19900924Baggs Direct.pdf

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Idaho Public Utilities Commission
Office of the Secretary
RECEIVED
SEP 24 1990
Boise, Idaho
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )
CERTIFICATE OF PUBLIC CONVENIENCE )
AND NECESSITY FOR THE RATE BASING )
OF THE MILNER HYDROELECTRIC PROJECT)OR IN THE ALTERNATIVE )
A DETERMINATION OF EXEMT STATUS )
FOR THE MILNER HYDROELECTRIC )PROJECT )
)
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
JAMES L. BAGGS
CASE NO. IPC-E-90-8
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Q.Please state your name and business address.
My names is James L. Baggs, and my business address
is 1220 Idaho street, Boise, Idaho.
Q.By whom are you employed and in what capacity?
I am employed by Idaho Power Company as Manager of
Rates.
Q.Please describe your educational background and
professional experience.
In May of 1975, I received a Bachelor of Arts
Degree in Economics from the University of Colorado
at Boulder, Colorado.In May, 1977, I graduated
from the University of Arizona at Tucson, Arizona
with a Master of Science Degree in Agricultural
Economics. While studying at Arizona, I held the
positions of Teaching Assistant and Research
Assistant.
After completion of my Masters Degree, I
assumed the position of Research Associate in the
Department of Agricultural Economics at the
University of Arizona. In that capacity, I served
as an Economic Consultant to the Insti tute of
Government Research and the Pima Association of
Governments in Tucson, Arizona.
From September, 1978, to August, 1979, I
worked toward the Doctor of Philosophy Degree in
Baggs, Di 1
Idaho Power Company
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1 Agricultural Economics at the University of
California, Davis. At the same time I was employed2
3 as a Teaching Assistant.In August, 1979, I
4 accepted emploYment as Senior Water Resource
5 Analyst for the Idaho Department of Water
6 Resources.My duties included economic analysis
7 and planning related to complex multi-objective
8 water and related resource issues.
9 In August of 1982, I accepted the position of
Rate Analyst with Idaho Power Company. My duties
as Rate Analyst included the preparation of cost of
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12 service information for use in the development of
13 jurisdictional separation models, class cost-of-
14 service studies and average system cost studies.
15 More specifically, I was responsible for gathering
16 and analyzing data from various sources and
17 utilizing computer modeling and other techniques to
18 carry out cost-of-service related analyses.
19 In September, 1986, I was promoted to the
20 posi tion of Supervisor of Rates, and in August,
21 1989, I was promoted to the position of Manager of
22 Rates. As a result, I am now responsible for the
23 overall coordination and direction of the Rate
24 Department,including the development of
25 jurisdictional revenue requirements,the
Baggs, Di 2
Idaho Power Company
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preparation designofrate analyses and
recommendations,coordinationandthe and
preparation of the Company's rate related
regulatory filings in the four regulatory
jurisdictions in which Idaho Power provides
service.
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to explain the rate
making ramifications of the Company's proposal for
the Milner Project.
If the Commission determines that it will authorize
the rate basing of the Milner hydroelectric
generation facilities, what will be the effect on
the Company's rates while the project is being
constructed?
The Company's rates will not be affected.
Investment in the Milner Project will be treated as
construction work in progress until the project is
completed, and construction work in progress is not
included in the Company's rate base when Idaho
jurisdictional revenue requirements are determined.
Once the project is completed will the rates the
Company charges for electric service change?
No.until the Company's revenue requirement is
Baggs, Di 3
Idaho Power Company
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reviewed by the Commission and the rates of the
Company are changed in a general rate proceeding,
or a "tracker" type rate proceeding, the rates the
Company is authorized to charge will not change.
Is it customary to include investment in the
Company's rate base without the commission
reviewing the Company's revenue requirement and/ or
rates?
Literally every day the Company makes additions to
or reductions in its electric plant in service.
Every time there is an addition or removal of any
electric plant investment (i. e., a line extension,
replacement of an old transformer wi th a new
transformer, etc.) , the Company includes that
investment in the appropriate electric plant
account without specific Commission review. This
accounting procedure is permissible because it is
assumed that the Commission will allow the recovery
of these costs by the inclusion of the Company's
electric plant in service in rate base when
determining the Company's revenue requirements.
As Manager of Rates of Idaho Power Company, what is
the effect of the Commission's determination that
it will issue a certificate of Public Convenience
and Necessity for a new generation project?
Baggs, Di 4
Idaho Power Company
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The issuance of a certificate of Public Convenience
and Necessity is a determination by the Commission
that the decision to construct the proj ect is
reasonable and prudent, and that such construction
is in the public interest. If the Company utilizes
reasonable and prudent construction practices, the
issuance of the certificate is recognition that the
investment, upon completion of construction, is in
the public interest and will be rate based for
revenue requirement purposes.
What will be the rate impact if the Commission
determines that it will not rate base the Milner
Hydroelectric Generation Project, but instead will
issue a certificate of Exemption?
None.If the Commission determines that the
Milner Project should not be rate based, the
Commission's order issuing a Certificate of
Exemption should declare that the investment,
expenses, current or accrued tax benef its and
revenues incident to the Milner Project will not be
considered for regulatory purposes in the state of
Idaho including, but not limited to, revenue
requirement and power supply purposes. The Company
is then free to sell the energy to another utility.
The Company would earn a reasonable return on its
Baggs, Di 5
Idaho Power Company
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investment by establishing a contract price high
enough to assure such a return.
Mr. Packwood, in his testimony, has referred to the
concept of reproduction cost new, less depreciation
as a plant valuation method for revenue requirement
purposes if the Commission issues a certificate of
Exemption.Please define what is meant by
reproduction cost new, less depreciation.
Reproduction cost new, less depreciation, is the
total investment that would be required by Idaho
Power to duplicate the Milner Project at a point in
time, at the then current costs for all materials,
supplies,land and land rights,labor,
transportation,and miscellaneous direct and
indirect expenses (including overhead, engineering
and supervision are normallythatcosts
capitalized) i as well as the costs that would be
required to obtain all necessary approvals and
permits; and any other costs that would be
appropriately applicable to the reproduction cost
of the Milner Project.From that total would be
deducted an amount representing the straight line
depreciation of any Reproduction Costs that are
depreciable.
Q.Does this complete your testimony?
Baggs, Di 6
Idaho Power Company
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1 A.Yes,it does
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Baggs, Di 7
Idaho Power Company