19901109Reading Direct.pdf

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.... "on
Idaho Publlc Utmfles CommlSSl
Office of the Secretary
RECEIVED
NOV9-1990
Boise. idahO
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO RATE BASE THE
INVSTMENT REQUIRED FOR THE
REBUILD OF THE SWAN FALLS
HYDROELECTRIC PROJECT
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CASE NO. IPC-E-90-2
DIRECT ~ESTIMONY OF DON READING, PH. D.
ON BEHALF OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
NOVEBER 9, 1990
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Q.WOULD YOU PLEASE STATE YOUR NAME AND ADDRESS?
A.Don Reading, 1311 North 18th Street, Boise,
Idaho 83702.
Q.DO YOU HAVE AN APPENDIX THAT DESCRIBES YOUR
EDUCATIONAL AND OCCUPATIONAL HISTORY AND YOUR
QUALIFICATIONS IN REGULATORY AND UTILITY
ECONOMICS?
A.Yes. Appendix I, attached to my testimony,
was prepared for this purpose.
Q.DO YOU HAVE AN EXHIBIT WHICH SUPPORTS YOUR
TESTIMONY?
A.Yes. I have an exhibit consisting of one
schedule which was prepared under my
supervision.
Q.WHT IS THE PURPOSE OF YOUR TESTIMONY?
Our firm was retained by the Industrial
CUstomers of Idaho Power (ICIP) to -examine
the request of Idaho Power Company (Idaho
Power or the Company) for rate basing of the
reconstruction costs associated with the
reconstruction of the Swan Falls powerhouse
and generating facilities. My testimony has
three sections. First, I review the Company's
request and my concerns. Second, I present
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the Commission with suggestions concerning
assigning a value to the Swan Falls proj ect.
Third, I sumarize my recommendations and
conclusions.
Q.LET'S TU TO THE FIRST SECTION OF YOUR
TESTIMONY. WOULD YOU PLEASE DESCRIBE THE
COMPANY'S REQUEST?
Certainly. The Company is proposing to expand
its generating facilities at Swan Falls.
Al though this reconstruction does not require
that the Company obtain a Certificate of
Pulic Convenience and Necessity before
reconstruction begins, it must submit to a
review of the rebuild by the Commission. In
its Application concerning this review the
Company is also requesting that the Commission
approve rate base treatment for the proj ect
before reconstruction begins. In return for
this preapproval, the Company agrees to "cap"
the capital cost of the proj ect at
$80,285,000, barring several uncertainties.
The Company is proposing to retire the
existing 10.4 Mw powerhouse at Swan Falls and
redevelop the project to include a new
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I powerhouse with two generating units totaling
25 Mw of capacity, a new switchyard, and a new
transmission line, together with certain
existing project works. (Application, p. 2.)
In its Application the Company states
that Swan Falls should be added to rate base
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Company further describes the purported
benefits of the project as follows:
The Project has been, and will
continue to be, integral to
Idaho Power's Snake River
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13 hydroelectric system and will
14 continue to be used to serve
15 retail and firm wholesale load.
16 Reconstruction of the Swan Falls
17 facilities is also integral to
retention of Idaho's water18
19 resources for the publ ic
interest of the state. The20
21 Proj ect is a non-deferrable
resource in that the physical
state of the plant requires
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1 reconstruction and
2 rehabilitation of the resource
3 to maintain safety and
operational standards.4
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(Application, p. 4.)
Similarly, the Company points out that
the water rights associated with Swan Falls
are critical to the ability of the state and
the Company to protect the minimum flows
established by the Swan Falls Agreement and
the Water Plan. Protection of the Company's
rights at Swan Falls has the effect of
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14 upstream plants. (Application, p. 5.)
While I do not dispute the importance
of these water rights, they should not be used
as the sole basis for justifying the more than
$80,000,000 in reconstruction expenditures and
a doubling of the size of the Swan Falls
facility. The reasonable costs that
legitimately should be passed on to ratepayers
and the need for the Company to retain its
water rights are in many aspects separate
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Q.HAS THE COMMISSION ISSUED ANY ORDERS THAT GIVE
DIRECTION WITH RESPECT TO THE COMPANY'S
DECISION TO REBUILD SWAN FALLS?
A.Yes, it has. In Order No. 19623, issued in
Case No. U-1006-240 on April 24, 1985, the
Commission warned:
We put Idaho Power on explicit
notice, however, that before it
undertakes any substantial
reconstruction or replacement of
the Swan Falls facility, other
than improvement or
reconstruction of the existing
spillway, it must first
demonstrate to this Commission
in a formal proceeding that the
proj ect is the least-cost method
of acquiring a new resource for
its system. (Idaho Pul ic
utilities Commission, Order No.
19623, p. 1.)
In addressing the above language in a
subsequent Order the Commission noted that it
required Idaho Power "to bring any rebuild of
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1 the Swan Falls project and increase in its
2 capacity to the Commission's attention in much
the same manner that it would file a3
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certificate for a new project." (Idaho Pulic
utilities Commission, Order No. 23380, p. 2.)
The Commission further cautioned Idaho Power:
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7 We put Idaho Power on formal
notice that it acts under its8
9 own peril for costs associated
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is prepared to submit its
definitive cost estimate and to
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will be cost-effective. As we15
16 stated in the -197 case, the
year of "hell-or-high-water-17
18 financing" is over. The
19 ratepayer should not be at risk
if management commences
construction before i t receives
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24 right, or if it fails to study
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reasonable alternative projects,
or if the project itself is not
cost-effective compared to power
that is readily available from
competitors. (Idaho Pulic
utilities Commission, Order No.
19623, quoting Order No. 19129.)
The Commission has clearly warned the
Company that its decision to rebuild the Swan
Falls proj ect and the costs of that rebuild
will be critically examined.
Q.DO YOU BELIEV THAT THE INFORMTION PROVIDED
BY THE COMPANY IS AN ADEQUATE RESPONSE TO THE
COMMISSION?
A.No, I do not. The Company has provided very
little evidence in its Application concerning
the cost effectiveness of the Swan Falls
proj ect and has not shown that the proj ect is
the least-costly al ternati ve available to
ratepayers. While I do not dispute the many
benefits of hydro projects over other forms of
generation, I do not believe these benefits
should automatically be the basis upon which
one determines the prudence of the proj ect.
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1 Likewise, I understand the importance of the
water rights associated with the Swan Falls
proj ect. This nevertheless should not be used
as the sole basis for determining that the
Company's decision to rebuild Swan Falls is
reasonable. Instead, water rights should be
one of many factors examined by the Company
and the Commission when assessing the Swan
Falls rebuild decision and its associated
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showing that the reconstruction of the Swan
Falls proj ect is less costly than installation
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concerning the need for this proj ect.
Numerous other questions concerning the
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18 reconstruction remain unanswered and would
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and interveners as well as the Commission20
21 before a final determination of prudence could
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23 explained the rationale behind its 25%
contingency factor--which is considerably24
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higher than the 5% contingency factor used for
the Milner proj ect. Satisfactory reasons for
these differences may exist, but they have not
been offered by the Company. Similarly, Idaho
Power Company has not explained in sufficient
detail the other components of its "commi tment
estimate. " The Company has failed to provide
information concerning the estimated cost per
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kwh of this proj ect. Nor has it shown that
the increase in the size of the proj ect is
optimal.
Another factor that I find troubling is
the difference in the cost per kw of Swan
Falls and Milner. The Company's estimated
cost per kw of Swan Falls is $3,244, which is
almost three times as high as Milner at $1,187
per kw, and an alarming amount on its face.
Again, there may be valid reasons for this
difference, but they have not been advanced by
the Company.
DO YOU SEE ANY OTHER PROBLE WITH TH
COMPANY'S REQUEST?
Yes. There are several serious problems with
the Company's proposal. If the Commission
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1 grants the Company's request for preapproval
of the rate base treatment of Swan Falls, it
will effectively foreclose its ability to
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decision-making between the time
reconstruction begins and the time the project
is completed, even though major changes of
circumstances might arise in the interim. For
example, changes in load growth might dictate
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proj ect, either to meet increased load or to
avoid installing excess capacity. Or
technological progress might call for
canceling the Swan Falls project and replacing
it with a more cost-effective alternative. Or
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impose an intolerable burden of added cost on
the Swan Falls project, destroying its
economic feasibility.
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ini tial reconstruction decision and possibly
reverse or modify it. Yet, under the
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irrelevant to the determination of the plant
costs to be included in rate base and paid for
by ratepayers. Instead, that issue would be
judged solely according to whether the Company
had used "prudent and reasonable construction
practices. " If Idaho Power is deemed to have
done so, it wants to be guaranteed that it
will be allowed full recovery of the cost of
the Swan Falls proj ect, regardless of any
economic, financial, technological,
environmental, or regulatory events that might
otherwise argue for alteration of the
Company's ini tial decision.
Q.DO YOU THINK THE COMMISSION SHOULD PREAPPROVE
THE FUTURE RATE BASE TREATMNT OF THE
RECONSTRUCTION COSTS OF SWAN FALLS?
A.Definitely not. I see no reason for the
Commission to preapprove the future rate base
treatment of the reconstruction costs of Swan
Falls. The Company's position in this regard
is similar to the one it has taken concerning
the issuance of a certificate of Pulic
Convenience for the Milner proj ect. The
Company is asking the Commission to guarantee
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that the proj ect 's costs will be automatically
included in rate base regardless of the
circumstances, as long as the Company uses
"reasonable and prudent construction
practices. "
This is not a defensible posture. The
Commission's authorization to begin
reconstruction of Swan Falls is not a
requirement that construction begin, nor an
endorsement of the decision to begin
construction. A determination of the rate
base treatment of the Swan Falls project
should be made only after the proj ect is
completed and on line. I don't believe that
it is appropriate or in the public interest
for the Commission to determine today the
future rate base treatment of a proj ect that
has not begu reconstruction much less been
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completed.
AR THERE OTHER UNCERTAINTIES ASSOCIATED WITH
THE SWAN FALLS PROJECT THT WOULD PRECLUDE THE
COMMISSION FROM PREPPROVING A RATE BASE CAP
FOR TH SWAN FAL REBUILD?
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A.Yes. In its decision concerning Valmy II the
Commission stated that its statutory charge
was to "establish 'just and reasonable'
rates." (Idaho Pulic utilities Commission,
Order No. 20610, p. 105.) That requires the
Commission to know the final just and
reasonable cost of the proj ect. But it is
impossible for the Commission at this time
even to estimate the completed cost of the
Swan Falls project and its associated running
costs. There are at least two reasons for
this inability. First, the "cap" set by the
Company is contingent upon several favorable
predictions. That is, if inflation heats up
or the scope of the proj ect changes, then
under the Company's proposal, its "commitment
estimate" would no longer hold as the cap for
the proj ect 's capital cost. (I discuss this
in greater detail below.)
Second, while the Company itself can
only estimate the cost per kwh of the project,
it hasn't even provided that information to
the Commission.
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For these and other reasons, the
Company cannot accurately estimate the cost
per kwh of the Swan Falls project. Nor can
the Commission determine today that inclusion
of the capital cost of plant in rate base
would produce just and reasonable rates.
Q.WHT is YOUR NEXT CONCERN ABOUT TH COMPANY'S
PROPOSAL?
A.The Company has offered to treat what its
"commitment estimate" of the capital cost of
Swan Falls as a cap on the amount to be
preapproved for rate base. While the
Company's proposal has surface appeal, there
are several arguents, in addition to those
already discussed, against the Commission's
adopting the Company's quid pro quo.
First, there no guarantee that the
proposed cap will be at or below the
commitment estimate. The Company notes that
it is willing to commit to building the
Proj ect for less than the commitment estimate,
"as may be adjusted to account for documented
changes in escalation rates or scope."
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(Application, p. 8.) The Company elaborated
on what is meant by changes in scope:
1) Force Majeure or acts of God
impacting the construction 1
2) Design optimization for which
increased energy more than offsets the
increase in initial investment 1
3) Foundation or site condition
significantly more expensive than
indicated by exploratory drilling.
(Ibid. )
The Company's reservations with respect
to the cap do not guarantee the commitment
estimate will be the upper bound of the amount
of the plant that will be included in rate
base. That is, little is left to affect the
price of the plant that the Company has not
already covered in its escalation and scope
disclaimer.
Q.AR THERE OTHER PROBLE WITH THE COMPAN'S
CAP PROPOSAL?
A.Yes. First, the Company does not define
adequately define what is encompassed in its
escalation disclaimer. Conceivably, any
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I inflation costs above what is included in the
2 commi tment estimate would be grounds for the
Company's adjusting its estimate upwards and
including these increased costs in rate base.
Yet, the Company doesn't explain the projected
escalation rate included in its commitment
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whether the Company is working from a tight8
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Second, the Company' s expansive scope
qualification can cover a multitude of
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Company decides to increase the size of the
proj ect. Would it be fair to charge
ratepayers for the additional costs without
examining the Company's decision? But under
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presumably come within its definition of scope
and hence not be subject to further review.
(It is noteworthy that many utilities involved
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plants cited changes in scope as the source of
a significant percentage of their cost
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1 Third, the Company's cap proposal is
one-sided. The Company wants to increase the
cap if major inflation occurs, but it does not
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offer to reduce the cap if inflation subsides
and falls significantly below the escalation
allowance included in the Company's commitment
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7 estimate. I see no reason for the Commission
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Finaiiy, Idaho Power does not explain
how its proposed 25% contingency fits in with
its escalation and scope adjustors. In
response to Staff's First Production Request
the Company stated that the 25% contingency
"is not a derived mathematical computation"
but is "based on experience." (Response to
Staff's First Production Request, No. 15, page
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is included in a cost estimate to cover such19
20 factors as changes in scope and escalation.
Hence the Company has not only covered its
uncertainties with its scope and inflation
disclaimers but has inserted an added
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contingency in its commitment estimate. While
I am not opposed to the use of a contingency,
(it is common practice), the Commission needs
to realize how little risk the Company has
assumed with respect to its proposal. (I am
surprised that the Company has not included an
caveat for increases in borrowing costs, but
then again, this might be covered under the
Company's escalation limitation.)
WOULD YOU PLESE DISCUSS YOUR NEXT CONCERN?
Yes. The Company's proposal assigns most of
the risks of reconstructing Swan Falls to its
ratepayers while eliminating most of the
potential risks to its stockholders.
Ratepayers would shoulder all the following:
the risk of escalation of reconstruction
costs, the risk of increased scope, the risk
of load growth changes, the risk of
technological changes, the risk of poor
management decision-making (other than strict
construction prudence), the risk of
environmental changes, the risk of regulatory
changes, the risk that the project will not be
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1 used and useful, and the risk that the project
will not be economical.2
3 Idaho Power's stockholders, on the
4 other hand, would face only the risk that the
Company would not use reasonable and prudent
construction practices and the risk that some
costs of the plant might not be allowed in
rate base if the Company exceeded its cap.
The latter risk is practically eliminated by
the broadly defined escalation and scope
reservations that accompany the Company's
proposal. Clearly, while ratepayers would
bear a great deal of risk, the stockholders
would incur very little.
Even though the Company's request
shifts most of the risks associated with the
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17 Swan Falls proj ect to ratepayers, the Company
has not offered to simultaneously reduce its
cost of equity. In my opinion, if the
Commission adopts the Company i s proposal,
which I strongly recommend against, it should
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equi ty below the Commission's last authorized23
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return of 12.25%. (Idaho Pulic utilities
Commission, Order No. 20924, p. 62.)
WHY WOULD ADOPTION OF THE COMPANY i S PROPOSAL
CALL FOR A REDUCTION IN IDAHO POWER'S COST OF
EQUITY?
A.It is a basic financial principle that the
greater a security's risk, the higher the
investor i S required return, and vice versa.
If the Commission significantly reduces
stockholder risk by adopting the Company's
proposal, then it should reduce the Company i s
cost of equity. In Idaho Power i s last rate
proceeding, the Company's witness Mr. Bowers
acknowledged this principle, testifying that
"the greater a security i s risk the higher the
required return for that risk." (Bowers
Direct Testimony, Case No. U-1006-265, p. 31.)
Mr. Bowers also testified that a risk-free
rate of return can be approximated by using
the interest rate on long-term government
bonds. (Ibid., p. 30.) Recently, long-term
(30-year) U. S. Treasury Bonds have been
carrying an interest rate of about 9.0%, which
is significantly below the Company i s
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authorized return on equity. Under the
Company i s proposal, the equity risk supporting
the Company i s investment in the Swan Falls
proj ect would more closely approximate that of
a government bond than of a security yielding
12.25%, the Commission i s last authorized
return.
Q.CAN YOU ILLUSTRATE THE IMPACT OF EQUITABLE
RATEPAYER TRETMNT, ASSUMING ACCEPTANCE OF
THE COMPANY i S PROPOSAL?
Yes. Let us assume that the Company's
investment in Swan Falls (and in the Milner
project) is financed in the same proportion as
the Company iS capital structure, and that the
investor i s return requirement on the equity
portion of this investment is approximately
10% (one percentage point above the measure of
a risk-free rate), this would indicate that
the Company i s cost of equity should be reduced
by about a quarter of one percent (0. 25%) to
12.0%, using the Commission i s last authorized
return. I have depicted these calculations on
my Schedule 1. The Company earned 13.86% on
average equity during 1989. I therefore
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recommend that the Commission, if it accepts
Idaho Power's proposals in this case, it also
investigate the Company's earnings situation
and authorize a rate decrease, if one is seen
to be warranted. Indeed, it appears that
absent any such decrease, an earning
investigation is called for.
Q.LET'S TU TO THE SECOND SECTION OF YOUR
TESTIMONY. WOULD YOU BRIEFLY DISCUSS WHT THE
COMMISSION SHOULD CONSIDER WHN DETERMINING
THE VALUE OF THE SWAN FALL PROJECT ONCE IT IS
COMPLETED AND ON LINE?
Certainly. Let me emphasize that the
following suggestions apply only to a
completed project that is ready for
consideration for inclusion in rate base. I
do not believe it is appropriate or in the
public interest to predetermine the investment
value of the Milner project at this time.
Numerous events could intervene before the
proj ect enters commercial operation- -events
that could render unnecessary or erroneous any
such determination made today.
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1 In evaluating a plant to enter rate
base, the Commission should study a variety of
factors of two kinds: those related to the
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4 prudence of management's decision-making, and
those related to the economics of the5
6 situation. The former include such things as
the reasonableness of the Company's decision
to begin construction of the project, the
reasonableness of the construction practices,
the reasonableness of feasibility studies
undertaken, etc. The latter include the
used-and-useful issue and the economic value
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13 of the plant.
14 In determining a plant's economic
15 value, the Commission should of course
16 consider an assortment of factors, but one
17 particularly useful method of validating total
cost is to compare the cost per kwh of the
proj ect to the Company's avoided cost rate.
The latter should provide a upper limit on the
economic value of the project. In this
particular instance, however, there are
reasons for the Swan Falls proj ect 's coming in
below avoided cost: the dam exists, permits
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1 have already been obtained, original
engineering completed, and site preparation
accomplished.
When evaluating the cost per kwh of
Swan Falls versus avoided costs the Commission
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4
S
6 needs to ensure that the basis of the
7 measurement is consistent. Only then can a
appropriate evaluation be made as to the
least-cost path of resource acquisition for
the Company. For example, since avoided costs
are determined over just a 20-year period,
they are not consistent with the cost per kwh
of Swan Falls, which is determined over a
SO-year period. All else being equal, a
20-year avoided cost rate would be
significantly less than a SO-year avoided cost
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lS
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17 rate. In addition, for comparison purposes, a
20-year amortization of Swan Falls will
produce a significantly more expensive plant
than Idaho Power's current estimate for Swan
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21 Falls.
22 Other methods can also be used to
23 determine the economic value of the plant.
They include the amount of plant costs24
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reasonably incurred during the reconstruction
of Swan Falls, the fair market value of the
plant, and the cost of al ternati ve form of
reliable power.
Regardless of what method is used, now
is not the time to make this decision.
Determining whether the plant should be
included in rate base (and, if so, to what
extent) can only be done after the project is
completed and on line.
Q.WOULD YOU PLEASE SUMIZE YOUR
RECOMMENDATIONS AND CONCLUSIONS?
Certainly. I believe the Commission should
rej ect the Company's proposal for preapproval
of the rate basing of the Swan Falls project.
I do not believe it would be appropriate or in
the public interest for the Commission now to
determine the rate base treatment or
regulatory status of a proj ect on which
reconstruction has not yet even begun. The
Company's request has several serious flaws.
First, the Company's proposal should be
rej ected because it would require the
Commission to ignore many relevant
26.
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1 circumstances that would otherwise force the
2 Company to alter its initial course of action.
The Commission would be barred from addressing3
4
6
the prudence of the Company's management
decision-making process during the
reconstruction period.
If the Commission adopts the Company's
proposal for preapproval of the rate base
treatment of Swan Falls, then it should reject
the Company's application on the grounds that
it is deficient. Many points relevant to a
decision of this magnitude remain unaddressed
by the Company. Idaho Power has not shown
that the project is economical, nor that it is
the least-cost alternative, nor that its
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been previously warned about these factors,
yet it has failed to provide information that
would allow the Commission to evaluate the
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20 reasonableness of its decision.
21 Second, the Commission should not be
22 lulled into thinking the Company's offer to
cap the cost of the project is an adequate
consideration for preapproval for the rate
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1 base treatment of Swan Falls. The escalation
2 and scope reservations attached to the
3 Company's cap provide no guarantee that the
final cost of the project will not exceed the4
5
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commitment estimate. Rather, the escalation
and scope give the Company considerable leeway
in justifying increases in cost beyond the7
8 "commitment estimate." Moreover, the
9 Company's cap proposal is one-sided. While
the Company wants the Commission to agree to
cost increases if the scope of the project
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12 enlarges or if escalation occurs, it has not
13 proposed that the cap be adjusted downward
14 under the converse circumstances.
15 Third, the Company's proposal saddles
ratepayers with most of the risks of
reconstruction, while eliminating most of the
risks to shareholders. Despi te this, the
Company has not offered to lower its cost of
equity. In my opinion, if the Commission
adopts the Company's proposal to preapprove
the rate base treatment of the Swan Falls
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of equity to be consistent with its reduced
risk.
Finally, I have offered some
suggestions concerning the factors the
Commission should consider once the Swan Falls
reconstruction is completed and its costs are
considered for rate base treatment. Among
them is a comparison of the cost per kwh of
the proj ect with the Company's avoided cost,
establishing a reasonable upper limit on the
economic value of the project. other relevant
data are the amount of plant costs reasonably
incurred in the Swan Falls reconstruction, the
fair market value of the plant and the energy
it produces, and the cost of alternative forms
of reliable power.
DOES THIS COMPLETE YOUR TESTIMONY PREFILED ON
NOVEBER 9, 1990?
Yes, it does.
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INDUSTRIAL CUSTOMERS OF IDAHO POWER
CASE NO. IPC-E-90-2
SCHEDULE 1
IDAHO POWER COMPANY
CHAGE IN COST OF EQUITY
(000)
Amount Ratio
48.9%4.9
46.2
100.0%
Common Equity
Preferred Stock
Long-term Debt
$ 589,46258,923557.851
$1,206,236
Investment in Swan Falls
and Milner
Equi ty Ratio
Swan Falls and Milner
financed by Equity
$ 150,29048.9%
$ 73,492
Amount ~Cost
Swan Falls and Milner
financed by Equity
1989 Common Equity $ 73,492 x 10.00% =
589.462 x 12.25% =
$662,954
$ 7,34972.209
$79,558
Cost of Equity: $79,558 / $662,954 = 12.00%
Source: Idaho Power Company, 1989 Annual Report¡ Exhibit 3,
Case No. IPC-E-90-8¡ Attachment 3, Supplemental
Application, Case No. IPC-E-90-2¡ and Idaho Pulic
utilities Commission, Order No. 20924.
Exhibi t 1, page 1Reading, Di
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......
CETIFICATE OF SERVICE
I HEREBY CERTIFY that I have this ~ day of Novemer,
1990, served the foregoing DIRECT PREPARD TESTIMONY OF DON
READING ON BEHALF OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER,
Case No. IPC-E-90-2, on all parties of record by hand delivering
a copy thereof, to the following:
Michael S. Gilmore
Brad M. Purdy
Idaho Pulic utilities Commission
472 W. Washington
Boise, ID 83720
and by mailing a copy thereof, postage prepaid, to the following:
Larry D. Ripley, Esq.
Legal Department
Idaho Power Company
P.O. Box 70
Boise, ID 83707
David H. Hawk, Director
Energy Natural Resources
J .R. Simplot Company
P.O. Box 27
Boise, ID 83707-0027
Steven L. Herndon, Esq.
Legal Department
Idaho Power Company
P.O. Box 70
Boise, ID 83707
Harold C. Miles
Idaho Consumer Affairs, Inc.316 15th Ave. S.
Nampa, ID 83651
R. Scott Pasley
Assistant General Counsel
J .R. Simplot Company
P.O. Box 27
Boise, ID 83707-0027
James N. Roethe, Esq.
Pillsbury, Madison & Sutro
P.O. Box 7880
San Francisco, CA 94120
R. Michael Southcombe, Esq.
Clemons, Cosho & Humphrey
815 W. Washington
Boise, ID 83702-5590
Afton Energy, Inc.
c/o OWen H. Orndorff
Orndorff & Peterson
1087 W. River st., suite 230
Boise, ID 83702-7035
,BY~()~Peter ~ RCn
CERTIFICATE OF SERVICE - PAGE 1
..
APPENIX I
QUALFICATIONS
Present OCcupation
Q. WHT is YOUR PRESENT OCCUPATION?
A. I am a consulting economist with Ben Johnson
Associates, Inc., a firm of economic and analytic
consultants specializing in the area of public utilityregulation.
Educational Background
Q. WHT is YOUR EDUCATIONAL BACKGROUND?
A. I graduated from Utah State University in 1962 with a
Bachelor of Science degree in economics. I earned the
Master of Science degree in economics at the University
of Oregon in 1964. Finally, I received a Ph. D. in
economics from Utah State University in 1972. The
ti tIe of my doctoral dissertation was New Deal
Expenditures in the 48 States. 1933-1939.
Q. HAVE YOU RECEIVED ANY ACADEMIC HONORS OR AWARDS?
A. Yes. I am a member of Omicron Delta Epsilon, the
national economics honorary, and was awarded a
National Science Foundation Fellowship in 1967.
Clients
Q. WHT TYPES OF CLIENTS EMPLOY YOUR FIRM?
A. Much of our work is performed on behalf of public
agencies at every level of government involved in
utility regulation. These agencies include stateregulatory commissions, public counsels, attorneys
general, and local governments, among others. We are
also employed by various private organizations andfirms, both regulated and unregulated. The diversity
of our clientele is illustrated below.
Exhibi t I, Page 1Reading, Di
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Regulatory Commissions
Alabama Pulic Service Commission - Public Staff for utility
Consumer Protection
Alaska Pulic utilities Commission
Arizona Corporation Commission
Arkansas Pulic Service Commission
District of Columbia Pulic Service Commission
Idaho Pulic utilities Commission
Idaho State Tax Commission
Kansas State Corporation Commission
Maine Public utilities Commission
Missouri Pulic Service Commission
North Carolina utilities Commission - Public Staff
Oklahoma Corporation Commission
Ontario Ministry of Culture and Communications
Texas Pulic utilities Commission
Virginia Corporation Commission
Washington utilities and Transportation Commission
West Virginia Pulic Service Commission - Division of
Consumer Advocate
Wisconsin Pulic Service Commission
Public Counsels
Arizona Residential utility Consumers Office
Colorado Office of Consumer Services
Connecticut Consumer Counsel
District of Columia Office of People's Counsel
Florida Public Counsel
Georgia Consumers' utility Counsel
Illinois Small Business utility Advocate Office
Indiana Office of the utility Consumer Counselor
Maryland Office of People's Counsel
Minnesota Office of Consumer Services
Missouri Pulic Counsel
New Hampshire Consumer Counsel
Ohio Consumer Counsel
Pennsyl vania Office of Consumer Advocate
Utah Department of Business Regulation - Committee of
Consumer Services
Exhibi t I, Page 2Reading, Di
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Attorneys General
Arkansas Attorney General
Florida Attorney General - Antitrust Division
Idaho Attorney General
Kentucky Attorney General
Michigan Attorney General
Minnesota Attorney General
Nevada Attorney General's Office of Advocate
for Customers of Pulic utilities
South Carolina Attorney General
Virginia Attorney General
Washington Attorney General
Local Governments
City of Austin, TXCi ty of Corpus Christi, TX
City of Dallas, TX
City of EI Paso, TX
City of Fort Worth, TX
City of Galveston, TX
ci ty of Houston, TX
City of Lubbock, TX
City of Norfolk, VA
City of Phoenix, AZ
City of Richmond, VA
ci ty of San Antonio, TX
City of Suffolk, VA
City of Tucson, AZ
county of Augusta, VA
County of Henrico, VA
County of York, VA
Town of Ashland, VA
Town of Blacksburg, VA
Town of Pecos City, TX
Other Government Agencies
Canada - Department of Communications
United States Department of Justice - Antitrust Division
State of Florida - Department of General Services
Provincial Governments of Canada
Exhibi t I, Page 3Reading, Di
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Regulated Firms
Americall LDC, Inc.
E. Ri tter Telephone Company
Florida Association of Concerned Telephone Companies, Inc.Holywell, Inc.
Louisiana/Mississippi Resellers Association
Madison County Telephone Company
Mountain View Telephone Company
Nevada Power Company
Network I, Inc.
North American Telephone Company
North Carolina Long Distance AssociationPan-Alberta Gas, Ltd.Peninsula Communications, Inc.
RDM Telephone Systems
South Carolina Long Distance Association
Stanton Telephone
Teleconnect CompanyTransamericall, Inc.
Yelcot Telephone Company, Inc.
Other Private Organizations
Arizona Center for Law in the Pulic Interest
Casco Bank and Trust
Citizens' utility Board of Wisconsin
Colorado Energy Advocacy Office
East Maine Medical Center
Georgia Legal Services Program
Harris Corporation
Interstate Securities Corporation
J .R. Simplot Company
Merrill Trust Company
PenBay Memorial Hospital
Prior Exrience
Q. BEFORE BECOMING A CONSULTAN, WHERE WERE YOU
PROFESSIONALLY EMPLOYED, AND IN WHT CAPACITIES?
A. From 1981 to 1986 I was Economist and Director of
Policy and Administration for the Idaho Public
utilities Commission. My duties at the IPUC included,
in addition to my testimony, the preparation of special
reports in the areas of forecasting, demand studies,
and economic analysis. As Staff Director I was charged
Exhibit I, Page 4Reading, Di
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wi th overseeing the personnel and budget functions, and
wi th representing the Commission before the state
legislature, at the governor's office, before the
utility commissions of other states and before such
federal and regional entities as the Bonneville Power
Administration, the Northwest Power Planning Council,
and the Pul ic Power Council.
Before that time I taught economics at Middle
Tennessee state University (Assistant Professor,
1968-70), Idaho state University (Assistant and
Associate Professor, 1970-80), and the University of
Hawaii at Hilo (Associate Professor, 1980-81).
Subj ects taught included economic theory and history,
quantitative analysis, econometrics, statistics, labor
economics, financial institutions, and international
economics.
In addition, between 1970 and 1986 I prepared
reports and expert testimony on loss of earnings in a
numer of legal actions respecting wrongful injury and
wrongful death. Al though many of these cases were
settled without trial, I gave expert testimony in courton numerous occasions.
Q. HAVE YOU TESTIFIED PREVIOUSLY AS AN EXPERT WITNESS IN
THE ARA OF PUBLIC UTILITY REGULATION?
A. Yes. I have provided or am preparing expert testimony
on 19 occasions in proceedings before regulatory
commissions in Alaska, California, Colorado, District
of Columia, Idaho, Nevada, Texas, Utah, and
Washington, and before the Interstate Commerce
Commission. In addition, I have served as a hearing
examiner in Idaho.
My testimony in these proceedings dealt with
electric power planning and forecasting, power supply
models, avoided costs, demand elasticity models,
regional economic conditions affecting public
utilities, and cost of service.
Q. DO YOU HAVE ANY PROFESSIONAL PUBLICATIONS?
A. Yes. I have authored or co-authored more than 15 books
and articles, including the following:
Exhibi t I, Page 5
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"Post-PUPA views," Proceedings of the NARUC Biennial
Regulatory Conference, September 1982.
An Input-Output Analysis of the Impact from Proposed Mining
in the Challis Area (with R. Davies), Public Policy Research
Center, Idaho State University, February 1980.
.'The Paradox of Voting," Reason 10 (April 1979): 39- 41
"Index of Prices Received by Idaho Farmers, II Idaho Economiç
Indicators, July 1978 (also continuing series publishedmonthly) .
"Income Distribution in Idaho Counties," Idaho Buslness and
Economics Review.
Future-Gram. ' C' Serles: Current Trends and Foreçasts, ' C'
Series (with R. Foster, et al.), Government Research
Institute of Idaho State Uni versi ty and the Southeast Idaho
Council of Governments, Pocatello, Idaho, June 1977.
An Emlrical Analysls of Predlctors of Inçome Dlstrlbutlon
Effects of Water Quality Controls (with J. Keith, et al.),
Utah Water Research Laboratory, Utah State University,
Logan, Utah, September 1976.
Reglonal Growth and Fiscal Impact in Southeast Idaho (with
V. Hj elm et al.), Government Research Institute of IdahoState Uni versi ty and the Southeast Idaho Council of
Governments, Pocatello, Idaho, January 1976.
Phosphate and Southeast: A SOClo Ecanomlc Analysls (with J.
Eyre et al.), Governent Research Institute of Idaho StateUniversity and the Southeast Idaho Council of Governents,
Pocatello, Idaho, August 1975.
Estlmating General Fund Revenues of the state of Idaho (with
S. Ghazanfar .and D. Holley), Center for Business and
Economic Research, Boise State University, June 1975.
"Pocatello/Bannock County Economic Impact through 1978"
(with R. R. Johnson), funded by the City of Pocatello (A
Regional Input-Output Model), December 1975.
"A Note on the Distribution of Federal Expenditures: An
Interstate Comparison, 1933-1939 and 1961-1965," Aierlçan
Economist 18, no. 2 (Fall 1974): 125-128.
Exhibi t I, Page 6Reading, Di
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"New Deal Activity and the states, 1933-1939," JQurnal Qf
Economic History 33 (December 1973): 792-810.
"Utah's Steel Industry" (with Reid R. Durtschi and Bartell
Jensen), Utah State University Research Paper, 1965.
Exhibi t I, Page 7Reading, Di
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6
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ERRTA SHEET OF
DON READING, Ph. D.
BEFORE THE IDAHO PUBLIC SERVICE COMMISSION
Case No. IPC-E-90-2
TESTIMONY
Line Change From Change To .
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9
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April 24, 1985
treat what its
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April 23, 1985treat its
there is noconditions
does notincludesincludes