20230526Direct Tatum_REDACTED.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF IDAHO POWER
COMPANY’S APPLICATION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY TO ACQUIRE
RESOURCES TO BE ONLINE IN BOTH
2024 AND 2025 AND FOR APPROVAL OF
AN ENERGY STORAGE AGREEMENT WITH
KUNA BESS LLC.

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CASE NO. IPC-E-23-20

IDAHO POWER COMPANY

DIRECT TESTIMONY

OF

TIMOTHY E. TATUM
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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 5
am employed by Idaho Power as the Vice President of 6
Regulatory Affairs. 7
Q. Please describe your educational background. 8
A. I received a Bachelor of Business 9
Administration degree in Economics and a Master of Business 10
Administration from Boise State University. I have also 11
attended electric utility ratemaking courses, including 12
“Practical Skills for the Changing Electrical Industry,” a 13
course offered through New Mexico State University’s Center 14
for Public Utilities, “Introduction to Rate Design and Cost 15
of Service Concepts and Techniques” presented by Electric 16
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, and subsequently served as a member of 20
the UEC faculty from 2015 through 2019. 21
Q. Please describe your work experience with 22
Idaho Power. 23
A. I began my employment with Idaho Power in 1996 24
in the Company's Customer Service Center where I handled 25
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TATUM, DI 2
Idaho Power Company
customer phone calls and other customer-related 1
transactions. In 1999, I began working in the Customer 2
Account Management Center where I was responsible for 3
customer account maintenance in the areas of billing and 4
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 8
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 (“IRP”). 14
In August of 2004, I accepted a position as a 15
Regulatory Analyst in the Regulatory Affairs Department. As 16
a Regulatory Ana1yst, I provided support for the Company's 17
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
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TATUM, DI 3
Idaho Power Company
pricing strategies, including the preparation of the 1
Company's cost-of-service studies. 2
In September of 2008, I was promoted to Manager of 3
Cost of Service and, in April of 2011, I was promoted to 4
Senior Manager of Cost of Service and oversaw the Company's 5
cost-of-service activities, such as power supply modeling, 6
jurisdictional separation studies, class cost-of-service 7
studies, and marginal cost studies. 8
In March 2016, I was promoted to Vice President of 9
Regulatory Affairs. As Vice President of Regulatory 10
Affairs, I am responsible for the overall coordination and 11
direction of the Regulatory Affairs Department, including 12
development of jurisdictional- revenue requirements and 13
class cost-of-service studies, preparation of rate design 14
analyses, and administration of tariffs and customer 15
contracts. 16
I. OVERVIEW 17
Q. What is the Company requesting in this case? 18
A. The Company is requesting the Idaho Public 19
Utilities Commission (“Commission”) issue an order (1) 20
granting the Company a Certificate of Public Convenience 21
and Necessity (“CPCN”) to acquire a total of 101 megawatts 22
(“MW”) of new dispatchable energy storage necessary to meet 23
the identified capacity deficiencies in both 2024 and 2025, 24
(2) approving the 20-year Energy Storage Agreement (“ESA”) 25
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TATUM, DI 4
Idaho Power Company
between Kuna BESS LLC (“Kuna BESS”) and Idaho Power for 150 1
MW of dispatchable energy storage capacity, and (3) 2
acknowledging the lease accounting necessary to facilitate 3
the transaction and that the resulting expenses associated 4
with the ESA are prudently incurred for ratemaking 5
purposes. Approval of this request is necessary to 6
position the Company to meet its obligation to provide 7
safe, reliable service to its customers. 8
Q. How is the Company’s case organized? 9
A. My testimony begins with an overview of the 10
regulatory and operational considerations that guided the 11
Company’s time-limited resource procurement actions 12
presented in this case. I will provide a brief discussion 13
of the proposed 101 MW of Idaho Power-owned battery storage 14
facilities for which the Company is requesting a CPCN, 15
detail how Idaho Power has met the requirements of Idaho 16
Code § 61-526 to obtain a CPCN and present why the 17
Company’s request is in the public interest. In addition, I 18
will discuss the 150 MW ESA selected in combination with 19
the Idaho Power-owned battery storage, as the least-20
cost/least risk resource mix needed to meet the 2025 21
capacity deficiency, and the accounting associated with 22
such agreement. 23
The direct testimony of Company witness Jared L. 24
Ellsworth presents the load and resource balance that 25
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TATUM, DI 5
Idaho Power Company
identifies Idaho Power’s newly identified 2024 capacity 1
deficit and the 2025 capacity deficit. In addition, Mr. 2
Ellsworth describes the evaluation of potential solutions 3
for meeting the capacity deficiency and identifies 4
additional near-term peak capacity needs which led to the 5
solicitation through a Request for Proposals (“RFP”) 6
seeking to acquire energy and capacity to help meet Idaho 7
Power’s previously identified capacity needs of 85 MW in 8
2024 and an incremental 115 MW in 2025 (“2022 RFP”). 9
Mr. Eric Hackett’s direct testimony provides an 10
overview of the procurement process used to evaluate the 11
various resources that competed to provide a capacity 12
resource to help meet Idaho Power’s peak electric energy 13
needs, and the resulting least-cost, least-risk capacity 14
resources selected through the fair and competitive RFP 15
process. 16
II. RESOURCE PROCUREMENT IN A DYNAMIC ENERGY LANDSCAPE 17
Q. How has the Company responded to impacts that 18
a dynamic energy landscape has had on its planning and 19
operations? 20
A. Under Idaho law, Idaho Power has an 21
obligation to provide adequate, efficient, just, and 22
reasonable service on a nondiscriminatory basis to all 23
those that request it within its service area. Idaho Power 24
has experienced and expects sustained load growth, thereby 25
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TATUM, DI 6
Idaho Power Company
requiring the addition of new dispatchable resources to 1
meet peak summer demand. To meet its obligation to 2
reliably serve customer load and fill the capacity 3
deficiencies identified beginning 2023, the Company 4
conducted a competitive solicitation through an RFP seeking 5
to acquire up to 80 MW of Idaho Power-owned resources, to 6
be online by June of 2023. Subsequently, similar to the RFP 7
issued to address the 2023 deficiency, given the short 8
turn-around to construct a resource to meet the deficit in 9
the summer of 2024, on December 30, 2021, the Company 10
conducted a competitive solicitation through the 2022 RFP 11
seeking to acquire energy and capacity to help meet Idaho 12
Power’s capacity needs in 2024 and 2025. 13
Q. What were the results of the competitive 14
solicitation for resources to meet the identified capacity 15
deficiencies beginning in 2023? 16
A. The robust competitive bidding process 17
resulted in the selection of resources in both 2023 and 18
2024, which led the Company to immediately file requests 19
for a CPCN to acquire resources to be online in 20231 and 20
2024.2 In addition, as described in the direct testimony of 21
Mr. Hackett, the 2022 RFP resulted in the selection of a 22
150 MW energy storage project, consisting of a 20-year ESA 23

1 Case No. IPC-E-22-13
2 Case No. IPC-E-23-05
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TATUM, DI 7
Idaho Power Company
for a 150 MW battery storage facility and 77 MW of Idaho 1
Power-owned battery storage to meet the 2025 capacity 2
deficiency, as well as an additional 24 MW of Idaho Power-3
owned battery storage for the newly identified 2024 4
capacity need. The combined procurement of the ESA and 101 5
MW of battery storage resources to be online in 2024 and 6
2025 are the basis for the Company’s request in this case. 7
Q. What were the circumstances that led to the 8
capacity needs presented in this case? 9
A. As described more completely in the direct 10
testimony of Mr. Ellsworth, since the completion of the 11
2021 IRP, the Company has continued to monitor factors that 12
could influence the load and resource balance, and by 13
extension, Idaho Power’s resource need. As a point of 14
reference, the near-term capacity deficiencies identified 15
in the load and resource balance prepared for the 2021 IRP 16
were approximately 101 MW in 2023, 186 MW in 2024, and 311 17
MW in 2025. Since that analysis was completed, the Company 18
has pursued procurement of resources to meet those 19
identified deficits, including the Franklin project, a 100 20
MW solar PV power purchase agreement (“PPA”) in combination 21
with a 60 MW four-hour duration battery storage facility, 22
as well as the additional 12 MW four-hour duration battery 23
storage facility, currently under review by the Commission 24
in Case No. IPC-E-23-05. While ongoing procurement of 25
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TATUM, DI 8
Idaho Power Company
additional resources has contributed to a reduction in the 1
identified capacity deficiencies, enhancements to the 2
system reliability calculations, continued load growth and 3
other factors, have led to changes in load and resource 4
balance. Idaho Power now estimates, even with the 5
additional planned resources currently under procurement, a 6
capacity deficiency of 8 MW still exists in 2024, while the 7
capacity deficiency in 2025 is 178 MW. 8
Q. What was Idaho Power’s response to this new 9
load and resource balance information? 10
A. In response to these identified resource 11
needs, the Company has procured an incremental 24 MW of 12
Company-owned four-hour duration battery storage resources 13
to meet the additional 2024 capacity deficit. Further, 14
Idaho Power has executed an ESA for a 150 MW battery 15
storage facility and procured 77 MW of Company-owned four-16
hour duration battery storage resources to satisfy the 17
identified capacity need in 2025. Combined, these new 18
resources represent 101 MW of Company-owned battery storage 19
facilities and a 150 MW battery storage ESA. 20
Q. Is the Company requesting binding ratemaking 21
treatment for the investments in the 101 MW Company-owned 22
battery storage facilities? 23
A. No. Idaho Power is still in the process of 24
negotiating agreements necessary for the battery storage. 25
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TATUM, DI 9
Idaho Power Company
Therefore, the Company’s request in this case is that the 1
Commission find Idaho Power has met the requirements of 2
Idaho Code § 61-526 and issue an order granting a CPCN to 3
acquire 101 MW of energy storage necessary to meet the 4
identified capacity deficiencies in 2024 and 2025. The 5
Company will make a future filing to address the cost 6
recovery associated with these projects. 7
Q. Is Idaho Power requesting approval of the ESA 8
in this case? 9
A. Yes. The Company is requesting the Commission 10
approve the 20-year ESA between Idaho Power and Kuna BESS 11
by November 26, 2023, acknowledging the energy purchases 12
are prudently incurred expenses for ratemaking treatment. 13
In addition, the Company is requesting the Commission 14
acknowledge the accounting treatment of the ESA, the first 15
of its kind for Idaho Power. 16
III. ACCOUNTING TREATMENT OF ENERGY STORAGE AGREEMENET 17
Q. What makes the ESA unlike other agreements 18
Idaho Power has executed for the procurement of resources? 19
A. Under the terms of the ESA, a 20-year tolling 20
agreement, Kuna BESS will construct, own and operate a 21
battery energy storage system, supplying 150 MW of capacity 22
on Idaho Power’s system. Although similar to a PPA, the ESA 23
differs such that the Company controls the dispatch of 24
capacity of the battery storage facility. As such, under 25
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TATUM, DI 10
Idaho Power Company
Generally Accepted Accounting Principles (“GAAP”), any 1
contract that provides the right to control an identified 2
asset over a period of time is considered a capital lease. 3
Q. What defines control under GAAP? 4
A. Control is defined by GAAP as both (1) the 5
right to obtain substantially all of the economic benefits 6
from use of an identified asset, and (2) the right to 7
direct use of the asset. Under the ESA both control 8
requirements, as defined by GAAP, are met, requiring Idaho 9
Power to record the ESA as a lease. 10
Q. What impact does the recording of the ESA as a 11
lease have on Idaho Power’s financial statements? 12
A. With respect to the balance sheet, the Company 13
must record the fixed costs associated with the ESA as a 14
lease liability, with a corresponding right-of-use asset, 15
upon energization. This is equivalent to the present value 16
of the minimum, fixed lease payments, discounted at Idaho 17
Power’s incremental borrowing rate for secured debt with a 18
similar term and similar payments at the time the lease 19
liability is recorded. If the Company were to record the 20
ESA today, the lease liability and right-of-use asset on 21
Idaho Power’s balance sheet would each be approximately 22
$ . The fixed payments from Idaho Power in the 23
ESA are for the minimum capacity that the developer 24
guarantees, which is 90 to 95 percent of total contract 25
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TATUM, DI 11
Idaho Power Company
capacity (150 MW). Payments for capacity above the minimum 1
developer-guaranteed capacity would vary based on the 2
effective capacity of the project and would be expensed 3
monthly, similar to the accounting of historical 4
Commission-approved PPAs. 5
Q. Does the lease have an income statement 6
impact? 7
A. Yes. First, upon energization of the asset, 8
Idaho Power will determine if it is an operating lease or a 9
finance lease, as defined by GAAP. Based on the Company’s 10
initial review of the contract terms, Idaho Power believes 11
the lease would be recorded as a finance lease, as the 12
least term is for the majority of the remaining economic 13
life of the underlying asset, and the present value of the 14
sum of the fixed lease payments likely equals or exceeds 15
substantially all of the fair value of the underlying 16
asset. Under GAAP, the lease is considered a finance lease 17
if either of those criteria are met. Expenses under a 18
finance lease are front-loaded, and recorded as both 19
interest expense and amortization expense of the right-of-20
use asset on the income statement. 21
Q. Please explain how the accounting entries 22
associated with the ESA would be recorded on a monthly 23
basis. 24
A. Confidential Exhibit No. 1 to my testimony is 25
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TATUM, DI 12
Idaho Power Company
an illustrative presentation of the amounts to be recorded 1
on a monthly basis based on Idaho Power’s estimate of the 2
lease liability balance. Following establishment of the 3
lease liability and right-of-use asset on the balance 4
sheet, the right-of-use asset is amortized on a straight-5
line basis over the 20-year contract term, resulting in the 6
recording of amortization expense and a corresponding entry 7
to accumulated amortization. 8
Also, interest expense, calculated by applying the 9
incremental borrowing rate to the remaining lease 10
liability, is recorded. The difference between the payment 11
made to Kuna BESS, and the interest expense, is the 12
principal applied to the lease liability, reducing the 13
outstanding lease liability each month. As can be seen on 14
Confidential Exhibit No. 1, at the end of the 20-year ESA 15
term, the lease liability and the net book value of the 16
right-of-use asset are zero. Both the amortization and 17
interest expense associated with the lease liability are 18
comparable to the depreciation on, and return of, a 19
traditional capital investment, respectively. 20
Q. Although the ESA has similarities to a PPA, 21
the requirement under GAAP to record the costs as a capital 22
lease has the effect of functioning more like a capital 23
investment. Did Idaho Power include the additional costs 24
associated with the lease when evaluating the project 25
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TATUM, DI 13
Idaho Power Company
submittals under the 2022 RFP? 1
A. Yes. Once the Kuna BESS project was identified 2
as the least-cost/least-risk resource necessary for meeting 3
the Company’s 2025 capacity deficiency, Idaho Power 4
evaluated the financial impact of such an agreement and the 5
resulting effect on the levelized cost of capacity. 6
However, even with inclusion of the additional costs 7
associated with the lease, the project remained the least-8
cost/least-risk resource. 9
Q. Is the Company requesting the Commission 10
approve the accounting treatment associated with the ESA? 11
A. No. Because the value of the lease liability 12
and right-of-use asset will be based on Idaho Power’s 13
incremental borrowing rate at the time the resource is 14
placed in service, which will likely change over time, the 15
Company is not requesting approval of the accounting 16
treatment at this time. Idaho Power is however requesting 17
the Commission acknowledge the lease accounting is 18
necessary to facilitate the transaction and that the 19
expenses associated with the ESA are prudently incurred 20
expenses for ratemaking treatment. The Company will address 21
any regulatory accounting necessary and required under GAAP 22
closer to commencement of operation of the battery storage 23
facility, and in a later proceeding. 24
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TATUM, DI 14
Idaho Power Company
VI. CONCLUSION 1
Q. Please summarize your testimony. 2
A. Idaho Power has an obligation to reliably 3
serve customer load. To meet its obligations to customers 4
and fill the capacity deficiencies in a very short window 5
of time, the Company conducted a competitive solicitation 6
through an RFP seeking to acquire energy and capacity to 7
help meet Idaho Power’s currently identified needs in 2024 8
and 2025. The resulting combined projects will provide for 9
an ESA for a 150 MW battery storage facility and the 10
acquisition of 101 MW of Idaho Power-owned battery storage 11
facilities to meet forecasted peak capacity needs. Idaho 12
Power has met the requirements of Idaho Code § 61-526 and 13
is requesting the Commission issue a CPCN and find the 14
expenses associated with the ESA are prudently incurred 15
expenses for ratemaking treatment. 16
Q. Does this complete your testimony? 17
A. Yes, it does. 18
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TATUM, DI 15
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 and Confidential Exhibit No. 1 8
in this matter. 9
3. To the best of my knowledge, my pre-filed 10
direct testimony and exhibit are true and accurate. 11
I hereby declare that the above statement is true to 12
the best of my knowledge and belief, and that I understand 13
it is made for use as evidence before the Idaho Public 14
Utilities Commission and is subject to penalty for perjury. 15
SIGNED this 26th day of May 2023, at Boise, Idaho. 16
17 Signed: ____________________ 18
Timothy E. Tatum 19
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BEFORE THE

IDAHO PUBLIC UTILITIES COMMISSION

CASE NO. IPC-E-23-20

IDAHO POWER COMPANY

TATUM, DI
TESTIMONY

EXHIBIT NO. 1

CONFIDENTIAL ATTACHMENT