 • Maintain the North Valmy Power Plant 3 (“Valmy”) and the Jim Bridger Power Plant (“Bridger”) non-4 fuel coal-related cost recovery at current levels, with the 5 exception of collection related to previously deferred 6 revenue requirement amounts; 7 • Minimize the current revenue increase 8 related to wildfire mitigation and pension costs by 9 leveraging the existing cost recovery mechanisms; and 10 • Delay recovery of the revenue requirement 11 associated with the 120 megawatts (“MW”) of battery storage 12 resources to be online in 2023 with interim earnings 13 support from the associated investment tax credits 14 generated from the battery storage resources. 15 Q. How did the Company arrive at its recommended 16 mitigated ROE of 10.4 percent? 17 A. After discussions with Mr. Buckham, Senior 18 Vice President and Chief Financial Officer, regarding Ms. 19 Grow’s directive to mitigate our rate relief request, the 20 Company decided to apply an ROE that is at the lower end of 21 the range provided by our outside ROE expert. Mr. Buckham 22 believes this recommendation represents the minimum 23 required ROE necessary to not weaken the Company’s ability 24 to attract capital at favorable and customer-beneficial 25 TATUM, DI 14 Idaho Power Company rates in the current uncertain and volatile financial 1 markets. 2 Q. What steps did the Company take to minimize 3 the level of non-labor O&M included in the test year and 4 what were the results? 5 A. The Company chose to hold test year non-labor 6 O&M expense to the 2022 actual level, with the exception of 7 a limited number of known and measurable adjustments. As 8 discussed by Ms. Grow in her testimony, the Company has a 9 strong track record of managing its O&M expenses, and as a 10 result has achieved an average annual O&M growth rate of 11 only one percent between 2012 and 2022. After applying all 12 known and measurable adjustments to the 2022 actual 13 financial results, Idaho Power’s proposed test year non-14 labor O&M is within approximately $340 thousand of the 2022 15 expense level. 16 Q. What is the Company’s recommendation regarding 17 the recovery of non-fuel coal-related revenue requirements 18 associated with the Valmy and Jim Bridger power plants? 19 A. Because the Commission has previously 20 established separate cost recovery mechanisms for these 21 components of the Valmy and Bridger plants in Order Nos. 22 33771 and 35423, respectively, the Company is proposing to 23 maintain the current level of recovery as previously 24 authorized by the Commission with one exception. In 25 TATUM, DI 15 Idaho Power Company addition to maintaining recovery of the amounts already 1 included in customer rates, the Company is proposing to 2 increase collections only related to the Bridger plant to 3 include revenue requirement amounts that the Commission 4 chose to defer for later recovery in Order No. 35423. 5 Q. What incremental Bridger-related cost recovery 6 is the Company requesting in this case? 7 A. Idaho Power is requesting recovery of the full 8 annual levelized revenue requirement approved in Case No. 9 IPC-E-21-17 and amortization of previously deferred 10 levelized revenue requirement amounts. The total 11 incremental annual Bridger-related cost recovery included 12 in this case is approximately $10.7 million. 13 Q. What is the Company’s recommendation regarding 14 the test year level of wildfire mitigation costs? 15 A. Idaho Power is proposing to hold test year 16 levels of wildfire mitigation costs to 2022 actual cost. 17 Further, the Company is requesting amortization into rates 18 of previously deferred wildfire mitigation costs, excluding 19 deferred vegetation management costs, over a seven-year 20 amortization period. 21 Q. Why is the Company requesting to exclude 22 deferred vegetation management costs as part of its 23 amortization request in this case? 24 A. As introduced earlier, vegetation management 25 TATUM, DI 16 Idaho Power Company costs represent the largest single cost component of the 1 Company’s overall wildfire mitigation costs. As a rate 2 mitigation measure, the Company chose to postpone the 3 recovery of deferred vegetation management costs and 4 instead continue to utilize the deferral account authorized 5 by the Commission in Order Nos. 35077 and 35717 issued in 6 Case Nos. IPC-E-21-02 and IPC-E-22-27, respectively. By 7 setting cost recovery at the 2022 level, the Company 8 anticipates that the need to defer incremental amounts over 9 time may diminish. 10 Further, the Company is hopeful that advances in new 11 vegetation monitoring technology may eventually reduce 12 annual vegetation management costs, allowing for deferred 13 amounts to be offset by future cost reductions, thereby 14 reducing the deferral balance. The Company will continue to 15 closely monitor its vegetation management costs and will 16 report back to the Commission in a future proceeding if an 17 adjustment to related cost recovery is warranted. 18 Q. How did the Company arrive at its recommended 19 test year pension cost recovery amount? 20 A. To arrive at its proposed test year pension 21 cost recovery amount, the Company considered several 22 factors, including its expected ongoing annual cash 23 contributions to the pension plan and the cost recovery 24 mechanism and balancing account approved by Commission 25 TATUM, DI 17 Idaho Power Company Order No. 31003 issued in Case No. IPC-E-09-29. In recent 1 years, the Company has been contributing approximately $40 2 million annually to fund its pension plan. While the annual 3 minimum required funding level fluctuates, this annual 4 level of funding has represented a levelized or normal 5 level of required funding. The Company’s current rates 6 include recovery of approximately $17 million a year. 7 Annual differences between the $40 million in annual cash 8 contributions to the pension plan and the $17 million of 9 recovery through rates have been deferred as authorized by 10 Order No. 31003. Rather than request recovery of the full 11 $40 million of annual pension funding, as a rate mitigation 12 measure, the Company is proposing to increase the current 13 $17 million in annual pension cost recovery to 14 approximately $35 million, and to continue to defer any 15 differences between collection and plan contributions 16 through the pension balancing account. If interest rates 17 continue to stay at current elevated levels or higher, the 18 associated discount rates used to determine annual pension 19 funding requirements are more likely to drive required plan 20 contributions down. While not known at this time, the 21 Company is hopeful that the $35 million in annual pension 22 cost recovery may ultimately provide sufficient revenue to 23 cover the ongoing required cash contributions to the plan 24 while also serving to reduce the regulatory asset in the 25 TATUM, DI 18 Idaho Power Company balancing account. 1 Q. What is the Company’s proposal regarding 2 deferred recovery of the 120 MW battery storage project to 3 be online in 2023? 4 A. As an additional rate increase mitigation 5 measure, the Company is proposing to delay recovery of the 6 revenue requirement associated with the 120 MW of battery 7 storage resources to be online in 2023, with interim 8 earnings support from the associated federal investment tax 9 credit (“ITC”) generated from the battery storage 10 resources. More specifically, the Company is requesting 11 authorization to 1) move to the Accumulated Deferred 12 Investment Tax Credits ("ADITC")/Revenue Sharing Mechanism 13 an additional amount of ITC equal to the incremental ITC 14 generated from the Company’s investment in the 2023 battery 15 storage projects, and 2) increase to the maximum allowed 16 annual accelerated amortization amount by a level of ADITC 17 equal to the actual revenue requirement of the battery 18 storage projects in any applicable year plus the current 19 annual $25 million cap authorized by Order No. 30978 issued 20 in Case No. IPC-E-09-30. 21 Q. Is the Company proposing to exclude the 120-MW 22 battery storage projects from rate base as part of this 23 proposal? 24 A. No. The Company is requesting a full prudence 25 TATUM, DI 19 Idaho Power Company review of the 120-MW battery storage projects as part of 1 this case, with the goal of receiving Commission approval 2 to include the Idaho jurisdictional portion of the 3 investment in its Idaho rate base. As part of this rate 4 impact mitigation measure, the Company is proposing to 5 include in the final Idaho jurisdictional revenue 6 requirement a temporary credit adjustment equal to the 7 Idaho-jurisdictional share of the 120-MW battery revenue 8 requirement. This credit would remain in place until the 9 Company is authorized to recover the associated revenue 10 requirement in a future general rate case or other 11 applicable revenue requirement proceeding. 12 Q. Please provide an overview of the 13 ADITC/Revenue Sharing Mechanism. 14 A. Since 2009, the Company has been subject to an 15 ADITC/Revenue Sharing Mechanism that includes provisions 16 for the accelerated amortization of ADITC to help achieve a 17 minimum specified percent Idaho-jurisdiction return on 18 year-end equity (“Idaho ROE”), currently set at 9.4 19 percent. The mechanism also provides for the potential 20 sharing between Idaho Power and Idaho customers of Idaho-21 jurisdictional earnings in excess of a 10.0 percent Idaho 22 ROE. Under the current mechanism, the ADITC and sharing 23 thresholds are to be reset at a general rate case to align 24 the sharing threshold with the then-authorized ROE and the 25 TATUM, DI 20 Idaho Power Company use of accelerated amortization of ADITC at 95 percent of 1 the authorized ROE. 2 Q. What is the expected dollar value of the ITC 3 generated by the 120-MW battery storage investment? 4 A. The Company expects the 120 MW of battery 5 storage projects will generate approximately $45 million of 6 new federal ITC based on an assumption that the ITC will be 7 equal to 30 percent of total project cost under Section 48 8 of the Internal Revenue Code. 9 Q. What is the annual revenue requirement 10 associated with the 120 MW battery storage projects? 11 A. The test year revenue requirement associated 12 with the 120 MW battery storage projects is $21,149,854. 13 When considering the approximately $45 million of new 14 federal ITC associated with the investment, the ITC 15 represents approximately two years of the annual revenue 16 requirements for the batteries. 17 Q. Under the Company’s proposal, what will happen 18 to the ITC generated from the 120-MW battery projects, if 19 they have not been amortized prior to the time the Company 20 is allowed to recover the cost of the batteries in customer 21 rates? 22 A. The Company proposes that the ITC remain 23 available for accelerated amortization under the provisions 24 of the ADITC/Revenue Sharing Mechanism until fully 25 TATUM, DI 21 Idaho Power Company amortized - either on an accelerated basis or according to 1 the standard amortization schedule tied to the depreciable 2 life of the associated asset. Both maintain the Company’s 3 long-standing compliance with federal and state ITC 4 normalization rules. 5 Q. Does the $21,149,854 test year revenue 6 requirement include an offsetting annual benefit of the 7 amortization of associated ITC? 8 A. Yes. The $21,149,854 test year revenue 9 requirement includes the impacts of ITC using the standard 10 amortization schedule that ties to the depreciable life of 11 the associated asset. An ITC amortization benefit would 12 remain in future associated revenue requirement 13 calculations until the ITC are fully amortized. 14 Q. Aside from deferring the rate impact of the 15 battery projects, what other benefits will customers 16 receive? 17 A. Aside from deferring the rate impact of the 18 battery projects, customers will continue to receive the 19 benefits of the ITC for ratemaking purposes until the ITC 20 has been fully amortized as I previously described. As has 21 been the case since the ADITC/Revenue Sharing Mechanism was 22 first implemented, customer rates have continued to reflect 23 the offsetting benefit of ITC amortization and, as of 24 December 31, 2022, the Company has not utilized any of the 25 TATUM, DI 22 Idaho Power Company currently available ADITC for accelerated amortization. In 1 this instance, customers are guaranteed to get the benefits 2 of service from the 120 MW of batteries at no cost in the 3 near-term, while preserving an opportunity to still benefit 4 from that ITC in future ratemaking proceedings. 5 IV. WITNESS LIST 6 Q. What was your level of involvement with the 7 preparation of the testimony and exhibits presented by the 8 other Company witnesses? 9 A. I discussed the content and preparation of 10 the witnesses’ testimony and exhibits with Ms. Connie 11 Aschenbrenner (Rate Design Senior Manager), Mr. Matthew 12 Larkin (Revenue Requirement Senior Manager), and Mr. 13 Donovan Walker (Lead Counsel), as well as Ms. Lisa 14 Nordstrom (Lead Counsel) and Ms. Megan Goicoechea Allen 15 (Corporate Counsel). 16 Q. Please provide an overview of the Company’s 17 general rate case filing. 18 A. The Company begins the presentation of its 19 case with Ms. Grow’s testimony, who provides a general 20 overview of the Company and addresses Idaho Power’s current 21 financial and operating situation and need for general rate 22 relief. My testimony is next and covers the regulatory 23 policy matters related to the development of the general 24 rate case. 25 TATUM, DI 23 Idaho Power Company Mr. Eric Hackett, Projects and Design Senior 1 Manager, discusses the growth in the Company’s generation-2 related rate base since the completion of the Company’s 3 last general rate case, up to and including major projects 4 expected to be completed during the 2023 test year. He 5 presents the prudent nature of these investments, detailing 6 why they are needed to ensure Idaho Power’s generation 7 fleet is robust and well-positioned to provide continued 8 safe, reliable service to customers. Mr. Hackett is also 9 the witness who presents the costs associated with, and an 10 operation overview of, the 120-MW battery projects placed 11 into service in 2023. 12 Ms. Lindsay Barretto, 500 kV and Joint Projects 13 Senior Manager, discusses the prudent nature of investments 14 made at Bridger and Valmy since the Company’s last prudence 15 determinations before the Commission. 16 Mr. Mitch Colburn, Vice President of Planning, 17 Engineering and Construction, discusses investments the 18 Company has made in the electrical grid to ensure the 19 provision of safe, reliable service to customers. 20 Specifically, Mr. Colburn details Idaho Power’s recent 21 history of reliability and system performance that 22 demonstrates a thoughtful approach to grid construction and 23 maintenance. He also presents specific investments included 24 in the Company’s 2023 test year that demonstrate the 25 TATUM, DI 24 Idaho Power Company Company’s prudent investment in the electrical grid at the 1 transmission and distribution levels. Finally, Mr. Colburn 2 reviews the Company’s wildfire mitigation efforts and 3 associated capital and O&M expenditures. 4 Mr. James “Bo” Hanchey, Vice President of Customer 5 Operations and Chief Safety Officer, describes the 6 Company’s Safety First culture and ongoing efforts to 7 enhance our customers’ overall experience with the Company. 8 Mr. Hanchey also describes the Company’s advancements in 9 energy efficiency as well as customer relations activities 10 and related technology upgrades. 11 Ms. Sarah Griffin, Vice President of Human 12 Resources, provides justification for the labor and total 13 compensation costs included in the Company’s test year. Ms. 14 Griffin also describes the Company’s overall compensation 15 philosophy and explains why the level of compensation 16 requested in this case is necessary to provide safe, 17 reliable, affordable electricity to customers. As part of 18 this discussion, she also provides the justification for 19 the requested increase in cost recovery related to the 20 Company’s pension plan, which serves as a key component of 21 Idaho Power’s overall compensation package. 22 The next witness is Mr. Adrien McKenzie, who has 23 been retained by the Company as its ROE expert. Mr. 24 McKenzie discusses risk factors relevant to Idaho Power, 25 TATUM, DI 25 Idaho Power Company performs calculations of ROE appropriate for the Company 1 using standard financial methodologies, and recommends a 2 reasonable ROE range appropriate for Idaho Power. In this 3 proceeding, Mr. McKenzie’s ROE range is from 10.10 to 11.10 4 percent. 5 Mr. Brian Buckham, Idaho Power Company’s Senior Vice 6 President and Chief Financial Officer, builds on Mr. 7 McKenzie’s recommendations by more specifically addressing 8 the relevant risk factors impacting the Company. Mr. 9 Buckham selects a 10.40 percent ROE point estimate as the 10 appropriate cost of equity, supports the cost of Idaho 11 Power’s long-term debt, and includes the long-term debt and 12 the 10.40 percent ROE in the test year capital structure to 13 derive the Company’s proposed overall rate of return. 14 Ms. Paula Jeppsen, the Company’s Forecasting and 15 Planning Director, next testifies to the actual 2022 16 financial results with standard ratemaking adjustments. Ms. 17 Jeppsen describes the development and application of the 18 methodologies used to prepare the 2022 base financial 19 information and the adjustments to those data associated 20 with deductions to certain expenses not allowed in rates, 21 certain adjustments to expenses and rate base, and other 22 adjustments to revenues, expenses, and rate base related 23 primarily to past Commission orders. 24 Mr. Matthew Larkin, Revenue Requirement Senior 25 TATUM, DI 26 Idaho Power Company Manager, describes how the Company utilized the 2022 1 financial data as presented by Ms. Jeppsen as a starting 2 point from which he made conservative adjustments to derive 3 similar data corresponding to the 2023 test year. Mr. 4 Larkin prepared an exhibit that details the method and 5 rationale for each adjustment he utilized in developing the 6 2023 test year data. Once he determined the 2023 test year 7 system-level data, Mr. Larkin supervised the preparation of 8 the jurisdictional separation study utilized to determine 9 the Idaho jurisdictional revenue requirement. 10 Ms. Jessica Brady, Regulatory Analyst, provides the 11 normalized net power supply expenses for the test year and 12 addresses the requisite changes to the Company’s PCA as a 13 result of changing the normalized net power supply expenses 14 in Idaho Power Company’s base rates. 15 Ms. Kelley Noe, Regulatory Consultant, incorporates 16 Ms. Jeppsen’s financial data, Mr. Larkin’s test year 17 adjustments, Mr. Buckham’s overall rate of return 18 recommendation, and Ms. Brady’s normalized net power supply 19 expenses, along with other necessary inputs, and prepares 20 the jurisdictional separation study (“JSS”). The JSS, as 21 its name states, separates system values for rate base, 22 revenues, and expenses for each state jurisdiction through 23 an assignment and allocation process that is described in 24 detail in Ms. Noe’s testimony. One result of the JSS is the 25 TATUM, DI 27 Idaho Power Company Idaho retail jurisdictional revenue requirement, which is 1 the Company’s best representation of its expected annual 2 cost to serve its Idaho retail customers. The 2023 Idaho 3 jurisdictional revenue requirement is $1,404,314,821. In 4 order to obtain this amount, Idaho’s annual retail revenues 5 will need to increase by $111,304,981 or 8.61 percent. 6 Ms. Connie Aschenbrenner, Rate Design Senior 7 Manager, describes the Company’s approach to rate design 8 strategy as well as the policy basis for the rate design 9 proposals being made in this case. Ms. Aschenbrenner also 10 presents an overview of the Company’s approach to 11 developing pricing for its on-site generation customers, 12 specifically considering interdependencies between this 13 case and Case No. IPC-E-23-14, which is currently pending 14 before the Commission. 15 Mr. Pawel Goralski, Regulatory Consultant, uses the 16 Idaho retail jurisdictional output from the JSS as 17 developed by Ms. Noe and further separates costs by 18 customer class and special contract in preparing the 19 Company’s class cost-of-service study (“CCOS”). The study 20 prepared by Mr. Goralski in this case presents an approach 21 most similar to that used by the Company in its last 22 general rate case, with certain modifications and 23 additions. In the Company’s 2008 general rate case, IPC-E-24 08-10, the Commission approved a cost-of-service 25 TATUM, DI 28 Idaho Power Company methodology termed “3CP/12CP” and the Company subsequently 1 used a similar methodology in its 2011 general rate case, 2 IPC-E-11-08, which was ultimately settled without a 3 Commission decision regarding the filed CCOS. Mr. Goralski 4 used that same CCOS method as the starting point for his 5 CCOS in this case and then applied modifications to the 6 seasonal definition for peak capacity allocation, the 7 classification of baseload resources between demand and 8 energy, and other changes described in his testimony. Mr. 9 Goralski recommends that his CCOS be used as the 10 appropriate starting point for rate spread (the process of 11 spreading the Idaho jurisdictional revenue requirement to 12 the customer classes and special contract customers) and 13 rate design (the ultimate calculation of rates for 14 customers). Mr. Goralski also presents the Company’s rate 15 recommendations for its special contract customers and 16 Schedule 20, Speculative High-Density Load as well as the 17 proposed Fixed Cost Adjustment rates and the corresponding 18 modifications to Schedule 54. 19 Mr. Grant Anderson, Regulatory Consultant, presents 20 the Company’s proposed rate design and resulting prices for 21 the residential classes, including standard service 22 (Schedule 1), time-of-use (Schedule 5), and residential on-23 site generation (Schedule 6) and explains the Company’s 24 Residential Price Modernization Plan. Mr. Anderson also 25 TATUM, DI 29 Idaho Power Company presents the rate design proposals for Small General 1 Service On-Site Generation (Schedule 8), Large General 2 Service – Primary and Transmission (Schedule 9P/T) and 3 Large Power customers (Schedule 19). 4 Mr. Zack Thompson, Regulatory Analyst, presents the 5 rate design proposals for Small General Service (Schedule 6 7), Large General Service – Secondary (Schedule 9S), 7 Agricultural Irrigation Service (Schedule 24), Dusk to Dawn 8 Customer Lighting (Schedule 15), Street Lighting Service 9 (Schedule 41), Traffic Control Signal Lighting Service 10 (Schedule 42), and Non-Metered General Service (Schedule 11 40). 12 Finally, Riley Maloney describes the recommendation 13 for the Company’s Standby Service schedules (Schedules 31 14 and 45) and Alternate Distribution Service schedule 15 (Schedule 46). Mr. Maloney also presents several proposed 16 modifications to the Company’s tariff. 17 V. RATE SPREAD AND RATE DESIGN 18 Q. What has been Idaho Power’s policy with regard 19 to rate spread and rate design proposals? 20 A. Idaho Power has consistently advocated for the 21 principle that rate spread among the customer classes, and 22 for component pricing within the customer classes, should 23 be primarily cost-based. Accordingly, the Company’s 24 ratemaking proposals have traditionally advocated movement 25 TATUM, DI 30 Idaho Power Company toward cost-of-service results that assign costs to those 1 customers that cause the Company to incur the costs. The 2 Company is also committed to providing customers cost-based 3 price signals, which encourage the wise and efficient use 4 of energy. As such, I have directed Ms. Aschenbrenner to 5 design cost-based rate proposals that also encourage 6 increased energy efficiency among the Company’s Residential 7 Service, Large General Service, Large Power Service and 8 Irrigation customer groups. 9 Q. Do the Company’s proposals in this case 10 strictly adhere to that objective? 11 A. No. The Company realizes that there are often 12 other ratemaking objectives, such as rate stability, 13 ability to pay, and mitigating rate shock, that the 14 Commission may consider in making its determination. 15 However, the Company believes that the best starting point 16 for Commission deliberations is an economic one. 17 Nevertheless, because some ratemaking situations may cause 18 abrupt change, Idaho Power has traditionally proposed some 19 limits to the movement toward cost-of-service. The 20 specifics of the Company’s proposed rate spread and an 21 exhibit delineating the target revenue requirement for each 22 customer class are contained in Mr. Goralski’s testimony. 23 Q. What guidance did you provide Mr. Goralski 24 regarding cost-of-service constraints applied to the rate 25 TATUM, DI 31 Idaho Power Company spread ultimately recommended? 1 A. First, I discussed the CCOS prepared for this 2 case with Mr. Goralski and agreed that his recommended CCOS 3 methodology represented the preferred starting point in 4 this proceeding to develop the recommended rate spread. 5 However, this method when applied without constraints, does 6 show a larger impact to a number of customer classes 7 (relative to the overall average increase), most notably 8 Agricultural Irrigation, Schedule 24. Given recent rate 9 pressures and the somewhat subjective nature of cost 10 allocation and year-to-year cost components, I asked Mr. 11 Goralski to run several rate mitigation scenarios to look 12 at the impacts of constraining the rate increase at 13 different levels. 14 After this review, the Company chose to impose a cap 15 of one and a half times the average revenue change for any 16 customer class or special contract customer exceeding the 17 overall average increase. This level allowed for a 18 reasonable level of revenue movement, while not 19 dramatically impacting the remaining classes that had to 20 make up the shortfall. 21 Q. How has Idaho Power addressed the cost-based 22 objective in its rate design proposals? 23 A. This objective has been met by the 24 implementation of seasonal rates for all metered service 25 TATUM, DI 32 Idaho Power Company schedules, and the implementation of rate structures that 1 reflect a greater emphasis on the demand and customer 2 components. The Company also proposes the continuation of 3 mandatory time-of-use pricing for Large Commercial 4 customers taking service at primary and transmission 5 voltages and all Large Power Service customers. In 6 addition, this objective has been met by offering optional 7 time-of-use pricing for Residential and Large General 8 service customers taking service at the secondary voltage 9 level. 10 Q. Please summarize the Company’s requested Price 11 Modernization Plan. 12 A. I directed Ms. Aschenbrenner to evaluate and 13 recommend a proposal that would move fixed cost collection 14 from volumetric rates into fixed charges, while mitigating 15 the bill impact to customers. In this case, the Company is 16 proposing the Commission authorize Idaho Power to implement 17 revenue neutral rate changes on January 1, 2025, and 18 January 1, 2026, to achieve this goal. The proposed three-19 year Price Modernization Plan appropriately mitigates 20 customer bill impacts while reducing reliance on the FCA. 21 VI. CONCLUSION 22 Q. Please summarize Idaho Power’s requested 23 revenue increase this case? 24 A. The Company is requesting rate relief of 25 TATUM, DI 33 Idaho Power Company approximately $111.3 million, which is net of a 1 corresponding proposed PCA decrease of $173.4 million and a 2 reduction to annual Rider collection of $3.5 million. If 3 approved, this request would result in an overall increase 4 to adjusted base revenue of 8.61 percent effective January 5 1, 2024. The Company’s request is based on a proposed rate 6 of return of 7.702 percent, with a capital structure 7 comprised of 51 percent equity and 49 percent debt, a 4.895 8 percent cost of debt, and a 10.40 percent ROE. This request 9 was developed using a test year of 12 months ending 10 December 31, 2023. 11 Q. Will you please summarize the Company’s other 12 requests for specific regulatory treatment and/or necessary 13 accounting authority proposed in this case? 14 A. In addition to approval of the base revenue 15 increase presented in this case and each of the affected 16 tariff schedules, the Company requests the Commission issue 17 an order that includes the following: 18 1. Approval of a revised Schedule 55, Power Cost 19 Adjustment, reflecting the transfer of certain 20 base level NPSE from the PCA to base rates. 21 2. Approval of a revised Schedule 91, Energy 22 Efficiency Rider, reflecting the transfer of 23 DSM labor-related cost collection from the 24 Rider into base rates. 25 TATUM, DI 34 Idaho Power Company 3. Approval of a revised Schedule 54, Fixed Cost 1 Adjustment, reflecting the modifications 2 necessary to support the Company’s proposed 3 rate designs. 4 4. Authorization of the continued deferral of 5 incremental vegetation management and insurance 6 costs in 2024 and beyond as measured from a new 7 base level of costs established in this case. 8 5. In association with the rate increase 9 mitigation measure proposed in this case, 10 authorization to 1) move to the ADITC/Revenue 11 Sharing Mechanism an additional amount of ITC 12 equal to the incremental ITC generated from the 13 Company’s investment in the 2023 battery 14 storage projects and 2) increase the maximum 15 allowed annual accelerated amortization amount 16 by a level of ITC equal to the actual revenue 17 requirement of the battery storage projects in 18 any applicable year plus the current $25 19 million cap. 20 6. Authorization to defer and amortize annual 21 differences between certain periodic 22 maintenance costs at the Langley Gulch and 23 Bennett Mountain natural gas-fired power plants 24 (as described in Mr. Larkin’s testimony). 25 TATUM, DI 35 Idaho Power Company 7. Approval of the Company’s request for its 1 proposed Residential Price Modernization Plan. 2 Q. Is it your opinion that the granting of the 3 rate relief proposed by the Company is in the public 4 interest? 5 A. Yes. The proposed rates will allow Idaho Power 6 to continue providing safe, reliable service at reasonable 7 rates while maintaining its financial health. 8 Q. Does this conclude your testimony? 9 A. Yes, it does. 10 // 11 //12 TATUM, DI 36 Idaho Power Company DECLARATION OF TIMOTHY E. TATUM 1 I, Timothy E. Tatum, declare under penalty of 2 perjury under the laws of the state of Idaho: 3 1. My name is Timothy E. Tatum. I am employed 4 by Idaho Power Company as the Vice President of Regulatory 5 Affairs. 6 2. On behalf of Idaho Power, I present this 7 pre-filed direct testimony. 8 3. To the best of my knowledge, my pre-filed 9 direct testimony is true and accurate. 10 I hereby declare that the above statement is true to 11 the best of my knowledge and belief, and that I understand 12 it is made for use as evidence before the Idaho Public 13 Utilities Commission and is subject to penalty for perjury. 14 SIGNED this 1st day of June 2023, at Boise, Idaho. 15 16 Signed: ___________________ 17 Timothy E. Tatum 18 19 20 21 22 23