IPC5262.docx

1 BOISE, IDAHO, TUESDAY, MAY 26, 1998, 1:30 P. M.
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4 COMMISSIONER SMITH: We'll be back in
5 order. Mr. Ripley.
6 MR. RIPLEY: I believe our
7 cross-examination is complete of Dr. Peseau. Thank you.
8 COMMISSIONER SMITH: Do we have questions
9 from the Commissioners?
10 COMMISSIONER NELSON: Well, first let me
11 say what a successful lunch hour it was. I do have one
12 question, Madam Chair.
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14 DENNIS E. PESEAU,
15 produced as a witness at the instance of the Industrial
16 Customers of Idaho Power, having been previously duly
17 sworn, resumed the stand and was further examined and
18 testified as follows:
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20 EXAMINATION
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22 BY COMMISSIONER NELSON:
23 Q On your last page of your testimony,
24 Doctor, in your recommendation you talked about using the
25 same allocation factor for pre-'94 as post-'94 if they
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1 couldn't come up with an allocation for pre-'94.
2 Wouldn't that really put some costs on those classes that
3 had heavy expenditures after '94 unless the programs were
4 all consistent, for instance, the agricultural choices
5 program?
6 A It could. It depends on the pre-'94 being
7 basically an all energy whether they were high load
8 factors or low load factors, but it's certainly possible.
9 COMMISSIONER NELSON: That was all I had.
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11 EXAMINATION
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13 BY COMMISSIONER SMITH:
14 Q I guess I just had a question about your
15 recommendation on page 12 which began in the response at
16 line 18, we're assuming for rate setting purposes that
17 current unamortized DSM balances are financed with
18 five-year bonds, you're not actually proposing that they
19 be financed, you're just proposing that we assume that
20 they are?
21 A Well, I'm suggesting that the action on the
22 part of the Commission to shorten the life will have an
23 impact with shareholders in terms of their required rates
24 of return and since the required rates of return I think
25 would go down, I'm suggesting this is a method to capture
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1 that.
2 Q This is kind of a surrogate calculation?
3 A That's correct.
4 COMMISSIONER SMITH: All right, thank you.
5 Mr. Richardson, do you have any redirect?
6 MR. RICHARDSON: Thank you, Madam Chair,
7 just a couple of questions.
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9 REDIRECT EXAMINATION
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11 BY MR. RICHARDSON:
12 Q Dr. Peseau, you stated on cross-examination
13 from Mr. Ripley that the intergenerational transfer was
14 still an issue today. In what way did you mean that?
15 A Well, in the testimony of Mr. Said, he
16 indicates that he shortened the life from 24 years to
17 five years because of various analyses pertaining to rate
18 impacts and rate shocks of various customers and it just
19 strikes me that the best test instead of using judgment
20 for that is the intergenerational consideration and it
21 strikes me that customers of virtually every group are
22 here today and they were pretty well in agreement with
23 one another that 24 years is the rate shock or the rate
24 impact that is okay with them, not five years, so I don't
25 think we need to worry about judging the
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1 intergenerational. I think we've got a good test of that
2 right here today.
3 Q And does that relate at all to matching of
4 benefits with costs in your opinion?
5 A Well, in my opinion the 24-year decision
6 some time ago did attempt to take away some arbitrary
7 number and match economic benefits with the costs and I
8 see no argument to the contrary in the Company's direct
9 testimony. I see simply a matter of judgment.
10 Q And according to cross-examination by
11 Mr. Ripley, you apparently were the author of the 24-year
12 methodology?
13 A I think there were at least a couple of
14 parties. I think Staff and I know FMC, but there may
15 have been another party. I think we all looked at the
16 expected useful life and concluded that that was the
17 appropriate one to use.
18 Q And from that perspective, do you see
19 anything that's changed between the time that your
20 recommendation on behalf of FMC was adopted by this
21 Commission, anything that has changed since then to
22 today?
23 A No, I think the fact that resource planning
24 changes and owned generation is being supplanted by the
25 market does nothing to change the proper amortization of
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1 the DSM programs.
2 Q And does that include the assertion that
3 the Company now plans on a region wide basis rather than
4 a Company specific basis?
5 A Yes, this is an embedded asset and I think
6 a final determination if things continue to go towards
7 competition will be made and a level of stranded costs
8 will be determined, stranded costs or stranded benefits,
9 and the issue should be resolved appropriately as one of
10 many different decisions.
11 MR. RICHARDSON: Thank you, Dr. Peseau.
12 Madam Chairman, that concludes the case of
13 the Industrial Customers of Idaho Power.
14 COMMISSIONER SMITH: Thank you,
15 Mr. Richardson and Dr. Peseau.
16 (The witness left the stand.)
17 MR. RICHARDSON: May Dr. Peseau be
18 excused? He will be around most of the day, but with the
19 pleasure of the Chair, we would like to ask that he be
20 excused at the conclusion of today's proceeding.
21 COMMISSIONER SMITH: Is there any
22 objection? No? Then he can be excused.
23 MR. RICHARDSON: Thank you, Madam Chairman.
24 COMMISSIONER SMITH: Mr. Ward.
25 MR. WARD: Thank you. We call David Bonn
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1 to the stand.
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3 DAVID BONN,
4 produced as a witness at the instance of the FMC
5 Corporation, having been first duly sworn, was examined
6 and testified as follows:
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8 DIRECT EXAMINATION
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10 BY MR. WARD:
11 Q Mr. Bonn, would you please state your name,
12 position and current business address for the record?
13 A Sure. My name is David Bonn --
14 Q Excuse me, Mr. Bonn, I don't believe your
15 mike is on or else you're going to have to get closer to
16 it.
17 A Yes, my name is David Bonn. I am employed
18 by Summit Energy Services as director of electric power
19 services based in Louisville, Kentucky.
20 Q Thank you. Mr. Bonn, in preparation for
21 this proceeding, did you cause written testimony to be
22 prepared and filed with the Commission?
23 A Yes, I did.
24 Q And with the exception I'm going to ask you
25 about in a moment on page 15, I believe it is, do you
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1 have any changes or additions to that testimony that
2 you're aware of?
3 A No, sir, just the addition on 15.
4 Q Okay. Now, on page -- oh, Madam Chair, let
5 me apologize to the Commission and the parties, this
6 testimony was filed while neither I nor my secretary was
7 in the office and apparently was filed without line
8 numbers. We will furnish clean copies with line numbers
9 and, again, I apologize for that.
10 COMMISSIONER SMITH: Do other parties need
11 additional copies? Maybe just one for the court
12 reporter.
13 MR. WARD: We will furnish one for the
14 Commission and, of course, one for the reporter.
15 Q BY MR. WARD: Now, since I can't cite to
16 line whatever of page 15, please identify the correction
17 you want to make on page 15.
18 A Beginning on page 15 with the item stated
19 "You identified two additional issues," from that point
20 on down to the top of page 16, concluding with
21 "continuing DSM expenditures," I'd like to take that out
22 of the testimony. I feel like Ms. Carlock has provided
23 more accurate estimates of this economic impact.
24 MR. WARD: All right; so, Madam Chair, what
25 we would propose to do is strike the question and answer
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1 on page 15 and 16.
2 Q BY MR. WARD: And, Mr. Bonn, did I
3 understand you to say that you're withdrawing that
4 recommendation because of Ms. Carlock's more accurate
5 estimate of the numbers?
6 A Yes, sir.
7 Q All right. Let me ask just one additional
8 question, if I may. Earlier today did you hear Dr. Power
9 opine that all parties might agree that on a going
10 forward basis a shorter amortization period or even
11 expensing of DSM expenses might be appropriate, did you
12 hear him express that sentiment?
13 A Yes, sir, I did.
14 Q Do you agree with that sentiment?
15 A Yes, sir, I do.
16 MR. WARD: With that, Madam Chair, I'd
17 request that Mr. Bonn's testimony be spread upon the
18 record as if read and he is available for
19 cross-examination. He has no exhibits and I can't resist
20 the temptation to note that Mr. Bonn comes here directly
21 from his honeymoon which has to be from heaven to hell.
22 COMMISSIONER SMITH: It depends.
23 MR. RIPLEY: Which is which?
24 COMMISSIONER SMITH: Without objection, we
25 will spread the prefiled testimony of Mr. Bonn on the
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1 record as if read excluding the portion which has been
2 excised.
3 (The following prefiled testimony of
4 Mr. David Bonn is spread upon the record.)
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1 Q PLEASE STATE YOUR NAME, POSITION AND
2 CURRENT BUSINESS ADDRESS.
3 A My name is David Bonn. I am employed by
4 Summit Energy Services, Inc. as the Director of Electric
5 Power Services. My business address is 4967 U.S. Highway
6 42, Suite 220, Louisville, KY 40222.
7 Q PLEASE DESCRIBE SUMMIT ENERGY.
8 A Summit Energy is an energy consulting firm
9 whose services are employed by approximately four hundred
10 medium and large industrial customers of various sizes in
11 forty-four states, Canada, and Mexico. Summit's
12 specialty is assisting customers in energy purchase
13 agreements. I am primarily responsible for the purchase
14 of electricity for our clients in retail wheeling pilot
15 programs and in fully deregulated environments. I am a
16 graduate of the University of Kentucky and hold
17 Bachelor's degrees in both English and Political Science.
18 Q HAVE YOU PREVIOUSLY TESTIFIED BEFORE OTHER
19 REGULATORY COMMISSIONS?
20 A I have filed comments for other
21 commissions, but this is my first opportunity to present
22 live testimony.
23 Q FOR WHOM ARE YOU TESTIFYING IN THIS
24 PROCEEDING?
25 A I am testifying on behalf of FMC
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1 Corporation.
2 Q WOULD YOU BRIEFLY OUTLINE THE PURPOSE OF
3 YOUR TESTIMONY?
4 A There are two major themes or arguments in
5 my testimony. First, I will explain why the Commission
6 should reject Idaho Power's request for accelerated
7 amortization of the DSM costs at issue in this case.
8 Secondly, I
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1 will discuss Idaho Power's proposed allocation of these
2 costs to its various customer classes. I am, of course,
3 particularly concerned with the unique circumstances of
4 FMC, but some of the allocation concerns I will discuss
5 are germane to other customer classes as well.
6 Accelerated Amortization of DSM Costs
7 Q LET'S BEGIN WITH THE FIRST ISSUE. WHY DO
8 YOU CONTEND THE COMMISSION SHOULD REJECT IDAHO POWER'S
9 APPLICATION?
10 A Before I answer that question directly, we
11 need to start with some background information to place
12 this issue in context. Much of what I have to say at
13 this juncture will be very familiar to the Commission, so
14 I will not dwell on it at length, but it is crucial to
15 the development of a complete record.
16 To begin at the beginning, we need to ask why DSM
17 programs were created in the first place? The answer
18 varies slightly from state to state, but even though I am
19 not intimately familiar with the complete history of the
20 Idaho programs, I feel confident I can identify the major
21 reasons for their existence. The overwhelming majority
22 of DSM programs were originally implemented in an attempt
23 to forestall the need for new generating plant additions
24 that would otherwise be necessary to serve expected load
25 growth. This rationale was particularly strong during
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1 the late 1970s and 1980s, when incremental costs for new
2 baseload generation were much higher than they are now.
3 The basic idea was that, for a variety of reasons,
4 markets would not perfectly capture all cost effective
5 conservation measures. This concept was especially
6 cogent for low cost companies like Idaho Power who had
7 embedded cost rates that were less than the incremental
8 cost of new generating capacity additions. If the
9 incremental cost of new generation was 6 cents per kwh or
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1 more, but embedded cost rates were only 4 cents per kwh,
2 no economically rational person would make a conservation
3 investment that cost 5 cents, even though doing so would
4 save the utility money and benefit all ratepayers. DSM
5 programs provided an incentive, generally in the form of
6 an up front support payment, that reduced or eliminated
7 this perceived market imperfection.
8 In addition, some DSM programs also contained an
9 element of social or public purpose motivations from
10 their very inception. Idaho Power's low income
11 weatherization program is, I suspect, a case in point.
12 While this program was probably justified at first on an
13 economic basis, it certainly did the program no harm that
14 it also benefitted those least able to make the capital
15 investments necessary to save energy and lower their
16 utility payments. In recent years, however, the public
17 policy purposes of DSM programs have become their
18 dominant, if not sole, reason for existence. This is a
19 crucial fact I will discuss in more detail later in my
20 testimony.
21 Q WHAT DOES THIS BACKGROUND INFORMATION HAVE
22 TO DO WITH THIS CASE?
23 A It has everything to do with the case. It
24 is the heart of the matter. The fact is that DSM
25 programs were, and are, a replacement for generating
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1 resources. (I recognize, by the way, that DSM programs
2 also produced minimal transmission and distribution cost
3 savings, but the economic analysis justifying such
4 programs ordinarily did not account for these savings,
5 and they can be fairly ignored for the purpose of this
6 discussion). As such, they have generally been treated
7 like generating resources for ratemaking purposes. That
8 is to say, they have typically been amortized over their
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1 expected useful life. In fact, this Commission so found
2 in Idaho Power's last general rate case, in which it
3 ordered amortization of these costs over their expected
4 average useful life of 24 years. This decision was
5 entirely correct when made, and it remains correct today.
6 Q WHY IS THE USEFUL LIFE OF DSM PROGRAMS A
7 RELEVANT CONSIDERATION?
8 A In general, regulated rates attempt to
9 match the cost burden with benefits received. If
10 ratepayers will benefit from a particular investment for
11 24 years, regulators ordinarily try to spread the cost
12 over a similar 24 year time frame. Substantial
13 departures from this principle result in inordinate
14 penalties for some ratepayers and windfalls for others.
15 Q BUT IDAHO POWER CONTENDS THAT CONDITIONS
16 HAVE CHANGED. ISN'T IT A FACT THAT THE POSSIBILITY OF
17 RESTRUCTURING IS A VALID CONSIDERATION?
18 A Of course it is. All parties are
19 legitimately entitled to demand that the Commission take
20 the possibility of industry restructuring into account in
21 its decisions from now on. Federal or state
22 restructuring legislation is a possibility, perhaps even
23 a probability, in the foreseeable future, and it is now
24 one more factor that the Commission must consider in all
25 electric utility cases. But the real question is, does
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1 this possibility support Idaho Power's position in this
2 case? My answer is that it does not, and in fact it cuts
3 strongly the other way. If anything, the possibility of
4 electric industry restructuring refutes Idaho Power's
5 argument for acceleration of its DSM costs.
6 Q PLEASE EXPLAIN.
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1 A Idaho Power's explanation for its
2 accelerated amortization request is brief to the point of
3 being nonexistent. It simply states that the 24 year
4 amortization period is no longer reasonable in light of
5 current industry conditions, and it proposes a five year
6 amortization period without further explanation. In its
7 discovery responses, Idaho Power indicates that the
8 proposed five year period is the result of Mr. Said's
9 (and presumably Idaho Power's staff's) judgment as to a
10 reasonable amortization period. I am not, as you might
11 expect, going to attack this argument because it is based
12 on judgment. In the end, many important decisions must
13 rest on someone's informed judgment. But when I am
14 presented with an individual's judgment on an important
15 issue, my reaction is to inquire about the reasoning that
16 supports it. At this juncture, Idaho Power has produced
17 no explanation of its reasoning. This makes it difficult
18 to analyze the issue, but we can perhaps work around this
19 impediment.
20 Q HOW DO YOU PROPOSE TO DO THAT?
21 A Let us start by making the case Idaho Power
22 could have made, and then we will see if it withstands
23 analysis. If I were arguing Idaho Power's case, I would
24 reduce it to three major points, stated something like
25 this:
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1 (1) DSM costs were never the utility's idea.
2 These programs were foisted upon Idaho Power by
3 regulators. Consequently, the regulatory commission has
4 a moral, and perhaps legal, obligation to insure full
5 recovery of these costs.
6 (2) DSM programs have proved to be expensive
7 resources. Their costs exceed both market prices and
8 Idaho Power's embedded cost of resources. Their
9 existence will prove to be a liability in a competitive
10 world. Idaho
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1 Power is therefore entitled to recover their full cost in
2 order to be placed in the same competitive position it
3 would have been in but for the existence of DSM programs.
4 (3) If restructuring and deregulation comes, only
5 a small portion of these costs will have been amortized.
6 No customer in the competitive market will willingly pay
7 for these programs and the company will be forced to
8 absorb their costs. Therefore, it is imperative that the
9 beneficiaries of these programs pay for them on an
10 expedited schedule before restructuring occurs.
11 Otherwise, the company will be left to absorb the costs
12 of something it never wanted to do in the first place.
13 Q ALL THREE ARGUMENTS SEEM PLAUSIBLE. WHY
14 THEN DO YOU URGE THE COMMISSION TO REJECT IDAHO POWER'S
15 APPLICATION?
16 A As you say, these arguments are
17 superficially plausible, but they won't withstand a
18 careful analysis. First, we should begin with the
19 contention that these costs were inflicted on the utility
20 by the regulators. There is a element of truth here, but
21 in the end the flat assertion is suspect. I am not a
22 member of Idaho Power's board of directors, so I cannot
23 say what its position with respect to DSM was throughout
24 the relevant time period. But my study and experience
25 tells me that DSM programs were not unilateral decisions
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1 by the regulators. Most utilities came to accept the
2 rationale for these programs, and they in fact proposed
3 most of them to the regulators. But perhaps some of them
4 did so under duress, so we will let this observation pass
5 for a minor point.
6 Secondly, we must recognize "the government made
7 me do it" argument for what it is. The fact is that the
8 "government" makes utilities
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1 (and other citizens) do many things they don't want to
2 do. They are forced to pay taxes and control pollution
3 and a host of other actions they would perhaps regard as
4 unwarranted. But the mere fact that a governmental
5 agency approves, or even requires, a particular action or
6 program does not automatically translate into an
7 obligation to insure the recovery of its costs. In
8 general, industries must recover governmentally imposed
9 costs as best they can in the marketplace, and we would
10 find it strange if the steel industry wanted to recover
11 its pollution control costs by a governmentally mandated
12 surcharge on its customers.
13 Idaho Power would, of course, argue that fully
14 regulated utilities are somehow different, and the
15 government therefore bears an obligation to insure the
16 recovery of unwillingly incurred costs during a
17 transition to an unregulated competitive environment. I
18 am not a lawyer, so I have nothing to say about this as a
19 proposition of law. But I would note that the historical
20 precedents are, at best, a mixed bag. In the natural gas
21 industry, regulated pipelines were allowed to recover a
22 portion of their stranded costs during the competitive
23 transition via a mandatory surcharge. The practice for
24 local distribution companies varied greatly from state to
25 state. I am not as familiar with the telephone industry,
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1 but it is my general understanding that the federal act
2 compelling competition offers no assurances of recovery
3 of any regulatory costs.
4 It may be that the ground rules for the transition
5 to electric industry competition will treat DSM programs
6 as part of the general cost of doing business, and
7 utilities will be left to recover these costs as best
8 they can in the competitive market. This does not strike
9 me personally as an unfair
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1 result if it is imposed industry wide. In fact, some of
2 the utilities with which Idaho Power will be competing in
3 the future have far more expensive DSM programs on the
4 books than Idaho Power's, and this outcome could even
5 prove beneficial to the company.
6 My essential points here are that regulatory
7 responsibility for DSM costs is not nearly as clear cut
8 as Idaho Power suggests, and the company's "fairness"
9 argument can't properly be evaluated at this juncture.
10 Congress or the state legislature could either mandate or
11 prohibit the result Idaho Power is seeking, or adopt a
12 compromise position, without violating fundamental
13 notions of fairness. In any event, we can't determine
14 what is fair in the context of a changing legal
15 environment until we know how the new environment will be
16 structured.
17 Q PLEASE ANALYZE THE ASSERTION THAT IDAHO
18 POWER HAS BEEN ECONOMICALLY HARMED BY DSM PROGRAMS.
19 A Certainly. As I noted earlier, Idaho
20 Power's case for accelerated recovery of DSM costs has to
21 be based on the implicit premise it would not have
22 acquired resources at the booked DSM costs if left to its
23 own devices. In other words, the argument is that,
24 without government intervention, these expensive
25 resources would not have been incurred and Idaho Power
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1 would have lower overall resource costs with which to
2 enter the competitive market. Therefore, it is the
3 ratepayers' responsibility to fund an expedited recovery
4 of these costs so Idaho Power is made whole and restored
5 to a status quo ante position. This assumption is based
6 on a rewriting of history that is at odds with the facts.
7 Q YOU WILL OBVIOUSLY HAVE TO EXPLAIN THAT
8 ANSWER.
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1 A It is probably true that average DSM costs
2 on a per kwh basis exceed both the current market price
3 for generating capacity and Idaho Power's average
4 embedded cost of generation. But this fact does not, by
5 itself, support Idaho Power's assumption that DSM costs
6 artificially inflated its current resource costs. The
7 relevant question is what would Idaho Power's resource
8 picture look like today but for the acquisition of DSM
9 resources?
10 No one can answer this question with certainty,
11 but we need to remember that the considerable reduction
12 in the incremental cost of new generating capacity in
13 recent years is due primarily to low natural gas prices
14 and increasingly efficient combined cycle natural gas
15 turbines. Throughout the 1980s and early 1990s the use
16 of natural gas in new generating stations was prohibited
17 by law. Consequently, new base load generating resources
18 had to be coal fired or nuclear, although some companies
19 like Idaho Power had limited hydroelectric expansion
20 capabilities. All of these resources were very expensive
21 by modern standards.
22 The fact is some, but certainly not all, DSM
23 resources are relatively expensive because they were
24 acquired primarily during a period when all forms of
25 electric energy and capacity were relatively expensive.
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1 Stated another way, they are expensive compared to
2 embedded costs because of their vintage, but not when
3 compared to contemporaneous alternatives. Idaho Power's
4 own documentation establishes this fact. In the
5 Technical Appendix to its 1995 Integrated Resource Plan,
6 Idaho Power analyzed the cost of the DSM programs, a
7 number of traditional resource acquisitions that were
8 actually purchased, as well as potential resource
9 acquisitions. In general, the total resource cost of DSM
10 programs, particularly the two largest (low income
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1 weatherization and manufactured home acquisition), were
2 competitive with all alternatives. In fact, low income
3 weatherization and the manufactured home programs had a
4 total real levelized resource cost of 18 and 19 mills per
5 kwh, respectively, as compared to the projected real
6 levelized cost of 26.86 mills per kwh for the current
7 base load plant of choice, a combined cycle combustion
8 turbine.
9 If Idaho Power had been forced to purchase coal
10 fired, nuclear, or even combined cycle generating
11 capacity instead of DSM resources, would it be better off
12 today? This is, at best, a dubious assertion that is
13 inconsistent with the available contemporaneous evidence.
14 What we do know with certainty is that the Commission
15 found the DSM programs to be cost effective at the time
16 they were authorized. If this decision was correct when
17 made, then Idaho Power's overall resource costs would
18 presumably be higher than they are now in the absence of
19 the DSM programs.1 Under these circumstances, would
20 Idaho Power have a claim for expedited amortization or
21 depreciation of the higher cost generating plants
22 acquired during the relevant time frame? The answer to
23 that question is self evident, and by itself should be
24 enough to reject Idaho Power's application.
25 Q LET'S TURN TO THE THIRD POINT YOU MADE IN
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1 YOUR HYPOTHESIZED IDAHO POWER ARGUMENT, THAT THE COMPANY
2 MAY NOT BE ABLE TO RECOVER THE FULL COST OF ALL DSM
3 PROGRAMS IN A COMPETITIVE MARKET. ISN'T THAT A FACT?
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energy prices have been extraordinarily cheap, constitute
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time frame, Idaho Power was winding down its DSM
24 programs, and the amounts at issue are therefore not as
significant as earlier acquisitions.
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1 A Of course it is, but it is an irrelevant
2 fact. The electric utility industry has succeeded in
3 placing the stranded cost issue at the head of the
4 political debate about restructuring. Policy makers may
5 nevertheless ultimately decide that DSM costs are not
6 stranded costs, or that there will be no stranded cost
7 recovery at all except through normal market mechanisms.
8 But unless Congress or the legislature takes this issue
9 out of the Commissions hands, Idaho Power will have an
10 opportunity to seek full recovery of stranded costs when
11 restructuring actually occurs.
12 Until that time, the Commission should not be
13 enticed into piecemeal stranded cost determinations.
14 Idaho Power, like any other utility or energy producer,
15 has some recent vintage, high cost units of production.
16 These may include some DSM programs, although it has made
17 no attempt to prove this is so. But as I just explained,
18 it also has recent vintage, high cost production units
19 that were voluntarily acquired, and it would presumably
20 have more but for the presence of the DSM programs.
21 Nevertheless, Idaho Power remains one of the lowest cost
22 electric energy producers in the nation. It has a
23 resource portfolio that is the envy of virtually every
24 other producer in the country. There is nothing in this
25 situation that suggests the need for urgent corrective
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1 action.
2 If restructuring does not occur, then Idaho Power
3 is assured of DSM cost recovery, and this whole case is
4 moot. But suppose either Congress or the state
5 legislature mandates restructuring? In that case,
6 ratepayers will argue that all generating resources and
7 generation surrogate costs, such as DSM, should be lumped
8 together to determine whether stranded costs exist
9 (assuming stranded cost recovery is appropriate in the
10 first place). Idaho
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1 Power will argue that some high cost resources should not
2 be included in the stranded cost determination and should
3 be recovered separately. The Commission can then make an
4 informed decision in light of prevailing circumstances
5 and legal requirements. If Idaho Power wins, the
6 Commission can fashion an appropriate remedy that will
7 insure recovery of DSM or any other form of stranded
8 costs.2 But if an extraordinary DSM recovery is
9 authorized now, this debate is preempted and the
10 ratepayers will have no realistic opportunity for relief
11 even if their argument subsequently proves meritorious.
12 Q BUT ISN'T IT A FACT THAT OTHER REGULATED
13 INDUSTRIES HAVE BEEN AUTHORIZED TO ACCELERATE
14 DEPRECIATION AND AMORTIZATION WHEN FACED WITH THE
15 TRANSITION TO A COMPETITIVE MARKET?
16 A Yes. I am familiar with a number of
17 instances in which telephone companies or natural gas
18 distribution companies were authorized to shorten
19 depreciation lives and increase depreciation rates in
20 anticipation of a transition to competition. But the
21 evidence in those cases was generally that the previously
22 authorized plant lives were unrealistic, and regulated
23 depreciation rates were well below the norm in the
24 unregulated market.
25 No such showing has been made in this case. It
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1 was only three years ago that this Commission found as a
2 fact that the average useful life of DSM
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discussion, so I will reduce it to a footnote, although
21 it is an important fact. The Commission should note that
Idaho Power's proposal would, at the end of the
22 amortization period, reduce the cost of DSM resources not
to market price or some other objective standard, but to
23 zero. In this respect, its requested relief is more
draconian than a stranded cost recovery which would
24 presumably be limited to compensation of only that
portion of resource costs that can't be recovered in a
25 competitive market.
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1 investments is 24 years. Idaho Power, should, of course,
2 be free to argue that this decision was incorrect, but
3 until it meets its burden of proof in establishing a
4 shorter useful life it has no case for accelerated
5 amortization of these investments. At this point, Idaho
6 Power has submitted no cogent evidence at all on this
7 issue.
8 Q ARE THERE ANY OTHER ISSUES THAT WARRANT THE
9 COMMISSION'S ATTENTION IN THIS CASE?
10 A Yes. There are two additional issues the
11 Commission should consider. First, if the Commission
12 grants Idaho Power's request in this case, it must also
13 order the immediate termination of all DSM expenditures
14 at the same time.
15 Q WHY?
16 A I have not examined the origins of each of
17 the DSM programs in detail, but it is obvious they were
18 determined to be cost effective for the ratepayers with
19 the assumption that payments would be amortized over a
20 lengthy period of time, with the overall average being 24
21 years. It is likewise obvious that none of these
22 programs are likely to be remotely cost effective for
23 current ratepayers if the working assumption is they must
24 be amortized over 5 years because restructuring is
25 imminent.
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1 Q PLEASE EXPLAIN.
2 A I don't have to conduct a sophisticated
3 study to conclude that, if this petition is granted and
4 restructuring occurs shortly after the close of the
5 amortization period, none of the DSM programs will be
6 cost effective from a nonparticipating customers point of
7 view. I will use a crude hypothetical that disregards
8 the time value of money to make the point. Suppose a
9 conservation measure is deemed to exactly meet a cost
10 effectiveness test at 4
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1 cents per kwh, with costs amortized over 25 years. Now
2 let us postulate, in accordance with Idaho Power's
3 petition, that amortization is shortened to 5 years,
4 followed by restructuring and competition. From the
5 nonparticipating ratepayers' point of view, the cost of
6 the program is now 20 cents per kwh! Of course, the
7 conservation measure will continue generating "free"
8 energy savings for another 20 years, but this is
9 meaningless to nonparticipants if they are served by
10 another supplier during this time frame.
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14 same answer ending on page 16 were excised from the
15 record by the witness.)
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1 Q WITH THESE CONSIDERATIONS IN MIND, HOW
2 SHOULD THE COMMISSION RULE IN THIS CASE?
3 A The Commission should reject Idaho Power's
4 request for accelerated amortization of accumulated DSM
5 costs. As matters now stand, Idaho Power is earning a
6 fair recovery on these costs, and this recovery is not
7 threatened by the specter of utility restructuring. If
8 and when restructuring occurs, the Commission can fully
9 consider the stranded cost issue as it relates to all of
10 Idaho Power's assets. My own prediction is that Idaho
11 Power will probably have negative stranded costs when the
12 transition to a competitive environment occurs, and the
13 Commission's biggest issue will be whether and how to
14 compensate ratepayers, rather than Idaho Power, for the
15 cost of this transition. But judgments on this issue are
16 at best premature now because we don't know whether
17 restructuring will in fact occur in Idaho, or what the
18 legal framework will be. Rushing to judgment is not
19 necessary to protect Idaho Power, and it may produce an
20 erroneous determination that is extremely prejudicial to
21 the ratepayers.
22 Allocation of DSM Costs
23 Q YOU EARLIER STATED THAT YOU WOULD HAVE SOME
24 OBSERVATIONS ABOUT THE ALLOCATION OF DSM COSTS PROPOSED
25 BY IDAHO POWER. WHAT ARE THOSE OBSERVATIONS?
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1 A The allocation of DSM costs to FMC
2 obviously raises troubling issues. Under the 1974
3 contract, FMC was an interruptible customer served from
4 generating reserves. As such, it received minimal, if
5 any, benefits from DSM measures. In fact, DSM programs
6 probably harmed FMC.
7 Q PLEASE EXPLAIN.
8 A All things being equal, an interruptible
9 customer receives most of the value of an interruptible
10 contract when new base load plant are added. As
11 significant plants are brought on line, the interruptible
12 customer benefits from the excess reserve capacity that
13 exists until load growth consumes the full output of the
14 plant. During these periods, load interruptions are
15 minimized. DSM acquisitions, on the other hand, occur in
16 smaller increments and don't have the same capacity
17 benefits for an interruptible customer. They therefore
18 tend to increase interruptions beyond those anticipated
19 when the contracting parties struck their bargain.
20 Q YOU HAVE DESCRIBED THE RELATIONSHIP BETWEEN
21 DSM AND THE OLD FMC CONTRACT. WHAT IS THE RELATIONSHIP
22 TO THE NEW CONTRACT?
23 A Under the new contract, the first 120
24 megawatts of FMC's load is take or pay service from Idaho
25 Power. It can be argued that this load benefits from DSM
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1 expenditures. But the second block of 130 megawatts
2 receives no benefit at all because the price is tied to
3 market conditions that are not affected by Idaho Power's
4 resource costs.
5 Q WHAT CONCLUSIONS DO YOU DRAW FROM THIS
6 INFORMATION?
7 A Given the fact that FMC has no practical
8 ability to directly participate in any of the DSM
9 programs, and given the additional fact that these
10 programs have
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1 been at best a mixed blessing in the past and will
2 produce no benefits for its second block purchases in the
3 future, some adjustment of the allocation of DSM costs to
4 FMC is warranted. The most practical adjustment, and the
5 one I recommend to the Commission, is to allocate DSM
6 costs only to FMC's first block of energy, under which
7 FMC purchases 120 megawatts of energy at 100% load
8 factor.
9 Q IDAHO POWER HAS PROPOSED TO ALLOCATE ALL
10 POST 1993 DSM EXPENDITURES ON THE BASIS OF EACH CUSTOMER
11 CLASS ABILITY TO PARTICIPATE IN THE PROGRAMS. IS THIS A
12 REASONABLE REQUEST?
13 A Yes, although Idaho Power's testimony does
14 not do a particularly good job of explaining the
15 rationale for this proposal. The reason why this makes
16 sense is that none of the DSM programs could meet a
17 reasonable cost effectiveness test during the past four
18 years. During this time frame, market prices for energy
19 in the Northwest have been below the cost of even the
20 cheapest DSM program, and this will of course be doubly
21 true if the Commission accelerates the amortization
22 period for these programs. That being the case, post
23 1993 DSM measures can only be justified on the grounds of
24 the potential benefits to participating customers. In
25 effect, DSM programs have become a social program rather
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May 11, 1998 FMC Corporation
1 than a resource acquisition strategy.
2 Under these circumstance, all costs should be
3 allocated only to participating classes. If these
4 programs were funded by general taxes, like other social
5 programs, FMC's contribution would be marginal to the
6 point of insignificance. There is no reasonable
7 justification for collecting roughly 13% of the total
8 cost of these programs from FMC through what amounts to
9 an
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1 energy tax. To do so would be patently unfair to FMC,
2 and it would provide an undeserved windfall for the
3 beneficiaries of the programs.
4 Q HOW SHOULD THE COMMISSION SORT ALL THIS
5 OUT?
6 A Regardless of whether or not the Commission
7 shortens the DSM amortization period, FMC should not be
8 responsible for more than its allocable share of the pre
9 1994 DSM costs that are attributable to its first block
10 of energy.
11 Q DOES THIS CONCLUDE YOUR TESTIMONY?
12 A Yes, it does.
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Case No. IPC-E-97-12 DAVID BONN (Di) 19
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1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: And we'll ask if there
4 any questions. Mr. Budge.
5 MR. BUDGE: Just a couple of brief areas,
6 if I may.
7
8 CROSS-EXAMINATION
9
10 BY MR. BUDGE:
11 Q Mr. Bonn, turning to about page 16 and 17
12 of your testimony, if you would, you begin at the bottom
13 of 16 with some of your observations on the allocation of
14 DSM costs and then you make a statement at the top of
15 page 17 that the allocation raises some troubling issues,
16 and as I understand your testimony, you conclude that FMC
17 receives minimal benefit from DSM programs and you even
18 make the statement that it's probably harmed; is that
19 correct?
20 A Yes.
21 Q And if I understand in the following
22 question and answer there on page 17, you give an
23 explanation and you basically state that an interruptible
24 customer receives most of the value of an interruptible
25 contract when new base load plant is added, and then you
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1 go on a couple of sentences beyond that and state that
2 DSM acquisitions, on the other hand, occur in smaller
3 increments and do not have the same capacity benefits for
4 an interruptible customer.
5 Mr. Bonn, the question I have, to your
6 knowledge, is Idaho Power an energy constrained system or
7 demand constrained system?
8 A Probably more a demand constrained system.
9 Q And if in fact I were to tell you that the
10 historic interruptions of FMC have been based upon demand
11 constraints -- excuse me, been based upon energy
12 constraints rather than demand constraints, would that be
13 something of surprise to you and would that change your
14 answer?
15 A No, I don't believe so.
16 Q No, it wouldn't surprise you?
17 A It would not surprise me.
18 Q And if in fact FMC is interrupted based
19 upon the energy constraints, then would DSM programs that
20 reduce energy consumption in fact be of benefit to FMC
21 like the addition of new plant?
22 A No, I don't believe so.
23 Q And why would that not be the case? Why
24 wouldn't a megawatt saved of energy have the same effect
25 as adding a megawatt of base load plant?
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1 A Well, again, I don't think that you're
2 comparing apples to apples there. I believe it's much
3 easier to build more base load, build it in larger
4 increments, than you can receive by garnering energy from
5 a DSM program.
6 Q If you were to accept as true that FMC is
7 often interrupted for basically weeks on end due to
8 energy constraints on the Idaho Power system, would not
9 the fact that DSM programs have saved energy to the
10 system provided a benefit to FMC?
11 A Yes, I suppose it would.
12 Q If you assumed that they were energy
13 constrained.
14 A If they were energy constrained, yes.
15 Q One other area. On the bottom of page 17
16 of your testimony, you go on to describe the relationship
17 between DSM under the old and the new FMC contract.
18 A Uh-huh.
19 Q Do you see that testimony?
20 A Yes, sir.
21 Q And I think it's your second answer up from
22 the bottom and after talking about the first block of
23 power, in the second sentence you make this statement,
24 "But the second block of 130 megawatts receives no
25 benefit at all because the price is tied to market
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1 conditions that are not affected by Idaho Power's
2 resource costs." Do you see that statement there?
3 A Yes, sir.
4 Q And what is the basis of that conclusion
5 that you make that the price is tied to market conditions
6 unaffected by the Company's resource costs? Is that
7 based upon your review and interpretation of the contract
8 or is it based on something that Idaho Power has told you
9 or FMC has told you?
10 A Kind of a combination of all three. That's
11 my understanding of contract that the second block of
12 this power is tied to a market price.
13 Q So you interpret the contract that way?
14 A Yes.
15 Q And as far as I understand, you believe
16 that FMC takes that position as well?
17 A Yes.
18 Q And has your testimony been reviewed by
19 counsel prior to filing on this particular matter as well
20 as its whole substance?
21 A Yes.
22 Q Were you provided as a part of your
23 background information to prepare for this case any of
24 the filings made by FMC and Idaho Power in their joint
25 application to approve the new FMC contract?
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1 A Not to my knowledge.
2 Q And you wouldn't be familiar with, then,
3 particular positions that they may have stated in that
4 case?
5 A I have participated over the years in the
6 negotiations of that contract and consulted FMC in
7 regards to that contract.
8 MR. BUDGE: May I approach the witness?
9 COMMISSIONER SMITH: Yes.
10 (Mr. Budge approached the witness.)
11 Q BY MR. BUDGE: Mr. Bonn, I'm handing you
12 what's entitled a response of FMC and Idaho Power and it
13 was filed on the date of March 18th, 1998, in the case of
14 IPC-E-97-13, that's the contract approval case, and I'll
15 refer you to the statement at the bottom of page 2.
16 MR. WARD: Do you have a copy for me,
17 Counsel?
18 THE WITNESS: The highlighted statement?
19 MR. BUDGE: Just one second. Let me make
20 these copies available.
21 (Mr. Budge distributing documents.)
22 Q BY MR. BUDGE: Mr. Bonn, the statement I
23 was referring to I believe you found to be underlined.
24 A Yes, sir.
25 Q And that statement says, "All of the
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1 unbundled rate elements, other than the power supply
2 component, are again based on Idaho Power's cost of
3 serving FMC." That seems to be in direct contradiction
4 to your testimony that states that the price is tied to
5 market conditions not affected by Idaho Power's resource
6 costs.
7 MR. WARD: I'm going to object to that
8 characterization. It is not in direct conflict.
9 COMMISSIONER SMITH: Mr. Ward, is your mike
10 on?
11 MR. WARD: Excuse me. Madam Chair, I
12 object to that characterization. That statement says all
13 of the unbundled rate elements, other than the power
14 supply component, are tied to Idaho Power's cost of
15 serving FMC. The unbundled rate elements have to do with
16 the delivery cost and delivery price to FMC. The power
17 supply component is the part that's tied to the market
18 and there's no conflict between this statement and the
19 statement that the power supply component, which is the
20 primary portion of the price, is tied to the market, so I
21 object to that characterization.
22 COMMISSIONER SMITH: Mr. Budge.
23 MR. BUDGE: I could rephrase the question.
24 COMMISSIONER SMITH: Okay.
25 Q BY MR. BUDGE: Mr. Bonn, do you believe the
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1 statements to be consistent? Maybe I can ask it a
2 different way. When we talk about all unbundled rate
3 elements, what is usually being referred to here?
4 A A combination of generation costs,
5 transmission costs, distribution costs.
6 Q And in your testimony on page 17 when you
7 refer to a price being tied to market condition, are you
8 talking about one of the unbundled elements there?
9 A The generation portion.
10 Q The generation portion? So on this
11 statement here on the comments that I gave you that says
12 all unbundled elements, did you understand that to mean
13 all unbundled elements consisted of generation as well as
14 transmission and distribution?
15 MR. WARD: Madam Chair, I'm going to
16 object. This is completely mischaracterizing the
17 document he's looking at. It says "All of the unbundled
18 rate elements, other than the power supply component, are
19 based on" et cetera, et cetera. It clearly states that
20 the power supply component is tied -- I mean it does
21 not -- this document is not inconsistent with the
22 assertion that costs are tied to the power supply
23 component.
24 MR. BUDGE: I appreciate Mr. Ward's
25 testimony, but I can rephrase it one additional way.
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1 MR. WARD: Madam Chairman, my objection is
2 I don't appreciate counsel's testimony. It's inaccurate.
3 COMMISSIONER SMITH: Mr. Budge, I think you
4 have to take the whole sentence, unbundled elements other
5 than the power supply component.
6 MR. BUDGE: Let me reask it.
7 Q BY MR. BUDGE: Do you stand by your
8 statement, Mr. Bonn, in your testimony that the price on
9 the second block of the FMC contract is tied only to
10 market conditions unaffected by Idaho Power's resource
11 costs?
12 A Yes.
13 Q And you don't feel that there's a
14 contradiction between that and the statement made by the
15 Company in the previous case?
16 A The sentence taken in full context, yes,
17 they are consistent.
18 MR. BUDGE: Thank you. I have no further
19 questions.
20 COMMISSIONER SMITH: Thank you, Mr. Budge.
21 Mr. Richey.
22 MR. RICHEY: I have no questions.
23 COMMISSIONER SMITH: Mr. Richardson.
24 MR. RICHARDSON: Just one, Madam Chairman,
25 thank you.
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1 CROSS-EXAMINATION
2
3 BY MR. RICHARDSON:
4 Q Mr. Bonn, the question from Mr. Ward before
5 you were tendered for cross-examination, you spoke about
6 expensing DSM on a going forward basis, do you recall
7 that?
8 A Yes.
9 Q Can you tell me specifically which DSM
10 expenses you were requesting be expensed on a going
11 forward basis?
12 A Those DSM programs implemented post --
13 maybe I'm misunderstanding your question, but post-1994,
14 1993. Maybe I'm misunderstanding the question.
15 Q I'm just trying to be clear on what your
16 recommendation is on which DSM costs should be expensed
17 versus deferred and are you talking about those expenses
18 incurred from this date forward or from the date of this
19 order forward or are you talking about those that have
20 already been deferred but pending approval by the
21 Commission from 1994 on?
22 A The latter.
23 MR. RICHARDSON: Thank you, Madam Chairman.
24 COMMISSIONER SMITH: Mr. Jauregui.
25 MR. JAUREGUI: I have no questions.
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1 COMMISSIONER SMITH: Mr. Gollomp.
2 MR. GOLLOMP: No questions.
3 COMMISSIONER SMITH: Mr. Fothergill.
4 MR. FOTHERGILL: No questions.
5 COMMISSIONER SMITH: Mr. Purdy.
6 MR. PURDY: Thank you.
7
8 CROSS-EXAMINATION
9
10 BY MR. PURDY:
11 Q Initially, I just want to clarify your
12 changes to your prefiled testimony and I want to make
13 sure that I understand correctly, is it your position
14 still that there should be some reduction to Idaho
15 Power's revenue requirement for this DSM cost to account
16 for the fact that the Company will experience reduced O&M
17 looking forward for the administration of the DSM
18 programs, but that you're just deferring to the exact
19 amount, you're deferring to Staff witness Carlock's
20 position?
21 A Yes.
22 Q Now, I want to follow up on some questions
23 asked by Mr. Budge, and if I understand, your position is
24 that because FMC is an interruptible customer, somehow
25 the acquisition of a kilowatt or a megawatt-hour, what
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1 have you, as a resource is somehow different, affects FMC
2 differently depending upon whether it is a kilowatt-hour
3 or a megawatt-hour saved as opposed to a new resource,
4 generating resource, being built; is that essentially --
5 A Yes.
6 Q All right. My question is I assume that as
7 an interruptible customer, FMC has on occasion been
8 interrupted by Idaho Power?
9 A To my knowledge, yes.
10 Q Do you know the basis for those
11 interruptions?
12 A No, I do not.
13 Q Do you know whether they were because Idaho
14 Power had insufficient energy to serve FMC or whether it
15 was perhaps an economic decision that FMC was making that
16 led to the interruption?
17 A I would assume that both of those reasons
18 have caused interruptions.
19 Q Do you know whether Idaho Power has ever
20 had insufficient energy to supply FMC's needs?
21 A Not to my knowledge.
22 Q Do you know the relative level of Idaho
23 Power's reserve margins in the years that its various DSM
24 programs were implemented?
25 A I'm not an expert on that, no, sir.
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1 Q So that's a no?
2 A No.
3 Q Isn't it true that the acquisition of
4 additional energy through conservation would increase
5 Idaho Power's reserve margins?
6 A Yes, it would.
7 Q I'm sorry?
8 A Yes, it would.
9 Q It would, thank you. If that's the case,
10 wouldn't the acquisition of or the institution, the
11 implementation of DSM reduce the risk that FMC would be
12 interrupted because Idaho Power's reserve margins have
13 been increased as you just testified?
14 A Not to the extent that new capacity would.
15 Q But nonetheless, the acquisition of DSM or
16 the implementation of DSM does reduce FMC's risk, all
17 other things being equal?
18 A Yes, it does. Again, though, not as
19 substantially as the addition of additional generation
20 capacity.
21 Q Well, Mr. Budge asked you some questions
22 about what you meant when you said FMC's secondary block
23 is tied to market conditions. Would you agree with me
24 that both supply and demand contribute to determining
25 what market prices are?
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1 A Sure.
2 Q All right; so wouldn't it follow, then,
3 that the reduction of demand through conservation
4 measures would affect the market price in any given
5 market?
6 A It certainly has, I guess, its role in
7 affecting the market price. I don't think Idaho Power
8 individually can move the market maybe one way or the
9 other substantially. I think you're looking at several,
10 a number of factors in determining that market price
11 outside of Idaho Power.
12 Q You, and if you need a reference, it's
13 page 18, you seem to come to the conclusion there that
14 none of Idaho Power's DSM programs are cost effective or
15 have been cost effective over the past four years. My
16 question to you is on what do you base that conclusion?
17 A Sure. Basically my understanding of the
18 industry within the last four years, we've seen gas
19 prices drop substantially since many of these programs
20 were implemented and I think it's easy to say there's
21 been an increase in technology in terms of gas combined
22 cycle generation which has reduced, I guess, the marginal
23 cost of generating electricity.
24 MR. WARD: Mr. Bonn, you're going to have
25 to stay closer to the microphone for my older Mr. Ripley.
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1 Q BY MR. PURDY: Have you performed any type
2 of analysis, though, to determine whether Idaho Power's
3 DSM programs have been cost effective and, if so, what is
4 that analysis?
5 A I have not performed any specific analysis
6 on that issue, just my general knowledge of retail power
7 marketing in this area. Knowing that power is generally
8 in the one-and-a-half-cent range, it would be my
9 understanding that these would not be cost effective,
10 no. I can't imagine a measure that would be able to meet
11 or beat that one-and-a-half-cent to two-cent price.
12 Q Well, have you looked at Idaho Power's, for
13 instance, their 1998 conservation plan to determine what
14 the cost per kilowatt-hour of their various DSM programs
15 has been and then compared that to some type of market
16 benchmark?
17 A I have seen some of those numbers. I have
18 not, I guess, dwelled on those reports, no.
19 Q I'm sorry, you've not what?
20 A I've not dove into those reports, per se.
21 MR. PURDY: That's all I have. Thank you.
22 COMMISSIONER SMITH: Mr. Ripley.
23
24
25
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1 CROSS-EXAMINATION
2
3 BY MR. RIPLEY:
4 Q Mr. Bonn, just one area.
5 A Yes, sir.
6 Q And if I could, just so that we'll be
7 communicating, I'll call the new contract that Idaho
8 Power and FMC have just entered into the '98 contract.
9 A Okay.
10 Q Okay? And I'll write that down because, as
11 Mr. Ward says, I'm getting older and I may forget. Now,
12 in addition to that, you talk at the top of page 17 about
13 the 1974 contract.
14 A Yes, sir.
15 Q Now, do I assume that was the contract, as
16 far as you understand it, that was in existence prior to
17 the 1998 contract?
18 A Yes.
19 Q Okay; so we'll call that the '74 contract
20 just so that you and I can communicate. Now, do I
21 understand that under the '74 contract you agree that
22 there were some benefits from the DSM program that FMC
23 enjoyed as far as reductions in the amount of energy?
24 A It's my understanding that the first block
25 of that contract of 120 megawatts was not an entirely
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1 interruptible load. It was only, I think, for a maximum
2 of 100 hours per year, so there's some firmness there,
3 so, yes, I believe that portion FMC did benefit from some
4 DSM measures.
5 Q But it also, did it not, enjoy benefits
6 under the 1974 contract for the second block?
7 A Not to my knowledge.
8 Q Well, it was served out of the resources of
9 Idaho Power Company, was it not?
10 A Yes, it was.
11 Q It was not totally interruptible, was it?
12 A The second block?
13 Q Yes.
14 A It was my understanding that --
15 MR. WARD: If you know.
16 THE WITNESS: No, I don't know the answer
17 to that one.
18 Q BY MR. RIPLEY: Okay, assume, if you will,
19 that over a 10-year period of time, Idaho Power Company
20 was obligated to make a certain amount of energy
21 available under the second block and it could not be
22 totally interrupted all of the time for the 10-year
23 period.
24 A Okay.
25 Q If you assume that, then there was some
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1 benefit, was there not, under the 1974 contract to FMC
2 whenever Idaho Power Company reduced its obligation to
3 provide power to someone else?
4 A Yes, that could be argued, yes.
5 Q All right. Now, under the 1998 contract,
6 as I understand it, you contend that that argument is no
7 longer valid because now it's a market rate?
8 A No, I do think that we contend that the
9 first block of the contract, the block that is not tied
10 to market forces, should be, DSM costs should be,
11 allocated to that portion.
12 Q But if I follow your testimony --
13 A Yes, sir.
14 Q -- on page 17 in the third Q&A that you
15 have described the relationship between DSM and the old
16 FMC contract --
17 A Yes, sir.
18 Q -- what is the relationship to the new
19 contract, you say, "It can be argued that this load
20 benefits from DSM expenditures." That's the first block,
21 but the second block receives no benefit at all because
22 the price is tied to market conditions.
23 A Yes.
24 Q Am I following your testimony correctly
25 that you believe under the 1998 contract the benefits to
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1 DSM on the second block are no longer there?
2 A Yes, I do.
3 Q Now, you could argue that there were some
4 benefits under the 1974 contract --
5 A Yes.
6 Q -- as to how beneficial, but at least there
7 was some benefit and now that's gone?
8 A For the second block.
9 Q Yes. Do you agree with that?
10 A Yes.
11 Q All I'm talking about is the second block
12 in all of these questions. I want to make sure that I'm
13 not putting words in your mouth. As far as the second
14 block is concerned, you argue that because of the new
15 contract, the 1998 contract, there are no benefits to DSM
16 that Idaho Power -- there are no benefits to the DSM
17 programs as far as FMC's second block is concerned?
18 A Yes.
19 Q Now, there may have been some benefits to
20 the second block under the 1974 contract.
21 A Yes, because that block was not tied -- was
22 directly tied to Idaho Power's resource costs and the
23 second block in the '98 contract is not, at least the
24 generation portion.
25 Q Now, what we're talking about in this
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1 proceeding are the expenditures we have made in the past
2 and not the future; correct?
3 A Yes.
4 Q If we're talking about the benefits when
5 the expenditures were made, which is in the past, and
6 during that period of time FMC enjoyed some benefit, why
7 shouldn't FMC now pay for the benefits that it received
8 in the past?
9 A Because those measures are no longer cost
10 effective or they would not hold up to a
11 cost-effectiveness test.
12 Q So what you're arguing is that if under
13 today's standards there is no benefit from the fact that
14 at the time the expenditures were made there was benefit,
15 that should release any party where there is no benefit
16 now from paying for the prior DSM expenditures?
17 A I certainly see where you're getting at,
18 but, yes.
19 Q Isn't that Idaho Power Company's dilemma in
20 this proceeding that what it's attempting to do is
21 collect from those that benefited at the time the
22 expenditure was made?
23 A Yes.
24 Q And that's what you're resisting?
25 A Yes.
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1 MR. RIPLEY: That's all the questions I
2 have. Thank you.
3 COMMISSIONER SMITH: Thank you,
4 Mr. Ripley.
5 Do we have questions from the
6 Commissioners?
7 COMMISSIONER HANSEN: I have none.
8 COMMISSIONER NELSON: Thank you. I have
9 maybe a couple.
10
11 EXAMINATION
12
13 BY COMMISSIONER NELSON:
14 Q So as I understand your testimony in this
15 question and answer session, you believe that a megawatt
16 of acquired DSM is different to FMC than a megawatt of
17 new generation?
18 A Well, I don't think that there's a
19 substantial difference. What I do believe is that the
20 readiness or the ability to create megawatts, as you put
21 it, through DSM programs is far less substantial or
22 feasible than by building new generation capacity.
23 Q But we wouldn't -- we're just comparing one
24 megawatt to one megawatt, aren't we? I mean, if it's
25 there, it doesn't matter whether it was longer to get or
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1 easier to get generation, does it?
2 A I'll agree with that.
3 Q Well, then what I wanted to know is whether
4 or not you think there is a difference to FMC whether
5 that megawatt is acquired through a demand side
6 management program or through generation.
7 A Put that way, no, I do not see a
8 difference.
9 Q Well, the reason I ask that is this morning
10 Mr. Said said that he thought there was a difference in
11 the way you treat DSM expenditures and generation
12 expenditures in terms of how you recover the
13 capitalization.
14 A Yes, I heard that.
15 Q Did you agree with that?
16 A Well, you're talking about expenditures and
17 then previously you were talking about just capacity.
18 Q But it all winds up as a figure on the
19 books and a cost that's passed through and it would be
20 passed through to all customers, including FMC, but I
21 thought I heard you say that it made a difference to FMC
22 whether it was DSM or generation.
23 A A difference how? Maybe I'm
24 misunderstanding the question.
25 Q Let's go to your testimony on page 12 in
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1 the middle paragraph. There you seem to say that there
2 is no difference. You say in the middle of that
3 paragraph that the Company also has recent vintage, high
4 cost production units that were voluntarily acquired.
5 A Okay, I see that.
6 Q And so you're saying by that statement
7 there is no difference between a megawatt acquired
8 whether it's through a DSM program or a generation
9 program.
10 A That statement is accurate.
11 Q Okay. Then does that mean you disagree
12 with what Mr. Said this morning about the fact that those
13 should be treated differently?
14 A I'm not sure I understand how that applies
15 if you could expand a bit.
16 Q Well, I think in Mr. Said's example he was
17 saying that you would depreciate a capital asset, a
18 generation asset, over the life of that asset, unless you
19 were in the telephone industry, almost universally, but
20 that you might amortize a demand side management asset
21 over, say, something closer to an economic life than a
22 physical life.
23 A I'll agree with that. Maybe I'm
24 misunderstanding the point. I very well could be.
25 Q Well, I think in your testimony it appears
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1 to me that you're saying that DSM is the same as a
2 generating asset.
3 A Yes, I do.
4 Q So then you disagree with Mr. Said?
5 A Yes. If that's the case, yes, I do feel
6 like these DSM programs are indirectly sort of a
7 generation resource.
8 COMMISSIONER NELSON: Okay, thank you.
9 That's all I have.
10 COMMISSIONER SMITH: Do we have redirect,
11 Mr. Ward?
12 MR. WARD: Maybe to just clear up one
13 matter.
14
15 REDIRECT EXAMINATION
16
17 BY MR. WARD:
18 Q With regard to the statement that, and I'll
19 paraphrase, for an interruptible customer base load plant
20 additions are more valuable than DSM, were you trying to
21 make any point other than as a practical matter an
22 interruptible customer is less likely to be interrupted
23 when there's a substantial base load addition?
24 A That is my point, yes.
25 MR. WARD: Thank you. That's all I have,
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1 Madam Chair.
2 COMMISSIONER SMITH: Okay, thank you,
3 Mr. Ward. Thank you, Mr. Bonn.
4 (The witness left the stand.)
5 COMMISSIONER SMITH: All right, that's the
6 end of the people we had lined up. Is there anyone who
7 would --
8 COMMISSIONER NELSON: I think we have one
9 more.
10 COMMISSIONER SMITH: You know what I mean,
11 people who had to get out of town today.
12 MR. BUDGE: Or just wanted to get out of
13 town.
14 COMMISSIONER SMITH: Mr. Budge, would you
15 like to be next?
16 MR. BUDGE: Sure, that would be fine, if it
17 would please the Chair.
18 COMMISSIONER SMITH: Oh, we're just really
19 pleased.
20 MR. BUDGE: The Irrigators would call
21 Anthony Yankel to the stand.
22
23
24
25
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CSB REPORTING BONN (Di)
Wilder, Idaho 83676 FMC Corporation
1 ANTHONY J. YANKEL,
2 produced as a witness at the instance of the Idaho
3 Irrigation Pumpers Association, having been first duly
4 sworn, was examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. BUDGE:
9 Q Would you state your name and address for
10 the record?
11 A Anthony J. Yankel, 29814 Lake Road,
12 Bay Village, Ohio, 44140.
13 Q Did you prefile testimony and exhibits on
14 behalf of the Idaho Irrigation Pumpers Association?
15 A Yes, I did.
16 Q And did your testimony consist of pages 1
17 through 16 and Exhibit 301?
18 A Yes.
19 Q Do you have any changes or corrections you
20 wish to make to your testimony or the exhibit?
21 A Yes, I have two. Page 7, lines 10 and 11,
22 the end of line 10 cross out the word "those," line 11
23 cross out the word "same" and "20" and insert the number
24 "eight."
25 COMMISSIONER SMITH: Would you read that
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Wilder, Idaho 83676 Irrigators
1 sentence, please?
2 THE WITNESS: The sentence should read,
3 "Additionally, the Company has been recovering over
4 eight months the amortization," and it continues from
5 there.
6 The second correction is on page 8,
7 line 4. After the words "electric utility" insert the
8 word "industry." Those are the only corrections I'm
9 aware of.
10 Q BY MR. BUDGE: Mr. Yankel, if I were to ask
11 you today the same questions set forth in your prefiled
12 testimony, would your answers be the same as corrected?
13 A Yes, they would.
14 MR. BUDGE: With that, we would ask that
15 Mr. Yankel's testimony and Exhibit 301 be spread on the
16 record and he be tendered for cross-examination.
17 COMMISSIONER SMITH: If there's no
18 objection, we will spread the prefiled direct testimony
19 of Mr. Yankel upon the record as if read and identify
20 Exhibit 301.
21 (The following prefiled testimony of
22 Mr. Anthony Yankel is spread upon the record.)
23
24
25
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Wilder, Idaho 83676 Irrigators
1 Q PLEASE STATE YOUR NAME, ADDRESS, AND
2 EMPLOYMENT.
3 A I am Anthony J. Yankel. I am President of
4 Yankel and Associates, Inc. My address is 29814 Lake
5 Road, Bay Village, Ohio, 44140.
6 Q WOULD YOU BRIEFLY DESCRIBE YOUR EDUCATIONAL
7 BACKGROUND AND PROFESSIONAL EXPERIENCE?
8 A I received a Bachelor of Science Degree in
9 Electrical Engineering from Carnegie Institute of
10 Technology in 1969 and a Master of Science Degree in
11 Chemical Engineering from the University of Idaho in
12 1972. From 1969 through 1972, I was employed by the Air
13 Correction Division of Universal Oil Products as a
14 product design engineer. My chief responsibilities were
15 in the areas of design, start-up, and repair of new and
16 existing product lines for coal-fired power plants. From
17 1973 through 1977, I was employed by the Bureau of Air
18 Quality for the Idaho Department of Health & Welfare,
19 Division of Environment. As Chief Engineer of the
20 Bureau, my responsibilities covered a wide range of
21 investigative functions. From 1978 through June 1979, I
22 was employed as the Director of the Idaho Electrical
23 Consumers Office. In that capacity, I was responsible
24 for all organizational and technical aspects of
25 advocating a variety of positions before various
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1 governmental bodies that represented the interests of the
2 consumers in the State of Idaho. From July 1979 through
3 October 1980, I was a partner in the firm of Yankel,
4 Eddy, and Associates. Since that time, I have been in
5 business for myself. I am a registered Professional
6 Engineer in the states of Ohio and Idaho. I have
7
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1 presented testimony before the Federal Energy Regulatory
2 Commission (FERC), as well as the State Public Utility
3 Commissions of Idaho, Montana, Ohio, Pennsylvania, Utah,
4 and West Virginia.
5 Q ON WHOSE BEHALF ARE YOU TESTIFYING?
6 A I am testifying on behalf of the Idaho
7 Irrigation Pumpers Association (Irrigators).
8 Q WHAT ISSUES WILL YOU ADDRESS IN YOUR
9 TESTIMONY?
10 A I will address two issues. The first issue
11 is the fact that the revenue increase proposed by the
12 Idaho Power Company (Company or Idaho Power) is
13 overstated. The rate moratorium that was instituted as a
14 part of the Stipulation in Case No. IPC-E-95-11 prohibits
15 the recovery in present rates of DSM expenditures that
16 have been deferred since January 1, 1994. Additionally,
17 reductions should be made to present rates (in keeping
18 with the rate moratorium) to reflect the fact that future
19 DSM administrative costs and Low Income Weatherization
20 costs have been substantially reduced.
21 The second issue that I will address is the
22 inherent unfairness in the Company's proposed allocation
23 of post-January 1, 1994 DSM costs.
24
25
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1 REVENUE REQUIREMENT
2
3 Q IS THE REQUEST IN THIS CASE BY IDAHO POWER
4 FOR AUTHORITY TO INCREASE ITS RATES TO RECOVER DEMAND
5 SIDE MANAGEMENT (DSM) AND CONSERVATION EXPENDITURES
6 APPROPRIATE?
7 A No. Although it is generally appropriate
8 for a utility to recover all prudently incurred costs for
9 DSM and conservation expenditures; Idaho Power's request
10 in this case is not appropriate and should be denied in
11 part, if not in full. Idaho Power is entitled to collect
12 its prudently incurred DSM costs, but there are a number
13 of concerns and problems with the Company's filing in
14 this case that greatly reduce, if not eliminate, the
15 magnitude of the increase being requested in this case.
16 Idaho Power's position that it is entitled to recover DSM
17 expenditures "under any scenario"1 is simply wrong.
18 Q WHAT ARE YOUR OBJECTIONS WITH THE COMPANY'S
19 FILING IN THIS CASE AS IT RELATES TO THE AMOUNT OF ANY
20 INCREASE THAT SHOULD BE GRANTED?
21 A There are two main objections which
22 seriously impact the appropriateness and/or magnitude of
23 any increase that should be given to the Company in this
24 case with respect to recovery of DSM expenditures:
25 1) The rate moratorium that was instituted as a
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1 part of the Stipulation in Case No. IPC-E-95-11
2 prohibits (until January 1, 2000) an increase
3 in rates for the DSM expenditures made after
4 January 1, 1994, which are being deferred, but
5 not recovered in present rates. That
6 Stipulation only allows changes in
7
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12 /
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15
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17
18
19
20
21
22
23
24 1Idaho Power Company Reply to Motions to Dismiss,
March 20, 1998, page 3.
25
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Yankel, DI 3A
Irrigators
1 present rates for DSM expenditures that are
2 being recovered in present rates: pre-1994 DSM
3 costs and post-January 1, 1994 DSM
4 administrative costs and Low Income
5 Weatherization costs.
6 2) If the Commission is going to make any
7 adjustments to the rates paid by Idaho retail
8 customers, these adjustments should remove from
9 base rates the majority of the $1,113,387 of
10 annual revenue currently being collected as an
11 off-set to DSM administrative costs and Low
12 Income Weatherization costs which are no longer
13 being incurred.
14 Rate Moratorium
15 Q HOW DOES THE RATE MORATORIUM THAT WAS
16 INSTITUTED AS A PART OF THE STIPULATION IN CASE NO.
17 IPC-E-95-11 PROHIBITS (UNTIL JANUARY 1, 2000) AN INCREASE
18 IN RATES FOR DSM EXPENDITURES MADE AFTER JANUARY 1, 1994?
19 A In Case No. IPC-E-95-11 a Stipulation was
20 reached. The Idaho Irrigation Pumpers Association signed
21 that Stipulation. That Stipulation contained a rate
22 moratorium that specified that base rates would not
23 change prior to January 1, 2000. There were three
24 exceptions to that rate moratorium. The only exception
25 that Idaho Power relies upon in support of its attempt to
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Irrigators
1 circumvent the rate moratorium reads as follows:
2 Furthermore, the moratorium does not apply to the
following three exceptions: (2) application by
3 Idaho Power, or any other party, requesting
changes in the manner in which Demand Side
4 Management charges are recovered...2 (Emphasis
added)
5
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23
24 2Page 4 of Settlement Stipulation in Case
No. IPC-E-95-11.
25
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1 The relevant language here has to do with the
2 manner in which Demand Side Management charges "are
3 recovered." Costs that are being deferred are not being
4 recovered. The Stipulation does not provide an exception
5 for:
6 1) the manner in which unknown Demand Side
7 Management charges could be recovered;
8 2) or the manner in which Demand Side Management
9 charges (not included in rates, but deferred)
10 could be recovered.
11 The Stipulation only makes an exception for the manner in
12 which Demand Side Management charges "are recovered." If
13 the DSM costs were not already being recovered, as
14 opposed to deferred, then the Stipulation does not make
15 an exception for their recovery before January 1, 2000.
16 The Company's contention that it can recover post-January
17 1, 1994 deferred DSM costs "under any scenario" is
18 erroneous and beyond the narrow exception to the rate
19 moratorium that is outlined in the Stipulation.
20 Q WHICH DSM COSTS FIT UNDER THE STIPULATION'S
21 EXCEPTION REGARDING CHANGES IN BASE RATES ASSOCIATED WITH
22 THE MANNER IN WHICH DEMAND SIDE MANAGEMENT CHARGES ARE
23 RECOVERED?
24 A The Stipulation in Case No. IPC-E-95-11 was
25 approved by the Commission in Order No. 26216 on October
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Yankel, DI 5
Irrigators
1 20, 1995. At that time the only DSM costs that were
2 being recovered in base rates were associated with those
3 approved by the Commission in Order 25880 from the
4 Company's last general rate case. There were two types
5 of DSM costs that were approved for recovery in present
6 base rates per Order 25880:
7
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Yankel, DI 5A
Irrigators
1 1) The Commission authorized cost recovery
2 associated with $20,317,331 of DSM costs3 that
3 had been deferred prior to 1994. The manner in
4 which these pre-1994 deferred costs are being
5 recovered is to amortize them in rates over a
6 24 year time frame.
7 2) The Company requested that it be authorized to
8 begin expensing (as oppose to deferring) future
9 administrative DSM costs and Low Income
10 Weatherization Program costs. There is
11 $1,113,387 recovered in present rates that is
12 associated with what Order 25880 considered
13 expected future administrative DSM costs and
14 Low Income Weatherization Program costs.
15 Q WHICH DSM EXPENDITURES DOES THE STIPULATION
16 IN CASE NO. IPC-E-95-11 PROHIBITED FROM BEING THE BASIS
17 FOR A CHANGE IN BASE RATES AT THIS TIME?
18 A Aside from three specific exceptions, the
19 Stipulation in Case No. IPC-E-95-11 prevents a change in
20 base rates prior to January 1, 2000. Idaho Power's
21 request for amortization of an additional $29,037,500 of
22 DSM costs incurred since January 1, 1994 is over and
23 above the recovery of DSM costs authorized in present
24 rates. The Company can not be proposing to change the
25 manner in which these DSM costs are recovered in present
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Yankel, DI 6
Irrigators
1 rates, because these DSM cost have never even been
2 included in present rates. The Stipulation prohibits
3 until January 1, 2000 the inclusion in rates of the
4 additional amortization of DSM costs incurred since
5 January 1, 1994 - whether amortized over 5 years of 24
6 years.
7
8 /
9
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11
12 /
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20
21
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23
24
25 3Order No. 25880 at page 17 from Case No. IPC-E-94-5.
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Yankel, DI 6A
Irrigators
1 Q SHOULD THE POST-JANUARY 1, 1994 DSM
2 EXPENDITURES BE CONSIDERED AS A CONTINUATION OF THE
3 COMPANY'S OVERALL COMMITMENT TO DSM AS APPROVED IN THE
4 IDAHO POWER'S LAST GENERAL RATE CASE AND THUS ELIGIBLE
5 FOR IMMEDIATE RECOVERY UNDER THE DSM EXCEPTION TO THE
6 RATE MORATORIUM PER THE STIPULATION IN CASE NO.
7 IPC-E-95-11?
8 A No. In September 1995 the Stipulation in
9 Case No. IPC-E-95-11 was signed by Idaho Power and
10 various other parties. By that time, post-January 1,
11 1994 DSM costs (less administrative and Low Income
12 Weatherization Program costs) had been deferred for over
13 20 months. Additionally, the Company had been recovering
14 over eight months the amortization of pre-1994 DSM costs
15 as well as the post-January 1, 1994 DSM administrative
16 and Low Income Weatherization Program costs. The Company
17 was certainly well aware that it was recovering some DSM
18 costs while deferring others. Although the Stipulation
19 contained an exception for DSM charges that were being
20 recovered, the Stipulation did not contain an exception
21 for the manner in which Demand Side Management charges
22 were being deferred.
23 Current DSM Administrative Expense in Base Rates
24 Q IS THE RECOVERY IN BASE RATES OF $1,113,387
25 ASSOCIATED WITH CURRENT DSM ADMINISTRATIVE EXPENSES AND
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Yankel, DI 7
Irrigators
1 THE LOW INCOME WEATHERIZATION PROGRAM STILL APPROPRIATE?
2 A No. The development of the $1,113,387
3 annual revenue requirement associated with "future" DSM
4 expenses in Order 25880 is based upon 1993 test year
5
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Yankel, DI 7A
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1 expenses. Those 1993 administrative expenses for DSM and
2 the Low Income Weatherization Program are no longer
3 valid.
4 The Company's entire basis for filing the present
5 case is its contention that the electric utility industry
6 has changed4 or is likely to change5 since the present
7 rates and present recovery mechanisms for pre-1994 DSM
8 costs and post-January 1, 1994 DSM administrative and Low
9 Income Weatherization costs were established by Order
10 25880. While there has been, and continues to be,
11 changes in the electric utility industry on a national
12 basis, Idaho has not embraced deregulation with
13 policymakers demonstrating a strong unwillingness to
14 change the current regulated monopoly framework.
15 Anticipating a move toward competition in the future,
16 Idaho Power has been addressing cost reduction, in part,
17 by drastically reducing its DSM programs. For example,
18 in 1993 (the test year for the Company's last general
19 rate case) a DSM program for irrigation customers was
20 first authorized. However, today in 1998, Idaho Power is
21 requesting authority to discontinue that same DSM program
22 for irrigation customers.
23 Q HOW DOES THE OUTLOOK FOR FUTURE DSM
24 ADMINISTRATIVE EXPENSES AND LOW INCOME WEATHERIZATION
25 EXPENSES COMPARE WITH THE 1993 EXPENSES AUTHORIZED FOR
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Yankel, DI 8
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1 RECOVERY IN CURRENT RATES?
2 A Exhibit 301 is a copy of a Company
3 workpaper from Case No. IPC-E-94-5 that developed the
4 basis for the $1,113,387 of annual revenue requirement
5 that was
6
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8
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10
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12
13
14
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17
18
19
20
21
22
23
24 4Application at page 2.
25 5Prefiled testimony of Greg Said at page 5.
338
Yankel, DI 8A
Irrigators
1 authorized6 to be recovered in present rates. The
2 $1,113,387 figure was derived as follows:
3 $521,821.25 Total DSM Administrative Labor
4 $298,402.66 Total DSM Administrative Other
5 $293,162.89 Direct Low Income Weatherization
6 $1,113,386.80
7 The problem with these 1993 test year expenses is
8 that they are reflective of a time when DSM activity was
9 near its peak. All of the DSM programs that made up
10 these 1993 test year expenditures have either been
11 terminated by the Company, proposed for termination by
12 the Company, or had their expenditures greatly reduced.
13 The following Table compares, by DSM program, the amount
14 of administrative expenses and the direct Low Income
15 Weatherization costs that were include in the 1993 test
16 year (and thus recovered in present rates) with the
17 present status of each DSM program:
18
19 /
20
21 /
22
23 /
24
25
339
Yankel, DI 9
Irrigators
1
2
3
4
5
6
7 (Chart can be found in the Transcript.)
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24 6Order 25880 at page 17.
25
340
Yankel, DI 9A
Irrigators
1 As can be seen from the above Table, virtually all of the
2 DSM programs for which Idaho Power is presently
3 collecting $1,113,387 per year have been terminated or
4 are proposed to be terminated.
5 The only exception to the entire group of DSM
6 programs that have been terminated is the Low Income
7 Weatherization program. Although this program is still
8 in existence, its expenditures have been progressively
9 reduced each year since 1993. It should be mentioned
10 that the $309,389 Idaho jurisdictional revenue
11 requirement associated with 1993 overall program costs
12 for the Low Income Weatherization program was, in fact,
13 the cost associated with the entire Idaho Power system
14 and not just the Idaho jurisdiction. In 1997 the
15 reported overall expenditures for the Low Income
16 Weatherization program in the Idaho jurisdiction was
17 $196,900 compared to the $309,389 revenue requirement
18 that is recovered in present rates.
19 Q GIVEN THE FACT THAT IDAHO POWER WILL HAVE
20 VIRTUALLY ELIMINATED ALL ADMINISTRATIVE COSTS ASSOCIATED
21 WITH ALL OF THE DSM PROGRAMS IT HAS TERMINATED, WHAT
22 CHANGES ARE APPROPRIATE IN THE MANNER IN WHICH DSM COSTS
23 ARE PRESENTLY RECOVERED?
24 A Generally speaking, the Stipulation in Case
25 IPC-E-95-11 prohibits any change in base rates (increase
341
Yankel, DI 10
Irrigators
1 or decrease) associated with deviations of expenditures
2 from 1993 test year revenues. However, as the Company
3 has pointed out in this case, there is an exception to
4 this rate moratorium related to any requested change in
5 "the manner in which Demand Side Management charges are
6 recovered." The Irrigators request that the Commission
7 make changes in the manner in which the DSM
8 administrative charges and the Low Income Weatherization
9 program charges are
10
11 /
12
13 /
14
15 /
16
17
18
19
20
21
22
23
24
25
342
Yankel, DI 10A
Irrigators
1 recovered. This is one of the two categories of DSM
2 charges that are in present rates and thus subject to an
3 exception to the rate moratorium (amortization of
4 pre-1994 costs and the expensing of DSM administrative
5 costs and Low Income Weatherization costs). The
6 Irrigators request that the Company be ordered to:
7 1) Begin expensing only $200,000 per year (as
8 opposed to $1,113,387) associated with any
9 future DSM administrative costs and Low Income
10 Weatherization costs; and
11 2) Begin deferring the difference between this
12 $200,000 expense and the actual DSM
13 administrative costs and Low Income
14 Weatherization costs.
15
16 /
17
18 /
19
20 /
21
22
23
24
25
343
Yankel, DI 11
Irrigators
1 CLASS ALLOCATION
2
3 HOW HAS THE REVENUE REQUIREMENT FOR DSM COSTS BEEN
4 HISTORICALLY SPREAD TO THE VARIOUS CUSTOMER CLASSES?
5 A Conservation and DSM programs have been
6 historically viewed as alternatives to generation
7 resources. One of the prime justifications for any of
8 the DSM programs has been the ability of these
9 expenditures to off-set the cost associated with future
10 generation. Given such an interpretation, it would only
11 be proper to spread costs associated with DSM and
12 conservation programs on a basis similar to those of
13 generation costs. That is exactly what the Commission
14 did on page 29 of Order No. 25880 in the Company's last
15 general rate case,:
16 We also find that conservation resources provide
both demand and energy benefits and should be
17 classified accordingly. The easiest method to
classify conservation program expenses is in the
18 same manner in which generation resources are
classified, i.e., on the basis of the system load
19 factor.
20 Q HAS IDAHO POWER PROPOSED THAT DSM COSTS BE
21 SPREAD TO THE VARIOUS CUSTOMER CLASSES IN THE SAME MANNER
22 AS APPROVED BY THE COMMISSION IN ORDER 25880?
23 A Only in part. Idaho Power has proposed no
24 change in the manner in which the $1,113,387 the annual
25 DSM administrative and Low Income Weatherization costs is
344
Yankel, DI 12
Irrigators
1 recovered. Although the Company has proposed to change
2 the manner in which pre-1994 deferred DSM costs are
3 recovered (reduce the amortization period from 24 years
4 to 5 years), it proposes to allocate those costs in the
5 same manner as was approved by the Commission in Order
6 25880.
7
8 /
9
10 /
11
12 /
13
14
15
16
17
18
19
20
21
22
23
24
25
345
Yankel, DI 12A
Irrigators
1 Unlike the treatment of charges that are presently
2 being recovered in rates (and subject to the exception to
3 the rate moratorium), the Company is proposing a new and
4 entirely different basis for spreading the revenue
5 requirement associated with the costs of DSM expenditures
6 which have been deferred since January 1, 1994. The
7 Company is proposing that these charges that were never
8 included in rates and which were incurred after the 1993
9 test year should "be allocated based upon the ability of
10 the customer class to participate in programs"7 because
11 DSM is currently viewed from the perspective of
the direct benefits (i.e., ability to participate
12 in programs) that customers receive from
expenditures made on their behalf.8
13
14 Q DO YOU AGREE WITH THE COMPANY'S PROPOSED
15 SPREAD OF DSM COSTS TO THE VARIOUS CUSTOMER CLASSES?
16 A Only in part. I agree that the treatment
17 of pre-1994 deferred costs and future expenditures
18 associated with DSM administrative costs and Low Income
19 Weatherization program costs should be spread on the same
20 basis as generation. This is not only in keeping with
21 the rate spread in Order 25880, but is reflective of the
22 entire history of conservation and DSM program
23 development. If these costs were incurred to avoid new
24 generation cost, then they should be spread to customers
25 on the same basis as would have been the costs that were
346
Yankel, DI 13
Irrigators
1 avoided.
2 However, I take strong exception to the manner in
3 which Idaho Power is proposing to spread post-January 1,
4 1994 deferred DSM costs. As noted above, the rate
5 moratorium prevents the changing of base rates because of
6 inclusion of post-January 1, 1994 deferred DSM costs and,
7 therefore, allocation of these costs should not even be
8 an
9
10 /
11
12 /
13
14 /
15
16
17
18
19
20
21
22
23
24
25 7Direct testimony of Company witness Said at page 11.
347
Yankel, DI 13A
Irrigators
1 issue in this case. However, assuming for the sake of
2 argument that the Commission authorizes recovery in
3 present rates of these deferred costs, I will address the
4 proper revenue spread.
5 Q ARE THERE ANY VALID REASONS WHY IDAHO POWER
6 OR ANY PARTY WOULD SUGGEST THAT THE CURRENT VIEW OF COST
7 RESPONSIBILITY FOR DSM EXPENDITURES IS THAT THESE COSTS
8 SHOULD BE ALLOCATED BASED UPON THE ABILITY OF THE
9 CUSTOMER CLASS TO PARTICIPATE IN THE PROGRAMS?
10 A No. There has always been a direct benefit
11 to individual customers that received any DSM money so
12 that their overall consumption and thus electric bill
13 could be reduced. However, DSM programs have not been
14 authorized in order to help any particular customer or
15 customer group. DSM programs have been designed to
16 reduce the need, and thus the cost of additional
17 generation resources for the system. Individual customer
18 within customer classes have not equally enjoyed the
19 direct benefits of DSM programs and it would be
20 impossible to insure that all customers within a customer
21 group equally receive the direct benefit from a
22 particular DSM program. However, all customers (whether
23 they directly participate in a DSM program or not)
24 receive an equal share of the reduction in generation
25 resource costs due to DSM programs. Thus, the costs of
348
Yankel, DI 14
Irrigators
1 these programs should be spread in a similar manner. The
2 Company's proposed spread of post-January 1, 1994 DSM
3 costs is contrary to the entire history of the programs
4 and is simply arbitrary.
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25 8Direct testimony of Company witness Said at page 12.
349
Yankel, DI 14A
Irrigators
1 Q HAVE ANY OF THE COMMISSION'S RECENT ORDERS
2 ADDRESSED THE ISSUE OF ALLOCATION OF DSM COSTS BETWEEN
3 CUSTOMER CLASSES?
4 A Yes. Contrary to the Company's assertion
5 that "DSM is currently viewed from the perspective of the
6 direct benefits..." the Commission's Findings in Order
7 26957 dated May 30, 1997 suggest no such change in view.
8 The Commission Findings in that Order stated:
9 Moreover, as Staff notes, expenses related to
conservation have never been allocated to specific
10 customer classes because all customers benefit
from the acquisition of cost effective resources.
11
12 Q WOULD THE IMPLEMENTATION OF COMPANY'S
13 REVENUE SPREAD PRODUCE UNJUST AND UNREASONABLE RESULTS
14 FOR THE IRRIGATION CLASS?
15 A Yes. Company Exhibit 7 lists the amount of
16 pre-1994 expenditures it proposes to recover from each
17 class, based upon the historical method of allocating
18 these costs in the same manner as generation resources.
19 From that exhibit it can be calculated that the
20 irrigation class is allocated 14.2% of historic DSM costs
21 that were incurred prior to 1994. This means that of
22 $20,317,331 of the total pre-1994 DSM costs9, the
23 irrigation class has been made responsible for 14.2% or
24 $2,885,000.
25 In sharp contrast to the DSM programs for various
350
Yankel, DI 15
Irrigators
1 customer groups that began as early as 1989, the Company
2 only received authorization to implement its Irrigation
3 Conservation Program (Agricultural Choices Program) in
4 1993. When approving the Irrigation Conservation Program
5 in Order 24858 the Commission noted that:
6
7 /
8
9 /
10
11 /
12
13
14
15
16
17
18
19
20
21
22
23
24
25 9Page 17 of Order 25880 in Case No. IPC-E-94-5.
351
Yankel, DI 15A
Irrigators
1 This conservation program is an important step in
addressing the needs of a large class of customers
2 for whom no previous conservation incentives have
been made available.
3
4 Because of the lateness of initiating the Irrigation
5 Conservation Program, the amount of pre-1994 DSM
6 expenditures spent on irrigation customers was limited.
7 As a matter of fact, total pre-1994 DSM expenditures for
8 the Irrigation Conservation Program was only $192,18410.
9 This is in sharp contrast to the recovery of $2,885,000
10 of pre-1994 DSM expenditures that has been allocated to
11 the irrigation class.
12 After January 1, 1994 the expenditures for the
13 Irrigation Conservation Program were substantially
14 increased, while the expenditures for DSM programs for
15 other customer classes were being curtailed and/or
16 eliminated. As a result, 23.7% of all DSM expenditures
17 made after January 1, 1994 were spent to reduce usage
18 within the irrigation class.
19 It is unjust and unreasonable to charge irrigation
20 customers for 14.2% of all pre-1994 DSM costs when the
21 Irrigation Conservation Program costs amounted to less
22 than 1% of all pre-1994 DSM costs, and then to turn
23 around and charge the irrigation customers 23.7% of all
24 post January 1, 1994 DSM costs instead of the 14.2% that
25 this customer group was charged for previous costs. Such
352
Yankel, DI 16
Irrigators
1 a revenue spread is unjust and unreasonable. I recommend
2 that the Commission allocate all DSM costs as they have
3 been historically treated - the same as generation
4 resources.
5 Q DOES THIS COMPLETE YOUR PREFILED DIRECT
6 TESTIMONY?
7 A Yes.
8
9 /
10
11 /
12
13 /
14
15
16
17
18
19
20
21
22
23
10Idaho Power's April 1998 Conservation Plan, Appendix C
24 page 7.
25
353
Yankel, DI 16A
Irrigators
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: I'd just note for all
4 of you telling your aging stories that my 17-year old
5 informed me on Sunday that while my life was over, his
6 was just beginning; so let's see if there are any
7 questions for Mr. Yankel.
8 Mr. Richey.
9 MR. RICHEY: No questions at this time.
10 COMMISSIONER SMITH: Mr. Richardson.
11 MR. RICHARDSON: Thank you, Madam Chairman,
12 no questions.
13 COMMISSIONER SMITH: Mr. Jauregui.
14 MR. JAUREGUI: No questions.
15 COMMISSIONER SMITH: Mr. Ward.
16 MR. WARD: No questions. Thank you.
17 COMMISSIONER SMITH: Mr. Gollomp.
18 MR. GOLLOMP: No, we have no questions.
19 COMMISSIONER SMITH: Mr. Fothergill.
20 MR. FOTHERGILL: No questions.
21 COMMISSIONER SMITH: Mr. Purdy.
22 MR. PURDY: I was going to continue on the
23 Chair's comment about age, but in furtherance of my
24 continued employment here, I will refrain.
25 COMMISSIONER SMITH: You thought my life
354
CSB REPORTING YANKEL
Wilder, Idaho 83676 Irrigators
1 was over a long time ago?
2 MR. PURDY: I just have one.
3
4 CROSS-EXAMINATION
5
6 BY MR. PURDY:
7 Q A point of clarification and I'm trying to
8 figure it out as I speak, but if you'd turn to page 15 of
9 your prefiled testimony, Mr. Yankel, and we are
10 apparently confused as to where you got some of these
11 figures, specifically lines 15 through 20, if you could
12 just clear that up for us. I'm told that perhaps these
13 numbers don't jive or are not consistent with the
14 Company's Exhibit No. 7 that you referred to.
15 A This 14.2 percent, I think I got that from
16 the Company exhibits. Are you after the more than $20
17 million number?
18 Q Well, apparently, that's what we cannot
19 confirm how you calculated the 20 million.
20 A If you will just give me one second.
21 Q Okay.
22 A I believe that came, also if you'll note
23 the footnote at the bottom of the page, the $20 million
24 figure came from page 17 of Commission Order 25880.
25 Q Is that where you got the roughly
355
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 $2.9 million figure as well?
2 A No, I got the $2.885 million figure by
3 taking 14.2 percent of the $20 million figure.
4 MR. PURDY: Oh. All right, well, we'll see
5 if we can sort that out. Thank you.
6 COMMISSIONER SMITH: Mr. Ripley.
7 MR. RIPLEY: Yeah.
8
9 CROSS-EXAMINATION
10
11 BY MR. RIPLEY:
12 Q First, Mr. Yankel, as to the correction you
13 just made on page 7, what does the eight months
14 demonstrate?
15 A That was the time after the Order in the
16 last general rate case went into effect, which was
17 January of '95, through September of '95 when the
18 stipulation was developed, generally eight months.
19 Q The Order became effective February 1,
20 didn't it?
21 A I believe so.
22 Q And so what you've done is --
23 A Subtracted the ninth month which was
24 September, subtracted one month off of there to get
25 eight.
356
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 Q Are you suggesting that the Company was
2 recovering -- well, just so that I understand, again
3 could you just state -- you're saying what from the
4 stipulation to -- from the time the rate Order went into
5 effect until the time we entered the stipulation was
6 eight months?
7 A Yes, that's what I'm saying.
8 Q Okay, what happened during that eight
9 months?
10 A During that time frame the Company would
11 have been collecting money associated with the expenses.
12 Q That the Commission authorized be amortized
13 in the last rate proceeding?
14 A Correct.
15 Q Over a 24-year period?
16 A Over 24 years as well as the expenses
17 associated with administrative expenses and the
18 weatherization DSM which they had also authorized to
19 begin February 1st.
20 Q Well, back to the questions that I had, you
21 refer at the bottom of page 7 to the number 1,113,387?
22 A Yes.
23 Q That's a system number, is it not?
24 A It's the only number that appeared in the
25 Order. It appears to be a system number, but that is the
357
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 number that appeared in the Commission's Order. They did
2 not indicate at least in the Order an allocation.
3 Q If I could direct your attention to
4 page 9.
5 A Of?
6 Q Your testimony.
7 A Yes.
8 Q You total up the test year expenses that
9 comes to the 1,113,387.
10 A Yes.
11 Q And you note that there's 309,389 of low
12 income weatherization; correct?
13 A Yes.
14 Q And then on page 10 on lines 6 through 7
15 you say, "It should be mentioned that the 309,389 Idaho
16 jurisdictional revenue requirement associated with the
17 '93 ... was, in fact, the cost associated with the
18 entire Idaho Power system and not just the Idaho
19 jurisdiction."
20 A Yes.
21 Q So you know that that's a system number?
22 A Yes, it is a system number, yes. I'm sorry
23 if I implied something different. Yes, it is a system
24 number. I guess my concern was I wasn't sure what was
25 applied within the Order. It was mentioned in the Order,
358
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 but it wasn't mentioned as a jurisdictional amount or a
2 system amount within the Order. I know it to be a system
3 number.
4 Q Now, since the filing of your testimony
5 have you -- has your client also submitted comments in
6 regard to the discontinuance of the agricultural choices
7 program by Idaho Power?
8 A I believe they have. I mean, I haven't
9 seen it. I was of the opinion they were planning on it.
10 Q And Staff has filed comments as well, have
11 they not?
12 A I have not seen it.
13 Q Well, if I advised you that both parties
14 urged that the program be continued, your client through
15 the end of this year and Staff for an indefinite period,
16 would that change your testimony in this proceeding in
17 any way?
18 A No.
19 Q Now, if Idaho Power Company has
20 discontinued all of its system conservation programs but
21 ag choices, who should pay for ag choices in the future
22 if it remains the only DSM program?
23 A All system customers. It's my recollection
24 there were DSM programs that began in essentially the
25 early '80s. There were different forms of DSM programs,
359
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 everybody paid for that. The agricultural customers
2 didn't get a program until 1993 which really didn't take
3 off until 1994, and to date, I think there's only been
4 350 customers that have even gotten any DSM from Idaho
5 Power, agricultural customers, so I think it should be
6 spread on a systemwide basis.
7 Q Now, in reference to the Company's
8 participation in NEEA, the Northwest Energy Efficiency
9 Alliance, I assume that you recognize that the Company
10 will bear some administrative costs for participating in
11 that alliance.
12 A I would assume.
13 Q Are you assuming that the Company will not?
14 A I assume that there will be some cost
15 incurred.
16 Q All right, and in reference to the low
17 income weatherization program, there will be some ongoing
18 costs for participation in that program as well as the
19 funding, will there not?
20 A Yes. The program is not being terminated,
21 so, yes.
22 Q And do you believe that that should be a
23 legitimate cost that should be deducted from whatever
24 number the Commission looks at as far as the
25 administrative costs that you're referring to in your
360
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 testimony?
2 A I certainly think the low income
3 weatherization program should be treated as an expense
4 that the Commission would deal with with respect to DSM.
5 The other programs I really don't know as far as once it
6 goes on a regional basis. The way the programs have been
7 put together in the past, it was really an Idaho Power
8 program that was being paid for, administrative costs,
9 for Idaho Power to run specific programs. I think the
10 nature of the program is going to greatly change when
11 it's done on a regional basis and I think that should
12 really just be re-looked at again, say, in the next rate
13 case as to how that gets either expensed, deferred or
14 whatever.
15 MR. RIPLEY: That's all the questions I
16 have. Thank you.
17 COMMISSIONER SMITH: Thank you,
18 Mr. Ripley.
19 Questions from the Commission?
20 COMMISSIONER NELSON: I don't have
21 questions for Mr. Yankel.
22 COMMISSIONER SMITH: Any redirect,
23 Mr. Budge?
24 MR. BUDGE: None, thank you,
25 Madam Chairman.
361
CSB REPORTING YANKEL (X)
Wilder, Idaho 83676 Irrigators
1 (The witness left the stand.)
2 COMMISSIONER SMITH: Okay, Mr. Richey.
3 MR. RICHEY: Yes, Micron Technology would
4 like to call Mr. Richard Anderson to the stand.
5 MR. WARD: Madam Chair, while Dr. Anderson
6 is taking the stand, may Mr. Bonn be excused?
7 COMMISSIONER SMITH: If there's no
8 objection, we will excuse Mr. Bonn.
9 MR. WARD: Thank you.
10
11 RICHARD M. ANDERSON,
12 produced as a witness at the instance of Micron
13 Technology, Inc., having been first duly sworn, was
14 examined and testified as follows:
15
16 MR. RICHEY: Are we ready?
17 COMMISSIONER SMITH: Yes, we are. Thank
18 you.
19
20 DIRECT EXAMINATION
21
22 BY MR. RICHEY:
23 Q Dr. Anderson, will you please state your
24 full name for the record?
25 A Richard M. Anderson.
362
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 Q And could you please speak to the
2 microphone?
3 A Richard M. Anderson.
4 Q Thank you. Have you caused approximately
5 12 pages of written testimony to be filed in this
6 proceeding?
7 A I have.
8 Q Have you had a chance to review this
9 testimony?
10 A I have.
11 Q And do you have any corrections you'd like
12 to make at this time to your filed testimony?
13 A I do. There is one correction of
14 substance.
15 Q Would you please cite to that?
16 A Turn to page 11, line 18 and 19, the
17 sentence that begins on line 18 that reads, "The
18 beneficiaries of the DSM measures should pay the costs
19 because," you should strike "it could not" and insert
20 "they could"; so the sentence should read in total, "The
21 beneficiaries of the DSM measures should pay the costs
22 because they could participate in the program."
23 Q Thank you. Do you have any other
24 corrections you want to make?
25 A I do not.
363
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 MR. RICHEY: I move at this time that
2 Dr. Anderson's testimony be spread upon the record and
3 tender him for cross-examination.
4 COMMISSIONER SMITH: If there is no
5 objection, it is so ordered.
6 (The following prefiled testimony of
7 Dr. Richard Anderson is spread upon the record.)
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
364
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 Q PLEASE STATE YOUR NAME AND BUSINESS
2 ADDRESS.
3 A My name is Richard M. Anderson and my
4 business address is 39 Market Street, Suite 200, Salt
5 Lake City, Utah 84101.
6 Q BY WHOM ARE YOU EMPLOYED AND IN WHAT
7 CAPACITY?
8 A I am employed by Energy Strategies, Inc. as
9 a Senior Associate.
10 Q WHAT IS YOUR EDUCATIONAL BACKGROUND?
11 A I have a Bachelor of Business
12 Administration degree from the University of Texas at
13 Austin and a Ph.D. in Economics from the University of
14 Utah.
15 Q PLEASE DESCRIBE YOUR WORK EXPERIENCE AS IT
16 RELATES TO YOUR TESTIMONY IN THIS PROCEEDING.
17 A I have approximately 15 years of experience
18 relating to the energy industry with particular emphasis
19 in the electricity industry. Prior to my current
20 employment I spent eleven years (two years as Assistant
21 Director and nine years as Director) employed at the
22 State of Utah's Energy Division. In that capacity, I was
23 responsible for the development, analysis and
24 implementation of a portfolio of DSM measures statewide.
25 My work centered on the economic assessment of
365
1
1 conservation measures and the determination of the
2 cost/benefit ratio underlying the measures. These
3 included process and lighting measures in residential and
4 industrial applications, energy code development, and
5 efficiency measures in agricultural processes. Most of
6 these efforts involved coordination and/or joint
7 underwriting with utilities.
8 In my current position, I have been involved with
9 the issue of electric market restructuring in various
10 western and southwestern states. This has included the
11 analysis of current DSM programs as they relate to a
12 restructured environment. I am currently involved with a
13 number of restructuring issues in Utah, Idaho, Wyoming,
14 Arizona and Texas. I have
15
16 /
17
18 /
19
20 /
21
22
23
24
25
366
1A
1 participated in regulatory proceedings in Utah and
2 Wyoming, in various state legislative investigations and
3 have testified before the U.S. Congress on energy issues.
4 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY IN
5 THIS PROCEEDING?
6 A My testimony will address the allocation of
7 DSM expenditures to Micron Technology, Inc. as described
8 in the direct testimony of Mr. Gregory W. Said on behalf
9 of the Idaho Power Company ("Idaho Power" or the
10 "Company"). I begin, however, by offering comments on
11 the useful life of DSM investments and the Company's
12 stated reason for alterations in the amortization
13 schedule.
14 Q HAS IDAHO POWER COMPANY EXPLAINED WHY IT
15 WANTS TO CHANGE THE DSM PROGRAMS AMORTIZATION FROM A
16 24-YEAR PERIOD TO A 5-YEAR PERIOD?
17 A The only reason the Company has given for
18 the choice of a 5-year versus a 24-year period is found
19 in Mr. Said's direct testimony, page 5, lines 16-21,
20 where Mr. Said states: "In recognition of the likelihood
21 of changes in the electric industry, a five year recovery
22 period seems like a reasonable time period for recovering
23 expenditures from customers for whom the expenditures
24 were made." Mr. Said further states, "The current 24
25 year time period for recovery of DSM expenditures is no
367
2
1 longer reasonable."
2 Q WHY WAS THE 24-YEAR TIME PERIOD CHOSEN AT
3 THE INCEPTION OF THESE PROGRAMS?
4 A The 24-year amortization period reflects
5 the average useful life of the DSM programs undertaken by
6 the Company. In its in previous orders (Order Nos.
7 22299, 22893, and 25880), the Commission has indicated a
8 preference for amortizing DSM expenditures over the
9 expected useful life of the programs.
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1 Q IS A 24-YEAR AMORTIZATION SCHEDULE
2 REASONABLE?
3 A Yes. The choice of a 24-year amortization
4 period basically matches the amortization of these DSM
5 assets to their expected useful life. It is consistent
6 with the regulatory practice that amortization schedules
7 should reflect the used and useful life of the utility
8 asset.
9 Q DOES THE COMPANY ARGUE THAT THE USEFUL LIFE
10 OF THE DSM PROGRAMS HAS BEEN ALTERED?
11 A No.
12 Q DOES THE COMPANY OFFER ANY SUPPORTING
13 DOCUMENTATION DETAILING A CHANGE IN THE USEFUL LIFE OF
14 DSM MEASURES?
15 A No. There are no data or analyses provided
16 that would support the notion that the useful life of the
17 DSM measures has been altered.
18 Q IN YOUR OPINION, IS THERE REASON TO BELIEVE
19 THAT THE USEFUL LIFE OF THE DSM PROGRAMS HAS BEEN
20 ALTERED?
21 A There is no reason to believe that the
22 physical or technical aspects of the programs have been
23 so altered as to change their useful life. The DSM
24 technologies that emerged in the last decade are the
25 product of more than twenty years of research and
369
3
1 development in conservation technologies. While new
2 technologies are likely to show improvements in
3 performance, the fundamental technology of most of the
4 DSM measures adopted during the last decade remains
5 sound. It is apparent that Idaho Power agrees with this
6 view. In response to a data request of the Industrial
7 Customers, Mr. Said stated that the Company does not
8 contend that the DSM measures will become physically,
9 technologically or economically obsolete or useless prior
10 to 24 years from the date the measures were first
11 installed.
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1 Q DO YOU AGREE WITH THE COMPANY'S ASSESSMENT
2 OF A 24-YEAR USEFUL LIFE FOR DSM ASSETS?
3 A The physical and technological aspects of
4 the DSM measures should not have a life of less than 24
5 years except in unusual circumstances such as neglect or
6 abuse of the measures themselves. Each of these measures
7 was voluntary implemented by the participating business
8 entity as an investment in its operations. From the
9 perspective of the host business entity, the measures are
10 part of the overall portfolio of capital employed.
11 Accordingly, one would suspect that the DSM measures
12 would be afforded adequate maintenance as are other
13 capital investments. Additionally, recall that prior to
14 implementing each measure, Idaho Power Company was
15 required to approve the application and, although the
16 Company now advocates a 5-year amortization, it has
17 already agreed in the rate moratorium settlement to a
18 24-year period.
19 Q IS THE USEFUL LIFE OF THE DSM MEASURES
20 LIKELY TO BE ALTERED IF THERE IS A SIGNIFICANT CHANGE IN
21 THE PRICE OF ELECTRIC POWER?
22 A Yes. The economics of DSM measures are
23 driven, in part, by the value of energy saved. If the
24 value of a DSM program is measured by the benefit
25 obtained from saving energy, the price of power will be a
371
4
1 significant determinant of whether the DSM measures are
2 cost effective to the participating entity.
3 Q WOULD A SIGNIFICANT REDUCTION IN THE PRICE
4 OF ELECTRIC POWER SERVE AS A REASON TO SHORTEN THE
5 AMORTIZATION?
6 A Perhaps. In effect, the reduction in the
7 price of electric power would serve to reduce the
8 economic attractiveness of the DSM investment thereby
9 threatening its economic viability.
10 Q HAS THE ECONOMIC VIABILITY OF THE DSM
11 MEASURES BEEN ALTERED GIVEN THE CURRENT PRICE OF POWER?
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21
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4A
1 A No. Current electric prices offered by the
2 Idaho Power Company are quite stable. The economic
3 attractiveness of the Company's DSM measures are
4 virtually the same today as they were when the measures
5 were first implemented. The Company acknowledged this
6 fact in Mr. Said's response to the Industrial Customers
7 data request at page 3 when stating, "Idaho Power Company
8 does not contend that the DSM measures will become
9 economically obsolete or useless prior to 24 years from
10 when the measure is first installed..."
11 Q IF COMPETITION WERE TO COME TO THE ELECTRIC
12 INDUSTRY IN IDAHO, WOULD IT BE REASONABLE TO READJUST DSM
13 AMORTIZATION?
14 A Competition could render some DSM measures
15 uneconomic, but it would be premature to adjust
16 amortization now. First, given the current cost of
17 power, the DSM measures have not been shown to be at
18 risk. Secondly, and of equal importance, any attempt to
19 revamp the amortization of the assets due to the advent
20 of competition would need to be balanced against
21 evaluation of other assets in the portfolio of the
22 Company's investments and offset by the amount of any
23 benefits that may be produced by the utilization of all
24 assets. DSM measures should not be singled out for
25 reevaluation in light of an expected reduction in the
373
5
1 future price of power. Such a reevaluation must be
2 undertaken simultaneously on all the Company's assets in
3 order to properly obtain a "net" figure. Finally, if
4 the Company loses load because customers depart the
5 system for competitive suppliers, the Company may
6 experience some stranded investment in DSM. In that
7 event it may be reasonable to reevaluate the amortization
8 of the Company's sunk costs. But, as I stated earlier,
9 such an evaluation would have to take into account a
10 myriad of other factor that are not under consideration
11 in this proceeding.
12 Q DOES THE LIKELIHOOD OF CHANGES IN THE
13 ELECTRIC INDUSTRY PORTEND LOWER PRICES?
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20
21
22
23
24
25
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5A
1 A Mr. Said prefaced his statement concerning
2 the lack of reason to support a 24-year amortization with
3 the opening remark, "in recognition of the likelihood of
4 changes in the electric industry..." I agree that the
5 electric industry is proceeding through a period of
6 restructuring. Many observers feel that a deregulated
7 market will place downward pressure on prices. However,
8 the ultimate impact on electric prices will only be
9 determined over time.
10 Q PLEASE DESCRIBE IDAHO POWER COMPANY'S
11 PROPOSED REALLOCATION OF DSM EXPENDITURES.
12 A The Company's proposal is to bifurcate the
13 expenses incurred on DSM projects between those incurred
14 before l994 and those incurred after January 1, 1994.
15 The pre-1994 expenditures are to be recovered from the
16 various customer classes based upon the accepted
17 allocation formula used in the last general revenue
18 requirement case for the Company (Case No. IPC-E-94-5).
19 The revenue requirement associated with the deferred
20 program expenditures incurred after 1993 (including
21 carrying charges and income taxes) is proposed to be
22 allocated to entities based upon the ability of the
23 customer class to participate in the program.
24 Q DOES THE COMPANY PROVIDE AN EXPLANATION AS
25 TO WHY THEIR PROPOSAL INVOLVES SUCH A HYBRID APPROACH FOR
375
6
1 RECOVERING DSM EXPENDITURES?
2 A Yes. In Mr. Said's testimony, pages 11-12,
3 lines 24-25 and lines 1-6, he states that the approach
4 proposed by the Company is based upon a recognition that
5 the perspective from which DSM measures are viewed has
6 changed. His argument is that the pre-1994 DSM
7 investments were viewed as a system resource. However,
8 beginning with the 1994 investments, the Company
9 advocates that the recovery of such investments should be
10 assigned to the customers who have
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17
18
19
20
21
22
23
24
25
376
6A
1 the ability to participate in the DSM programs and thus
2 realize a direct benefit from such investments.
3 Q DOES MICRON TECHNOLOGY AGREE WITH THE
4 PROPOSED POST-1993 ALLOCATION AS PROPOSED BY THE COMPANY?
5 A Yes. Micron Technology believes that the
6 allocation of DSM costs should be predicated on the
7 principle that costs should be assigned to the customers
8 who cause the costs to be incurred or, in this case, who
9 realize the benefits of DSM. Thus, with respect to the
10 post-1993 deferred expenses, Micron Technology supports
11 the Company's position that the allocation of costs
12 should reflect the flow of DSM benefits.
13 Q WHAT IS THE FINANCIAL IMPACT TO MICRON
14 TECHNOLOGY RESULTING FROM THIS HYBRID APPROACH?
15 A For Micron Technology, the 5-year total DSM
16 revenue requirement amounts to $587,300. Utilizing the
17 approach suggested by Mr. Said whereby a monthly charge
18 equaling 1/60th of this amount is levied against the
19 entity, Micron Technology will incur a monthly charge
20 equal to $9,800 during the 5-year amortization period.
21 Q OF THE $587,300 REVENUE REQUIREMENT TO BE
22 COLLECTED FROM MICRON TECHNOLOGY, HOW MUCH OF THIS IS
23 ATTRIBUTABLE TO PRE-1994 DEFERRED EXPENDITURES AND HOW
24 MUCH IS ATTRIBUTABLE TO POST-1993 DEFERRED EXPENDITURES,
25 INCLUDING CARRYING CHARGES AND INCOME TAXES?
377
7
1 A Exhibit No. 7 to Mr. Said's direct
2 testimony identifies the pre-1994 expenditures allocated
3 to Micron Technology as $294,300 and the post-1993
4 expenditure allocation as $293,000.
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12
13
14
15
16
17
18
19
20
21
22
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24
25
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7A
1 Q DO YOU AGREE THAT THE POST-1993
2 EXPENDITURES SHOULD BE ALLOCATED TO MICRON TECHNOLOGY
3 ACCORDING TO ITS ABILITY TO PARTICIPATE IN THE DSM
4 PROGRAMS?
5 A Yes.
6 Q HAS THE COMPANY IDENTIFIED ANY PROGRAMS IN
7 WHICH MICRON TECHNOLOGY WAS A PARTICIPANT IN THE
8 1994-1997 TIME PERIOD?
9 A No. In response to Micron Technology's
10 request for admission, Ms. Darlene Nemnich of Idaho Power
11 Company states that in 1996, Micron Electronics
12 participated in the Partners In Industrial Efficiency
13 Program (PIE). Idaho Power paid Micron Electronics an
14 incentive of $11,995.17 for changing their lamp lighting
15 system from magnetic ballasts to electronic ballasts. In
16 addition, in 1994, Micron Computer, which later became
17 Micron Electronics, participated in the Design Excellence
18 Award Program. In that instance, $2,700 was paid to an
19 engineering firm selected by Micron Computers to complete
20 an engineering audit of Micron Computers buildings.
21 Q DID MICRON TECHNOLOGY EXPERIENCE ANY DIRECT
22 BENEFIT FROM THE DSM INVESTMENT MADE ON BEHALF OF MICRON
23 ELECTRONICS?
24 A No. Because Micron Technology did not
25 participate in any of the DSM measures that were offered,
379
8
1 there were no direct benefits to the firm.
2 Q IS MICRON ELECTRONICS ASSOCIATED WITH
3 MICRON TECHNOLOGY?
4 A Yes. Micron Technology owns approximately
5 64% of the Micron Electronics stock.
6 Q DID MICRON TECHNOLOGY BENEFIT FROM MICRON
7 ELECTRONICS' PARTICIPATION IN DSM?
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18
19
20
21
22
23
24
25
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8A
1 A To the extent that Micron Electronics'
2 savings from reduced power cost positively affected the
3 value of its stock, Micron Technology indirectly
4 benefited. Incidentally, if DSM cost were allocated on
5 that kind of benefit, we would have a system resource
6 method of allocation. Indirect benefits are not
7 sufficient grounds for allocating cost to any particular
8 customer or class of customers. For example, even if
9 Micron Electronics' stock prices happened to increase
10 during a period in which Micron Electronics had
11 experienced reduced power costs, the increase stock price
12 would not necessarily be due to the reduced power costs.
13 There could be a multitude of unrelated factors
14 influencing the stock price. It would be very difficult
15 to demonstrate a single effect such as a reduction in
16 power price as it affects the overall price of a
17 company's stock.
18 Q DOES MICRON TECHNOLOGY'S SPECIAL CONTRACT
19 WITH IDAHO POWER UNDER SCHEDULE 26 INCLUDE ANY POWER
20 SUPPLIED TO MICRON ELECTRONICS?
21 A No. Micron Electronics is a separately
22 tariffed customer of Idaho Power Company.
23 Q ARE THE PRODUCTION PROCESSES UTILIZED AT
24 MICRON ELECTRONICS SIMILAR THOSE EMPLOYED AT MICRON
25 TECHNOLOGY?
381
9
1 A The operations of the entities are quiet
2 different. Micron Electronics' primary business is the
3 production of finished computers for the retail market.
4 Accordingly, the operations at Micron Electronics center
5 around an assembly line process from which primary parts
6 of the computers are packaged into final products. The
7 assembly process, while automated, is designed for
8 extended years of service before being viewed as
9 technically or economically obsolete. Micron Electronics
10 primary purpose is assembly of parts into final products,
11 the technology employed within the assembly process is
12 likely to have a useful life of five or greater years.
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20
21
22
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24
25
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9A
1 Micron Technology's production process is of a
2 different orientation. Designed primarily for the
3 research and development of new computer systems, it is
4 not characterized by an assembly line organization, but
5 instead, unique physical capital is applied in distinct
6 product development applications. Due to the nature of
7 technological advancements in the computer industry,
8 capital employed at Micron Technology for product
9 development is viewed as quickly becoming technologically
10 and/or economically obsolete. It is most common for any
11 technology employed at Micron Technology to have a useful
12 life of approximately one year.
13 Q WHAT DSM PROJECTS WERE OFFERED TO MICRON
14 ELECTRONICS AND MICRON TECHNOLOGY?
15 A The only program offered to both Large
16 Power Service customers (Schedule 19) and to Special
17 Contracts customers was the Partners in Industrial
18 Efficiency Program ("PIE"). The Design Excellence Award
19 Program was available to Schedule 19 customers but not to
20 Special Contract customers.
21 Q WAS MICRON TECHNOLOGY ABLE TO PARTICIPATE
22 IN THE "PIE" PROGRAM?
23 A No. Idaho Power's (PIE) program "was
24 designed to encourage Schedule 19 and special contracts
25 customers to implement efficiency upgrades and
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10
1 conservation measures that would reduce electric energy
2 usage. .... A project must have an estimated annual
3 electric savings of at least 100,000 kilowatt hours and
4 an expected project life of at least five years." (PIE
5 Program Description). (Emphasis added) Because the
6 project criteria required that a participating measure
7 have a project life of at least 5 years, Micron
8 Technology was virtually excluded from participation.
9 For the reasons discussed above regarding Micron
10 Technology's production process, its equipment did not
11 meet the 5-year requirement. Micron Electronics, on the
12 other
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22
23
24
25
384
10A
1 hand, was able to participate because its production
2 process allowed a longer life for the DSM project.
3 Q HOW IS THE COMPANY PROPOSING THAT POST-1993
4 DSM COSTS BE ALLOCATED?
5 A In discussing the class allocation
6 associated with the five-year amortization program, Mr.
7 Said stated that the allocation of post-1993 deferred
8 expenditures is to be predicated on an entity's "ability
9 to participate in the programs." (Direct testimony,
10 page 12, lines 3-6)
11 Q DID MICRON TECHNOLOGY HAVE THE ABILITY TO
12 PARTICIPATE IN THE PIE PROGRAM?
13 A No. Due to the short time horizon on the
14 useful life of capital employed at Micron Technology, and
15 given the program requirement of a minimum of a 5-year
16 project life, Micron Technology did not have the ability
17 to participate. It did not possess the type processes
18 the PIE program was developed to target.
19 Q IS THE APPROACH OFFERED BY IDAHO POWER
20 COMPANY TO SEEK REPAYMENT OF POST-1993 DEFERRED DSM
21 EXPENDITURES EQUITABLE AS IT RELATES TO MICRON
22 TECHNOLOGY?
23 A No. Micron Technology should not incur
24 past program expenses related to post-1993 deferred DSM
25 expenditures. The beneficiaries of the DSM measures
385
11
1 should pay the costs because they could participate in
2 the program. To the extent that Micron Electronics
3 participated in the programs, those deferred costs are
4 allocated to Schedule 19 customers and should be assigned
5 to that customer class. Micron Technology's only benefit
6 is some speculative, unquantifiable change in the stock
7 price of Micron Electronics. And, if Micron Electronics
8 is burdened with DSM costs, those costs also could affect
9 its stock price. Such an indirect benefit
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11A
1 is far to attenuated to serve as the basis for DSM cost
2 allocation. If costs are to follow the beneficiary,
3 Micron Technology should be allocated no costs.
4 Q IS IT YOUR RECOMMENDATION THAT NONE OF THE
5 POST-1993 DEFERRED DSM EXPENDITURES BE ASSIGNED TO MICRON
6 TECHNOLOGY'S SPECIAL CONTRACT?
7 A Yes.
8 Q DOES THIS CONCLUDE YOUR TESTIMONY?
9 A Yes.
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12
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Do you have any
4 questions, Mr. Richardson?
5 MR. RICHARDSON: No questions,
6 Madam Chairman.
7 COMMISSIONER SMITH: Mr. Jauregui?
8 MR. JAUREGUI: No questions,
9 Madam Chairman.
10 COMMISSIONER SMITH: Mr. Ward?
11 MR. WARD: No questions. Thank you.
12 COMMISSIONER SMITH: Mr. Gollomp?
13 MR. GOLLOMP: No questions.
14 COMMISSIONER SMITH: Mr. Fothergill?
15 MR. FOTHERGILL: No questions.
16 COMMISSIONER SMITH: Mr. Budge.
17 MR. BUDGE: No questions, thank you.
18 COMMISSIONER SMITH: Mr. Purdy.
19
20 CROSS-EXAMINATION
21
22 BY MR. PURDY:
23 Q Well, I simply want to ask you whether
24 it -- it seems to be your fundamental premise, then, in
25 terms of cost allocation that the cost follows the
388
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 beneficiary; is that a fair statement?
2 A That's a fair statement.
3 Q Given that premise, then, does it make
4 sense to not hold non-participating customers responsible
5 for DSM costs?
6 A Does it not hold -- repeat it again, I'm
7 sorry.
8 Q It might not have made sense. Does it
9 follow, then, that we should not hold non-participating
10 customers responsible for DSM costs?
11 A Micron in the testimony filed basically
12 bifurcated our view of how to allocate those costs in the
13 post-1993 era years. It is our contention in those that
14 the benefits, the beneficiaries should basically be
15 assigned the cost on a class-by-class basis, those that
16 could participate on a class-by-class basis. On the
17 pre-1994 time period, those costs, we have no argument
18 with the fact that the costs are assigned systemwide and
19 thus, participant or non-participant you're going to
20 absorb some of the costs depending on how to assign per
21 class.
22 Q Micron as a special contract customer is in
23 a class of one, is it not?
24 A Right, Schedule 26.
25 Q And so when you say for post-'93
389
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 expenditures those who could participate should pay, is
2 there a difference between those who could have
3 participated and those who did?
4 A In the post-'93 time period is there a
5 difference between those who could and could not, the
6 question I think that Micron had to ask itself was
7 whether it was beneficial from an economic standpoint to
8 undertake such investments. I suspect that other
9 customers would have asked similar questions of
10 themselves, you know, depending upon being a business,
11 whatever their entity was undertaking, be it a household,
12 so it became an individualized decision.
13 Q I'm sensing that I worded my question
14 poorly. If your premise is that costs should follow
15 benefits, say you have a class, customer class, that has
16 available to it a DSM program, however, because of the
17 parameters or the criteria of that DSM program, only some
18 of the customers within that class could participate,
19 would it make sense to only assign the costs or allocate
20 the costs to those customers and not the others within
21 the class who couldn't participate?
22 A No, we would have no argument that as a
23 class that the ability to participate defines whether
24 costs are assigned to that class and then once within the
25 class the cost assigned is across all members of that
390
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 class.
2 Q That's not Idaho Power's proposal in this
3 case as you understand it, is it?
4 A In the post-'93 time period?
5 Q The intraclass allocation you just spoke
6 of.
7 A Right.
8 Q Assuming that you have a DSM program that
9 you would agree would constitute a least cost resource,
10 does it not benefit every customer on Idaho Power's
11 system to acquire that resource?
12 A If the assumption is if it's least cost, if
13 it can be proven to be least cost.
14 MR. PURDY: That's all I have. Thanks.
15 COMMISSIONER SMITH: Mr. Ripley.
16 MR. RIPLEY: Yes, a couple, Mr. Anderson.
17
18 CROSS-EXAMINATION
19
20 BY MR. RIPLEY:
21 Q If I could direct your attention to
22 page 3 of your prepared testimony. There at the top of
23 page 3, you are answering a question as to the 24-year
24 amortization schedule and you say the choices -- "The
25 choice of a 24-year amortization period basically matches
391
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 the amortization of these DSM assets to their expected
2 useful life." Now, who has ownership of those assets?
3 A The recipient, the incumbent entity or
4 household.
5 Q The customers?
6 A The customers.
7 Q You can agree with me to that?
8 A Yes.
9 Q The Idaho Power Company does not own those
10 assets?
11 A No.
12 Q Now, you go on to say, "It is consistent
13 with the regulatory practice that amortization schedules
14 should reflect the used and useful life of the utility
15 asset." Now, there is no asset here that the utility
16 owns?
17 A Right.
18 Q What do you mean, then, that it should be
19 matched to the used and useful life of the utility asset?
20 A I think the line basically was referencing
21 your recapturing of your expenses that you undertook as a
22 utility and that that recapture of your expenses should
23 match the used and useful life of the asset in question.
24 It's true that the DSM-type investments have a uniqueness
25 about them in the sense that they're not sitting out at a
392
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 power plant somewhere, but that they are housed in some
2 other organization, be it a business or household.
3 It doesn't necessarily discount the fact
4 that you have, you need to recapture your expense and you
5 need to recapture your expense based upon some principle
6 and the principle that I advocate here is that that
7 expense being recaptured should reflect used and useful
8 life.
9 Q Okay, but it's the used and useful life
10 that the customer attributes to the particular asset, not
11 what the Company attributes?
12 A I think it's the used and useful life as
13 determined by the Commission and the 24-year --
14 Q Now we're to it, aren't we? Really, it's
15 the Commission that decides the life of a regulatory
16 asset?
17 A Right.
18 Q It's not an accountant, it's not a
19 depreciation expert, it's not even an economist, it's
20 whatever the Commission in its judgment deems is the
21 period of time over which it will permit a utility to
22 recover an expenditure?
23 A Thus, the title regulatory asset.
24 Q Thank you. Now at page 4, line 11, in
25 referring to the settlement agreement, you say Idaho
393
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 Power has already agreed in the rate moratorium
2 settlement to a 24-year period. Were you aware that that
3 was specifically left open as to what the period of time
4 should be?
5 A I was not.
6 Q Now, again on page 4, line 17, you're
7 talking about the DSM measures are cost effective to the
8 participating entity. The participating entity is what
9 you and I have referred to as the customer?
10 A Right.
11 Q My remaining question is relative to Micron
12 Technology as opposed to Micron Electronics, so, if we
13 will, let's just use the term Micron and I'm always
14 referring to Micron Technology if that will be all
15 right.
16 A That's fine.
17 Q Now, Micron started out as a Schedule 19 of
18 Idaho Power Company, did it not?
19 A It did.
20 Q And as a Schedule 19 customer, was it
21 automatically permitted to participate in PIE programs if
22 it chose?
23 A If it chose.
24 Q Okay, then it became a special contract
25 customer as I understand it.
394
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 A That's correct.
2 Q And as a special contract customer, did not
3 Micron specifically request and receive Commission
4 approval to participate in the PIE programs?
5 A It received approval to open up the program
6 to special contract customers in terms of are they
7 eligible to participate or not.
8 Q And that was done at the behest or the
9 request of Micron?
10 A Right, to become eligible.
11 Q So now Micron applies and receives
12 authority from the Commission to participate in PIE?
13 A It received authority to be eligible to
14 participate.
15 Q Okay. Now, Micron has lighting fixtures in
16 their structures out there, don't they?
17 A They do.
18 Q Is lighting one of the programs that other
19 customers participated in under PIE?
20 A Yes.
21 Q Why wasn't the lighting program something
22 that Micron could participate in, do you know?
23 A The problem that Micron had in
24 participating in the program once it was declared to be
25 eligible to participate, the problem that they had in
395
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 making the choice to participate is that the capital
2 structure and the life cycle in Micron Technology is very
3 unique, has a very fast driven economic basis that they
4 operate under. Life cycles usually are in the 12-month
5 range and when the fabrication processes change, what
6 happens is it's not just bringing in a new machine to
7 produce a new wafer, the fabrication process basically
8 entails a complete remodeling of the internal operations
9 of the building itself. Lighting is changed, ventilation
10 is changed and so forth. There was no way that the use
11 pattern of the building was going to remain constant for
12 five years.
13 Q That's the fabricating process, is it not?
14 A That's right.
15 Q Doesn't Micron also have offices?
16 A Administrative offices?
17 Q Yes.
18 A I'm sure that they have some administrative
19 offices.
20 Q Why couldn't Micron participate in those
21 programs?
22 A I cannot answer that. I don't know. I
23 suspect, however, that administratively the cost of power
24 to light the offices relative to the cost of the
25 fabrication process is minuscule.
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CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 Q Then do I understand that Micron
2 specifically requested to participate in PIE, after it
3 received authorization to participate, it then chose not
4 to do so?
5 A Micron specifically asked that special
6 contract customers become eligible to participate. Once
7 that declaration was made, yes, you may participate made
8 by the Commission, then the internal decision was made
9 whether it made sense to participate. Up until the
10 eligibility declaration, they were basically foreclosed
11 from participating.
12 Q And the decision that Micron was not, that
13 it was not prudent for Micron to participate after it
14 received the eligibility was an internal decision made by
15 Micron?
16 A Exactly.
17 Q Now, did Micron then ever approach Idaho
18 Power or the Idaho Commission to say that they should be
19 excluded from the programs?
20 A Not to my knowledge.
21 Q Did they ever protest to the Commission
22 that the programs should be terminated or discontinued?
23 A Not to my knowledge.
24 Q Did they ever protest to the Commission
25 that the avoided costs were set too high as far as
397
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 participation in DSM programs are concerned?
2 A Not to my knowledge.
3 Q It took no active participation or role
4 after it decided it was not prudent to participate?
5 A It's my understanding that they actually
6 met with, in terms of active role they actually met with,
7 personnel from Idaho Power, discussed potential
8 applications, took it to that length, but at that point
9 then made the internal decision that simply it would not
10 work.
11 Q So Idaho Power Company approached Micron
12 with some projects that they inquired about or how did
13 that occur, do you know?
14 A I do not know how it occurred. It was
15 actually in Mr. Said's rebuttal testimony.
16 MR. RIPLEY: Okay. That's all the
17 questions I have. Thank you.
18 COMMISSIONER SMITH: Questions from the
19 Commissioners? Nor do I.
20 Mr. Richey, do you have any redirect?
21 MR. RICHEY: Yes, just a few.
22
23
24
25
398
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 REDIRECT EXAMINATION
2
3 BY MR. RICHEY:
4 Q Dr. Anderson, could you explain for the
5 Commission why Micron agrees with the allocation process
6 of matching benefits to participants at least with
7 respect to the post-1993 costs, why we've taken that
8 position?
9 A I think the feeling is that -- it's
10 actually probably two-fold. The feeling is that
11 initially the DSM programs, and this traces way back to
12 the late '70s, early '80s, the DSM programs were viewed
13 as suffering from either technological immaturity or some
14 form of market failure in getting them adopted
15 widespread. There was a lot of work that went on in the
16 '80s to get these technologies up and running. There
17 was always the fear, and probably the rightful fear, that
18 acceptance levels, however, were going to be difficult to
19 make of any extent because there was, it seemed to be,
20 some market failure in the willingness of customers to
21 accept DSM measures.
22 Starting in the '90s, however, and I made
23 the statement in my testimony, the DSM measures you're
24 seeing today have over 20 years of R&D and technical
25 advancements behind them. There was a certain maturation
399
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 of the industry that began to take hold and clearly by
2 the mid-'90s, the '94, '95 period, that industry has
3 basically become one that is market driven, market
4 based. Today the energy efficiency industry nationwide
5 is about a $3 billion industry.
6 It seemed clear to us that at this point
7 with market-based drive with a $3 billion industry out
8 there that the participants who choose to participate in
9 such investments are really the direct beneficiaries and
10 based on market-type arguments, those beneficiaries
11 should incur the cost of their decisions.
12 Additionally, the IRP, integrated resource
13 planning, processes of the '80s and early '90s also had
14 an endorsement of DSM as a least cost acquisition. Those
15 were all taking place in an era when resource surpluses
16 were just beginning to emerge or not of great
17 consequence. Today the western grid is awash in
18 surplus. Whether these remain least cost today really
19 has yet to be determined.
20 Q Do you have any understanding as to whether
21 Micron Technology may have purchased equipment or tools
22 that may have qualified under the PIE program, but yet no
23 application was made and yet these costs are not being
24 passed on to other ratepayers, do you have any
25 understanding of that?
400
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 A It's my understanding that over the last
2 several years Micron Technology has chosen to purchase
3 energy efficient process equipment and has done so at
4 their own cost, did not choose to run those costs through
5 the PIE program simply because, there again with the PIE
6 programs, one of the program criterion being a five-year
7 life, the processes that are involved in wafer production
8 have a life cycle of about a year and so they simply
9 would not qualify, but, yes, it's my understanding that
10 they did engage in such purchases or such investments.
11 Q Is it also your understanding that any
12 benefit that may have been derived from that to
13 ratepayers as a whole are being allocated to them at zero
14 cost?
15 A The benefits that are derived from that if
16 there are indirect benefits that spill over into other
17 customer classes are not being accounted for today.
18 Q And those customer classes are not being
19 allocated costs for what Micron paid for that equipment;
20 is that correct, also?
21 A That's correct.
22 Q One question that Mr. Ripley raises that it
23 was Micron's sole choice not to participate in these
24 programs, I wanted to just clarify the answer or your
25 answer. In making that choice, was it essentially made
401
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 in a vacuum on Micron's part or was Micron looking at
2 what needed to be done in order to have these accepted in
3 making that choice?
4 A Repeat your question.
5 Q Mr. Ripley had raised a question earlier to
6 you that Micron chose on its own not to participate in
7 these programs. My question to you is how was that
8 choice made?
9 A I think the choice was ultimately made by a
10 comparison of what kinds of investments would qualify
11 under the PIE program, what kind of criteria was
12 associated with those investments, program criteria, and
13 then whether that would work well with the Micron
14 fabrication process that's ongoing. Ultimately, it was
15 just a mismatch, a mismatch between the program criteria
16 as written and the Micron processes involved, the
17 economics simply would not work out.
18 Q Is it your understanding that if Micron
19 even if they wanted to participate in the program, but
20 knew up front that they were not going to meet the
21 requirements that the only choice they could make was to
22 not participate?
23 A Yes.
24 Q Can you explain at least in your testimony
25 the difference between being eligible to participate and
402
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 being able to participate and the distinction that may be
2 drawn there?
3 A It's back to my response to Mr. Ripley's
4 question. I think when Micron moved from Schedule 19 to
5 a special contract customer, at that time or thereabouts
6 in that time, the PIE program was not available to
7 special contract customers. There was an attempt on
8 Micron's part to investigate whether there would be any
9 kind of program participation, program activity that
10 would be beneficial to Micron. The way the rules were
11 written, however, after Micron had moved over to special
12 contract, it foreclosed any kind of investigation
13 whatsoever. It was a done deal. You could not
14 participate.
15 The first thing that had to happen in order
16 for Micron to do such an investigation was to get the
17 rules changed so that you would be eligible and,
18 therefore, that's when Micron asked that special contract
19 customers be included in the PIE program. That simply
20 opened the door, though. That did not resolve the
21 question of whether it is still good sense, good economic
22 sense, good business sense to participate in it. Micron
23 had become or Micron had obtained basically the right to
24 participate, but clearly did not have the ability to
25 participate.
403
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Micron Technology, Inc.
1 Q And is it your understanding that when
2 Micron requested of the Commission to be eligible to
3 participate in the PIE program that certain exceptions
4 were made at that time to the program; is that your
5 understanding?
6 A That is my understanding.
7 MR. RICHEY: That's all the questions I
8 have at this time.
9 COMMISSIONER SMITH: Thank you. Thank you,
10 Dr. Anderson, we appreciate your help.
11 MR. PURDY: Madam Chair?
12 COMMISSIONER SMITH: Mr. Purdy.
13 MR. PURDY: I do feel compelled to ask one
14 more question of Mr. Anderson.
15 COMMISSIONER SMITH: All right.
16
17 CROSS-EXAMINATION
18
19 BY MR. PURDY:
20 Q This is something I believe was raised for
21 the first time in redirect and at the risk of pointing
22 out what I consider to be the obvious, would it be fair
23 to say that it's possible that there might be thousands
24 of Idaho Power residential customers who have electric
25 homes or who have installed conservation measures,
404
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 weather proofing, that sort of thing or perhaps energy
2 saving light bulbs, that sort of thing who have not asked
3 for any type of reimbursement for those costs?
4 A Yes.
5 MR. PURDY: Thank you.
6 COMMISSIONER SMITH: Thank you very much
7 and appreciate your help.
8 (The witness left the stand.)
9 COMMISSIONER SMITH: We'll be in recess
10 until 3:00 o'clock.
11 Mr. Richey.
12 MR. RICHEY: Is it possible for
13 Dr. Anderson to be excused?
14 COMMISSIONER SMITH: If there is no
15 objection, we'd be happy to excuse Dr. Anderson.
16 MR. RICHEY: Thank you.
17 (Recess.)
18 COMMISSIONER SMITH: Okay, we'll go back on
19 the record. Mr. Jauregui, how would you like to put on
20 your witness?
21 MR. JAUREGUI: Madam Chairman, I would like
22 to call W. D. Arms to the stand.
23
24
25
405
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Micron Technology, Inc.
1 W. D. ARMS,
2 produced as a witness at the instance of the Rate
3 Fairness Group, having been first duly sworn, was
4 examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. JAUREGUI:
9 Q Mr. Arms, would you please state your name
10 and address for the record?
11 A My name is W. D. Arms. I reside at 4430
12 Castlebar Drive, Boise, Idaho, 83707.
13 Q Are you the same person that caused to be
14 prepared prefiled testimony in this matter consisting of
15 six pages?
16 A I am.
17 Q Do you have any corrections or additions to
18 that testimony?
19 A No, I do not.
20 Q If I were to ask those questions today,
21 would your answers be the same?
22 A Yes, they would.
23 MR. JAUREGUI: I would ask that the
24 testimony be spread on the record as if read and would
25 tender Mr. Arms for cross-examination.
406
CSB REPORTING ARMS (Di)
Wilder, Idaho 83676 Rate Fairness Group
1 COMMISSIONER SMITH: If there's no
2 objection, we will spread the prefiled testimony of
3 Mr. Arms upon the record as if read.
4 (The following prefiled testimony of
5 Mr. W. D. Arms is spread upon the record.)
6
7
8
9
10
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13
14
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16
17
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19
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407
CSB REPORTING ARMS (Di)
Wilder, Idaho 83676 Rate Fairness Group
1 Q PLEASE STATE YOUR NAME AND ADDRESS.
2 A My name is W.D. Arms. I reside at 4430
3 Castlebar, Boise, Idaho.
4 Q ARE YOU EMPLOYED?
5 A No, I am retired.
6 Q PLEASE DESCRIBE YOUR BACKGROUND.
7 A I am eight four (84) years old, married,
8 grew up in Idaho and Eastern Oregon. I graduated from
9 Wallace High School and then graduated from the
10 University of Idaho in 1937 with a B.S. in Electrical
11 Engineering. Before going to work for Idaho Power
12 Company, ("Idaho Power") I worked in the mines in
13 northern Idaho. I was employed by Idaho Power for
14 forty two (42) years as an electrical engineer and
15 manager in several positions including: Distribution
16 Engineer, Transmission Engineer, Division Electrical
17 Superintendent, and retired as Vice President of
18 Engineering in 1979. After retiring from Idaho Power, I
19 was employed by Morrison-Knudsen Company, Inc. for about
20 two years as a consultant and later as Manager of Power
21 Projects.
22 Q ON WHOSE BEHALF ARE YOU TESTIFYING IN THE
23 PROCEEDING?
24 A I am testifying on behalf of The Rate
25 Fairness Group ("RFG"), an informal group of about twelve
408
ARMS, Di 2
The Rate Fairness Group
1 (12) individuals, including me, all of which are Idaho
2 Power residential customers, and about two-thirds of
3 which are retired.
4 Q WHAT IS THE TOPIC OF YOUR TESTIMONY?
5 A My testimony is directed to the Application
6 of Idaho Power for authority to increase electric service
7 rates to allow recovery for demand side
8
9 /
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11 /
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16
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19
20
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22
23
24
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409
ARMS, Di 2A
The Rate Fairness Group
1 management/conservation ("DSM") expenditures.
2 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?
3 A The purpose of my testimony is to urge that
4 the Idaho Public Utilities Commission ("Commission")
5 reject Idaho Power's proposal to amortize outstanding DSM
6 investment over five years; and secondly, that the
7 Commission reject Idaho Power's recommendation with
8 respect to deferred program expenditures after 1993 be
9 changed from this Commission's historical holding that
10 classifies DSM conservation program expenditures in the
11 same manner in which generation resources are classified.
12 Q WHY SHOULD THE PROPOSAL TO AMORTIZE
13 OUTSTANDING DSM INVESTMENTS OVER FIVE YEARS BE REJECTED?
14 A Idaho Power offers no studies or other
15 evidence, other than Mr. Said's testimony exercising his
16 judgment, that a five year recovery period is a
17 reasonable amortization period. It is my opinion, based
18 on my experience, that a five year recovery period for
19 DSM expenditures is too short.
20 Q OVER WHAT PERIOD OF TIME SHOULD DSM BE
21 AMORTIZED?
22 A I believe this Commission should continue
23 the DSM amortization period of twenty four years because
24 of the reasons set forth in the Commission's Order No.
25 25880, dated January 31, 1995, in Case Number IPC-E-94-5,
410
ARMS, Di 3
The Rate Fairness Group
1 remain valid today. Those reasons were stated as
2 follows:
3 B. Amortization of DSM Program Costs.
IPCo proposed in its Application to amortize all
4 DSM program expenditures over seven years. Staff
recommended that the program expenditures be
5 amortized over a period equal to the approximate
effective life of each program, as set forth in
6 Staff's Exhibit No. 199. Tr. p. 1842. Similarly,
FMC recommended an amortization period of 24 years
7 for
8
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11 /
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13 /
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22
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411
ARMS, Di 3A
The Rate Fairness Group
1 the accumulated DSM program expenditures, which is
the average effective life projected for the DSM
2 programs. Tr. p. 2346. Under IPCo's proposal,
$16,468,740 is included in rate base for
3 accumulated DSM costs. Amortizing the expense
over the average useful life, a 24-year period,
4 adds $1,894,387 to IPCo's proposed DSM related
rate base. The corresponding amortization expense
5 is also reduced by the $1,894,387.
6 As Staff testified, the Commission
previously has indicated it expects expenditures
7 for DSM programs to be amortized over the expected
useful life of the program. See, e.g. Order Nos.
8 22299 and 22893. Such as amortization properly
spreads program costs over the expected useful
9 life. For the DSM programs that have resulted in
deferred expenses of approximately $18.5 million
10 in this case, the program average useful life is
24 years. We find a 24-year amortization period
11 for the existing deferred DSM costs to be just and
reasonable. The total DSM related Rate base
12 amount adopted in this Order is $20,317,331,
correcting for the Company error of $1,954,204 and
13 amortizing the deferred amount over 24 years.
(emphasis added)
14
15 Q WHY SHOULD THE COMMISSION REJECT IDAHO
16 POWER'S RECOMMENDATION THAT DSM EXPENDITURES AFTER 1993
17 BE ALLOCATED ON A DIFFERENT BASIS?
18 A Idaho Power offers no study, and Mr. Said
19 offers no evidence for changing DSM allocations. Mr.
20 Said recognizes that past DSM expenditures have been
21 viewed as system resources and as such the costs have
22 been allocated to classes based upon class use (demand
23 and energy) of resources. He states that his
24 recommendation recognizes that DSM is currently viewed
25 from the perspective of direct benefits (i.e. ability to
412
ARMS, Di 4
The Rate Fairness Group
1 participate in programs) that customers receive from
2 expenditures made on their behalf but he offers no
3 studies or other evidence to support the statement.
4
5 /
6
7 /
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9 /
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413
ARMS, Di 4A
The Rate Fairness Group
1 Q WHAT ALLOCATION METHOD SHOULD BE USED FOR
2 DSM EXPENDITURES AFTER 1993?
3 A I recommend that this Commission continue
4 its historical practice of classifying conservation
5 program expenses in the same manner in which generation
6 resources as classified. Mr. Said recognized that past
7 DSM expenditures have been viewed as system resources and
8 as such the costs have been allocated to the classes
9 based upon class use (demand and energy) of resources.
10 The RFG questions the Company's proposal which is based
11 upon an allocation method which would require members of
12 a group or rate class to buy a home, or sell and buy a
13 new home as the basis for the allocation to residential
14 customers. Idaho Power DSM programs did not have
15 programs that all residential customers could participate
16 in.
17 I would also point out that it may appear that the
18 residential programs were available or could be
19 participated in by all members of the residential class,
20 but it is very unlikely that most older members of the
21 residential group, and since most members of the RFG are
22 retired, that people on fixed incomes would be very
23 likely to be able or want to buy a new house.
24 Q DO YOU HAVE ANY FURTHER COMMENTS ON THIS
25 MATTER?
414
ARMS, Di 5
The Rate Fairness Group
1 A Yes I have one final comment. As I
2 indicated, the members of the RFG are mostly senior
3 citizens who are retired and on fixed incomes. The
4 proposals of Idaho Power Company would shift the cost of
5 a long term benefit to a short term (5 year) payment
6 schedule by ratepayers over the next five years which, in
7 my opinion, is neither fair nor reasonable. The RFG
8 believes that
9
10 /
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12 /
13
14 /
15
16
17
18
19
20
21
22
23
24
25
415
ARMS, Di 5A
The Rate Fairness Group
1 fairness to the ratepayer requires not only the payment
2 for prudent investments by Idaho Power by ratepayers but
3 credits and adjustment by Idaho Power to ratepayers for
4 lower carrying cost, and reduced labor costs due to
5 termination of DSM programs.
6 Q DOES THAT CONCLUDE YOUR TESTIMONY IN THIS
7 PROCEEDING?
8 A Yes it does.
9
10
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17
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416
ARMS, Di 6
The Rate Fairness Group
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Ward, do you have
4 questions?
5 MR. WARD: I have no questions. Thank you.
6 COMMISSIONER SMITH: Mr. Gollomp?
7 MR. GOLLOMP: No questions.
8 COMMISSIONER SMITH: Mr. Fothergill.
9 MR. FOTHERGILL: Yes, I have a couple of
10 questions.
11
12 CROSS-EXAMINATION
13
14 BY MR. FOTHERGILL:
15 Q On page -- Mr. Arms, can you hear me?
16 A Yes.
17 Q You've testified before this Commission on
18 numerous occasions in the past, haven't you?
19 A Yes, I have.
20 Q And on page 5 of your testimony, you
21 indicate that you do not think it is fair and reasonable
22 to recover DSM expenditures from all residential
23 customers when only a small fraction of them can
24 participate in a given DSM program, and you mention the
25 prospect of a buying a new home or on the basis of buying
417
CSB REPORTING ARMS (X)
Wilder, Idaho 83676 Rate Fairness Group
1 and selling a home. This is an example of yours, is it
2 not, it is not a Company program?
3 A This is not a Company program. This is my
4 own thought.
5 Q Thank you, but it is applicable to the
6 application that the Company is making, is it not?
7 A Yes, I believe it is.
8 Q On page 3 of your testimony, you quote at
9 length from an Order, I believe a January Order, of the
10 Commission and you emphasize that we find a 24-year
11 amortization period for the existing deferred DSM costs
12 to be just and reasonable. Now, if the DSM programs were
13 not beneficial over their expected useful life, would not
14 the programs be considered bad investments?
15 A Not necessarily, no.
16 MR. FOTHERGILL: I see. Thank you very
17 much.
18 COMMISSIONER SMITH: Mr. Budge?
19 MR. BUDGE: No questions.
20 COMMISSIONER SMITH: Mr. Richey.
21 MR. RICHEY: No questions.
22 COMMISSIONER SMITH: Mr. Richardson.
23
24
25
418
CSB REPORTING ARMS (X)
Wilder, Idaho 83676 Rate Fairness Group
1 CROSS-EXAMINATION
2
3 BY MR. RICHARDSON:
4 Q Mr. Arms? Over here. Hi. You're an
5 electrical engineer?
6 A Yes, sir.
7 Q And you used to be a vice president with
8 Idaho Power Company?
9 A That's correct.
10 Q Is it your opinion, Mr. Arms, that the
11 investment Idaho Power has made in DSM measures serve no
12 useful purpose beyond five years?
13 A No, it is not.
14 Q They do actually benefit the Company; is
15 that your opinion?
16 A Yes, sir.
17 MR. RICHARDSON: That's all I have,
18 Madam Chairman.
19 COMMISSIONER SMITH: Mr. Purdy.
20
21
22
23
24
25
419
CSB REPORTING ARMS (X)
Wilder, Idaho 83676 Rate Fairness Group
1 CROSS-EXAMINATION
2
3 BY MR. PURDY:
4 Q Mr. Arms, you state that, for instance,
5 residential customers might not be able to participate in
6 certain DSM programs. Could you explain why that might
7 occur?
8 A Well, in my case, I bought a home prior to
9 good cents programs. I'm certainly not classed as a low
10 income person. Neither one of the programs would have
11 any benefit to me.
12 Q Can you think of any other examples where
13 one member of a class might be able to participate in a
14 DSM program, but another member in that same class could
15 not?
16 A Not offhand.
17 MR. PURDY: Thank you.
18 COMMISSIONER SMITH: Mr. Ripley.
19 MR. RIPLEY: We have no questions.
20 COMMISSIONER SMITH: Are there questions
21 from the Commissioners?
22 COMMISSIONER NELSON: I don't have any.
23 Thank you.
24 COMMISSIONER HANSEN: No.
25 COMMISSIONER SMITH: Nor I.
420
CSB REPORTING ARMS (X)
Wilder, Idaho 83676 Rate Fairness Group
1 Is there redirect, Mr. Jauregui?
2 MR. JAUREGUI: No, Madam Chairman, there is
3 not.
4 COMMISSIONER SMITH: We thank you for your
5 help, Mr. Arms.
6 (The witness left the stand.)
7 COMMISSIONER SMITH: It looks like we're
8 down to the Staff case.
9 MR. PURDY: Yes, thank you. The Staff
10 calls Lynn Anderson.
11 MR. JAUREGUI: Madam Chairman?
12 COMMISSIONER SMITH: Mr. Jauregui.
13 MR. JAUREGUI: If permitted, Mr. Arms may
14 need to leave. Would it be all right if he could be
15 excused?
16 COMMISSIONER SMITH: If there's no
17 objection, we will excuse Mr. Arms, although I'm sure
18 he'll want to stay.
19
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421
CSB REPORTING ARMS (X)
Wilder, Idaho 83676 Rate Fairness Group
1 LYNN ANDERSON,
2 produced as a witness at the instance of the Staff,
3 having been first duly sworn, was examined and testified
4 as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. PURDY:
9 Q Are you ready to go, Mr. Anderson?
10 A Yes.
11 Q Would you please state your name?
12 A Lynn Anderson.
13 Q By whom are you employed?
14 A The Idaho Public Utilities Commission.
15 Q And have you prefiled direct testimony in
16 this case consisting of 23 pages of text?
17 A Yes, I have.
18 Q And you're sponsoring Staff Exhibit
19 Nos. 101, 102, 103 and 104?
20 A Yes.
21 Q All right. Do you have any corrections or
22 technical changes to your prefiled testimony or exhibits?
23 A No, I do not.
24 Q All right; so if I were to ask you those
25 same questions today as contained in your prefiled
422
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 testimony, would the answers be the same?
2 A Yes.
3 MR. PURDY: Madam Chair, I would just ask
4 that due to testimony filed by other witnesses and other
5 parties in this case, I might just ask a couple of
6 additional direct questions at this time.
7 COMMISSIONER SMITH: Okay.
8 MR. PURDY: Thank you.
9 Q BY MR. PURDY: Mr. Anderson, you're
10 familiar with the testimony of FMC's witness David Bonn
11 prefiled in this case, are you not?
12 A Yes, I am.
13 Q And I'm going to paraphrase, but I believe
14 his testimony is to the effect that FMC should not have
15 to pay any DSM-related costs for its second block of
16 130 megawatts because the price for that power is tied to
17 market conditions. Is that your understanding?
18 A Yes.
19 Q All right. Given this argument, do you
20 have any clarifications that you'd like to make to your
21 prefiled testimony?
22 A Yes. I should state that my proposal for a
23 uniform percent allocation is applicable only to
24 customers who are not able to or who do not get a special
25 contract rate from Idaho Power. For those customers that
423
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 do get a special contract rate that is from an
2 alternative supplier, then I think the DSM charges should
3 be allocated based upon the same uniform percent
4 pre-alternative supplier Idaho Power bill, which is a
5 little cumbersome in words, and then the actual amount
6 that that customer pays should be based upon or identical
7 to what Idaho Power proposed in this case and that is a
8 fixed amount divided by 60 monthly payments.
9 Q Is that all you have on that point?
10 A Well, the reason I bring that up is I think
11 it would be improper to allow customers to opt out of
12 paying DSM charges just because they are able to get a
13 special contract. I think these customers like all other
14 customers were benefited by DSM in the past and will be
15 in the future by the fact that DSM does reduce the market
16 price of electricity.
17 Q Now, you have criticized or, I should say,
18 you have suggested that Idaho Power's DSM revenue
19 requirement be reduced pertinent to the Company's
20 commercial lighting program and if I understand
21 correctly, your testimony is essentially that the Company
22 did not perform sufficient evaluations to determine
23 whether that program was cost effective and consequently,
24 some of the amounts Idaho Power contends it incurred
25 should be subtracted from the Company's revenue
424
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 requirement; is that a fair statement?
2 A That's correct. It wasn't necessarily
3 because it was not a cost-effective program, but simply
4 because there was no evaluation to determine how cost
5 effective and whether or not it could become more cost
6 effective by doing things a little bit differently than
7 what they were doing.
8 Q All right. Did anything in Mr. Said's
9 rebuttal testimony, I recognize that that's not yet on
10 the record, but is there anything contained in that
11 testimony that has caused you to do some additional
12 analysis with regard to the commercial lighting program?
13 A Yes. In Mr. Said's rebuttal testimony, he
14 did mention for the very first time that the Company
15 performed some on-site verifications of the commercial
16 lighting program and so I did have a few days between
17 when the rebuttal testimony was filed and today's
18 hearing, so I took a couple of hours and reviewed this
19 information that was at Idaho Power's headquarters.
20 I did not have sufficient time to do a
21 thorough evaluation of the three binders full of data,
22 but I did go through them page by page and it did appear
23 that the information that was intended by the forms
24 contained in these binders was the start of a proper
25 program evaluation, but I also discovered that the
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Wilder, Idaho 83676 Staff
1 information contained on the forms was very inconsistent
2 and often incomplete and that it really wasn't useful for
3 a thorough evaluation and I would suggest that's probably
4 why Idaho Power did not do a thorough evaluation, but at
5 the same time, I think it's worth noting that of the few
6 forms that were completely filled out, roughly two-thirds
7 of the site verifications the customers did indicate that
8 they would have performed essentially the same lighting
9 retrofits as they did under the program even if the
10 program had not been in existence, and I did note that
11 while there were quite a few customers or at least a few
12 customers who were very pleased with the program, there
13 were probably just as many customers who were displeased
14 because of ballast failures or other problems.
15 Overall, I conclude that while these site
16 verifications were the beginning of a promising program
17 evaluation, the enthusiasm apparently dropped off before
18 the data was all collected and completely disappeared
19 before any evaluation could have been accomplished.
20 Q In reviewing these forms, were you able to
21 ascertain when they were filled out?
22 A Yes. As Mr. Said said in his rebuttal
23 testimony, it was during the fourth quarter of 1997.
24 MR. PURDY: That's all I have in terms of
25 additional direct. I would ask that the prefiled direct
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CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 testimony of Mr. Anderson be spread as if read and that
2 Exhibits 101 through 104 be marked for identification.
3 COMMISSIONER SMITH: If there's no
4 objection, it is so ordered.
5 (The following prefiled testimony of
6 Mr. Lynn Anderson is spread upon the record.)
7
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CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 Q. Please state your name and business address
2 for the record.
3 A. My name is Lynn Anderson and my business
4 address is 472 West Washington Street, Boise, Idaho.
5 Q. By whom are you employed and in what
6 capacity?
7 A. I am employed by the Idaho Public Utilities
8 Commission as a Staff economist.
9 Q. What are your duties with the Commission?
10 A. My duties include evaluating electricity,
11 natural gas, water and telephone utilities' rates,
12 services, plans and customer petitions, as well as
13 conducting generic economic and regulatory
14 investigations. These evaluations and investigations are
15 generally used in making Staff recommendations to the
16 Commission for the approval, denial or modification of
17 utility applications or customer petitions.
18 Q. Would you please outline your academic and
19 professional background?
20 A. I have a Bachelor of Science degree in
21 government and a Bachelor of Arts degree in sociology,
22 both from Idaho State University where I also studied
23 economics and architecture. I studied engineering at
24 Northwestern University and Brigham Young University and
25 public administration and quantitative analysis at Boise
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IPC-E-97-12 ANDERSON (Di) 1
05/08/98 Staff
1 State University. Over the past 18 years I have attended
2 many training seminars and conferences regarding utility
3 regulation, operations, forecasting, and marketing.
4 I began my employment with the Commission in
5 1980 as a utility rate analyst. In 1983 I was appointed
6 as the telecommunications section supervisor and in 1992
7 I was appointed to my present position as an economist.
8 I have presented testimony in approximately 50 formal
9 cases before the Commission.
10 From 1975 to 1980 I was employed by the
11 Idaho Transportation Department where I performed
12 benefit/cost analyses of highway safety improvements and
13 other statistical analyses.
14 Q. What is the purpose of your testimony in
15 this proceeding?
16 A. I have three primary purposes. First, I
17 will suggest that Idaho Power Company (Idaho Power;
18 Company) was prudent in its continuation of most, but not
19 all, of its demand side management (DSM; conservation)
20 programs since 1993. Second, I will suggest that Idaho
21 Power's proposed allocation of DSM costs among customer
22 classes based upon "ability to participate" is
23 unwarranted and unnecessarily complex and I will propose
24 a reasonable and simpler alternative. And third, I will
25
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IPC-E-97-12 ANDERSON (Di) 2
05/08/98 Staff
1 suggest the Company's proposed "percentage increase" rate
2 design for most customer classes is just and reasonable.
3 Q. Have you prepared an exhibit summarizing
4 Idaho Power's DSM costs by program and by year?
5 A. Yes. Staff Exhibit No. 101 is presented for
6 general information. The left-hand side of this exhibit
7 shows Idaho Power's total DSM costs from 1985 through
8 1997 as reported in its 1997 and 1998 Conservation Plans.
9 The right-hand side of the exhibit shows the deferred
10 costs from 1994 through 1997 as shown in Company witness
11 Greg Said's Exhibit 2 presented in this case. The $2.2
12 million difference between the two 1994-1997 totals is
13 presumably the amount the Company expensed during those
14 four years.
15 REASONABLE AND PRUDENT DSM
16 Q. Please briefly explain the processes that
17 should be involved in utility DSM programs in order for
18 the Commission Staff to determine that such programs are
19 reasonable and prudent, thereby enabling it to recommend
20 to the Commission that utility customers pay for them.
21 A. In general, DSM programs should be pre-
22 evaluated for probable cost-effectiveness and should have
23 implementation and evaluation plans completed before
24 full-scale implementation begins. Programs should be
25 continually monitored while they are operational.
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IPC-E-97-12 ANDERSON (Di) 3
05/08/98 Staff
1 Process evaluations and preliminary program evaluations
2 should be conducted periodically and the results of both
3 should be used to modify the program as necessary to
4 obtain optimal results. Both preliminary and final
5 program evaluations should reasonably estimate baseline
6 customer activity that would have occurred absent the
7 program. Estimating customer activity that would have
8 occurred had the DSM program not been in place is often
9 extremely difficult, but it is essential for reliable
10 evaluations.
11 Q. Have Idaho Power's planning, implementation
12 and evaluation of its DSM programs been reasonable and
13 prudent since the Commission last reviewed this issue in
14 1995 for programs through 1993?
15 A. Idaho Power consistently pre-evaluated its
16 DSM programs as evidenced by the fact that it brought
17 them to the Commission for its review and approval before
18 actually implementing them. Each April the Company
19 submitted to the Commission its Conservation Plan that
20 included a summary of DSM project activity. These plans
21 and their appendices sometimes included process and
22 impact evaluations and always included estimates of
23 energy savings and cost-effectiveness. However, the
24 electricity savings were admittedly overstated due to the
25 very important shortcoming of not being adjusted for the
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IPC-E-97-12 ANDERSON (Di) 4
05/08/98 Staff
1 estimated energy savings by customers who would have
2 completed essentially the same energy efficiency
3 improvement with or without the DSM programs. In spite
4 of this shortcoming, I conclude that Idaho Power
5 conducted most, but not all, of its DSM programs
6 reasonably and prudently.
7 Q. Which of Idaho Power's DSM programs
8 continued after 1993 has Staff specifically reviewed?
9 A. I reviewed three programs, namely the
10 Design Excellence Award Program (DEAP), the Partners in
11 Industrial Efficiency Program (PIE), and the Commercial
12 Lighting Program (CLP). Staff engineer Rick Sterling
13 reviewed the Agricultural Choices Program (ACP) and I
14 will present the results of his analysis. Staff did not
15 specifically review other programs for various reasons.
16 By 1994 the Good Cents Program was being phased out; the
17 Manufactured Home Acquisition Program (MAP) was a
18 regional effort to improve mobile home energy
19 efficiencies; and Low Income Weatherization is a public
20 purposes DSM program that was never intended to be
21 evaluated strictly on the basis of utility cost-
22 effectiveness.
23 Q. Please briefly describe the programs and
24 the conclusions reached regarding the four DSM programs
25 that were reviewed by Staff.
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IPC-E-97-12 ANDERSON (Di) 5
05/08/98 Staff
1 A. The descriptions and conclusions of the
2 four DSM programs are as follows:
3 Design Excellence Award Program (DEAP)
4 DEAP promoted using computer modeling to
5 design more energy efficient commercial buildings by an
6 incentive ranging from $1,200 to $4,500 paid to
7 architects, engineers, and contractors. This program
8 began in 1989 and ended in 1997 after having cost Idaho
9 Power $2.3 million. It was ended because, according to
10 Idaho Power, the program achieved a high degree of market
11 transformation in the commercial building market and
12 because the program sometimes led to fuel switching in
13 building design.
14 In Idaho Power's last rate case before this
15 Commission, Case No. IPC-E-94-5, Staff recommended
16 disallowing ratepayer recovery of one-half of the costs
17 the Company incurred for DEAP during 1992 and 1993
18 because its cost-effectiveness evaluations did not
19 attempt to account for buildings that would have been
20 built to DEAP standards even without the DEAP program.
21 However, the Commission ultimately allowed full recovery
22 of costs incurred through the end of 1993.
23 Since the conclusion of Case No. IPC-E-94-5,
24 Idaho Power has submitted four annual Conservation Plans
25 in which it states it continually monitored and evaluated
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IPC-E-97-12 ANDERSON (Di) 6
05/08/98 Staff
1 DEAP and made improvements to the program prior to ending
2 it. During 1994 the program was admitted to having been
3 one of three programs contributing to a DSM shortfall and
4 having an inefficient $.035 per kWh utility cost. But by
5 modifying the program in subsequent years, the program
6 was claimed to improve to $.005 and $.004 per kWh saved
7 in 1996 and 1997, respectively. However, in none of
8 these calculations did Idaho Power attempt to adjust its
9 estimate of energy savings by the amount of energy
10 savings that would have occurred due to more efficient
11 building standards and construction practices in the
12 absence of DEAP.
13 The Technical Appendix to Idaho Power's 1995
14 Conservation Plan contains a June 1994, impact analysis
15 of participants' kWh savings, but only mentions the
16 "in-the-absence" problem without attempting to adjust
17 energy savings estimates accordingly. On page 18 of its
18 analysis, Idaho Power concludes that "...many other
19 important questions remain. The Company continues to
20 evaluate ...[DEAP], and is participating in a regional
21 evaluation effort..." The Technical Appendix to the 1997
22 Conservation Plan included the executive summary of the
23 regional evaluation report completed in September, 1996,
24 by XENERGY, Inc. Among other conclusions XENERGY found
25 that the actual energy savings of DEAP and another,
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IPC-E-97-12 ANDERSON (Di) 7
05/08/98 Staff
1 similar Northwest program were about one-half the energy
2 savings claimed by various utilities. The overstatement
3 of claimed savings was due largely to the fact that many
4 program participants would have used energy efficient
5 building designs even without the programs.
6 My conclusion is that Idaho Power's
7 continuation of DEAP from 1994 to 1997 was reasonable and
8 prudent. The Company undoubtedly understated the
9 program's actual cost per kWh, but, even so, DEAP was
10 probably still cost-effective and, more importantly, the
11 Company has provided evidence that it monitored this
12 program, modified it to improve results, and participated
13 in a thorough evaluation.
14 Partners in Industrial Efficiency (PIE)
15 The PIE program was restricted to large
16 customers on Schedule 19 or special contracts. Each
17 project was required to save at least 100,000 kWh per
18 year for at least five years for which Idaho Power paid
19 the lesser of $.10 per kWh saved in the first year or 50%
20 of the customers direct costs with a cap of $250,000 per
21 metered account. This program began in 1991 and ended in
22 1997 (with some projects still pending) after having cost
23 Idaho Power $3.5 million. The program was ended because
24 Idaho Power said that some of its large customers
25 suggested that Idaho Power should discontinue DSM
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IPC-E-97-12 ANDERSON (Di) 8
05/08/98 Staff
1 programs to avoid adding to deferred costs that increase
2 the cost of electricity over time. Idaho Power also said
3 that several of the technologies funded through the PIE
4 program, such as variable speed drives and efficient
5 refrigeration, were becoming commonly used by industrial
6 customers making the program less necessary.
7 In Case No. IPC-E-94-5 Staff recommended
8 that the full costs of PIE be recovered from ratepayers.
9 Even though the program was said to be past due for a
10 thorough impact evaluation, Staff conceded that allowing
11 two years of expenditures without an impact evaluation
12 was not unreasonable. Nevertheless, Staff cautioned that
13 expenditures being made in 1994, which were not part of
14 that rate case, were perhaps being made imprudently
15 because Idaho Power's own process evaluation included in
16 the Technical Appendix to the 1994 Conservation Plan said
17 that a significant portion of the estimated energy
18 savings attributed to PIE may have occurred even without
19 the program. In other words, the claimed utility cost of
20 $.008 per kWh during 1993 was understated by a
21 significant but unknown amount.
22 Idaho Power completed an impact evaluation
23 of PIE by June 1995 in which the problem of customers
24 receiving PIE funding for doing projects they would have
25 done anyway was discussed. This evaluation said that the
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IPC-E-97-12 ANDERSON (Di) 9
05/08/98 Staff
1 Company had used its discretionary authority to not fund
2 some projects that likely would have been completed
3 absent PIE funding, but it also noted that improvements
4 in the screening process were still desirable and
5 possible. Nevertheless, this evaluation report concluded
6 that in spite of its shortcomings, the PIE project was
7 cost-effective; that is, that it saved electricity at a
8 cost below the avoided cost of producing electricity.
9 After adjusting for underestimated energy savings and for
10 self-reported "free-riders," the report estimated the
11 utility cost for the PIE program through 1994 to be about
12 $.007 per kWh saved.
13 My conclusion regarding whether Idaho
14 Power's continuation of PIE from 1994 to 1997 was
15 reasonable and prudent is that it probably was.
16 Commercial Lighting Program (CLP)
17 CLP was restricted to commercial and
18 industrial customers for the promotion of efficient
19 lighting equipment. Idaho Power paid $200 per kW saved
20 up to 40% of the project cost. This program began in
21 1993 and ended in 1997 after having cost the Company $1.5
22 million. The program was ended because Idaho Power
23 wanted to reduce the deferral of DSM expenditures and
24 because the Northwest Energy Efficiency Alliance, which
25
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IPC-E-97-12 ANDERSON (Di) 10
05/08/98 Staff
1 the Company was helping to fund and direct, was said to
2 be a better approach to conservation.
3 This lighting efficiency program had begun
4 just prior to the processing of Case No. IPC-E-94-5 and
5 there was no evidence for Staff to recommend against
6 ratepayer funding of expenditures incurred up to that
7 time. However, Staff was concerned with the high
8 turnover of retail operations and resulting display
9 changes that could cause the removal of efficient
10 lighting equipment. Staff cautioned that future
11 expenditures may be disallowed if the purported
12 electricity savings and the persistence of those savings
13 over time cannot be proven.
14 Other than the one-page summaries contained
15 in each of the Conservation Plans, Idaho Power provided
16 no process or impact evaluations regarding this program
17 even though in the 1995 Plan it said an impact evaluation
18 was scheduled for 1996. In the annual one-page summaries
19 there is no mention of possible lack of energy savings
20 persistence over time due to retail building turnover
21 and, in fact, the Plans consistently used an average 12-
22 year life for lighting retrofits to calculate levelized
23 costs per kWh saved. Furthermore, the purported total
24 levelized utility cost of $.007 per kWh saved is admitted
25 to have been estimated without consideration of the
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IPC-E-97-12 ANDERSON (Di) 11
05/08/98 Staff
1 probability that many projects would have been completed
2 even without the program.
3 My conclusion is that Idaho Power was not
4 reasonable and prudent in its continuation of the
5 Commercial Lighting Program beyond 1995 without having
6 completed, or even initiated, either a process evaluation
7 or an impact evaluation. Thus, I recommend the
8 Commission not allow ratepayer recovery of the $274,000
9 the Company accumulated in 1996 and 1997 in its deferred
10 account for this program. I should point out that the
11 deferred amount is only 40% of the total amount Idaho
12 Power spent for this program in those two years; the
13 remaining 60% was apparently expensed and paid by
14 customers through existing rates.
15 Agricultural Choices Program (ACP)
16 ACP consists of three components for large,
17 medium, and small existing systems, plus a fourth
18 component for new irrigation systems. The large and
19 medium components have been available to customers since
20 1993, while the small and new components were added in
21 late 1994.
22 For large systems, customers must obtain an
23 engineering analysis and submit a proposal to Idaho
24 Power. The Company pays a financial incentive for
25 approved energy efficiency improvements after project
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IPC-E-97-12 ANDERSON (Di) 12
05/08/98 Staff
1 completion. For medium systems, either Idaho Power or a
2 contractor conducts a system audit to identify
3 modifications qualifying for incentive payments. For
4 small systems, customers work with irrigation system
5 dealers to identify and implement efficiency
6 improvements. Under the new systems program component,
7 incentive payments are made based on meeting standards
8 for pump efficiency, flow, water velocity, friction loss,
9 system pressure, and/or variable speed drive motors or
10 multiple motor pumping plants. On March 27, 1998, Idaho
11 Power applied to the Commission to discontinue this
12 program effective May 1, 1998. (Case No. IPC-E-98-4)
13 The Agricultural Choices Program was
14 preceded by pilot irrigation programs in Blackfoot and in
15 the Mini-Cassia area. It was also preceded by the
16 irrigation conservation project at Bell Rapids. Detailed
17 evaluations were made of the pilot programs in Blackfoot
18 and Mini-Cassia. Information from these evaluations was
19 used to design the Agricultural Choices Program.
20 Idaho Power claims a real, levelized utility
21 cost for the Agricultural Choices Program of $.019 per
22 kWh saved, which is probably cost-effective in the long
23 run. However, in order for the Company's test of cost
24 effectiveness to be valid, there must be assurance that
25 the cost and savings figures used in the analysis are
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IPC-E-97-12 ANDERSON (Di) 13
05/08/98 Staff
1 accurate. While costs should be easily verifiable,
2 savings are not.
3 In its response to Staff production
4 requests, the Company stated that program energy savings
5 have been made based on engineering estimates. The
6 Company concedes that no field tests or measurements
7 intended to verify energy savings for irrigation system
8 retrofits were made under the Agricultural Choices
9 Program. However, the Company points out that field
10 verification was made in the Mini-Cassia pilot program,
11 and an extensive impact analysis was done for the
12 Blackfoot project, confirming that engineering estimates
13 are an accurate means of estimating energy savings for
14 irrigation system retrofits. Given the variability of
15 field verification caused by weather differences,
16 cropping patterns, and other factors, Staff believes that
17 engineering estimates are an accurate means of
18 determining energy savings of individual program
19 participants. As with other DSM programs, the Company's
20 cost-effectiveness calculations did not include any
21 estimate of irrigation improvements that would have been
22 made by participants in the absence of the program, but
23 Staff believes that the participants in this program,
24 compared to participants in other programs, would have
25
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IPC-E-97-12 ANDERSON (Di) 14
05/08/98 Staff
1 been less likely to have completed improvements on their
2 own in the absence of the program.
3 Staff's conclusion is that the Agricultural
4 Choices Program was conducted reasonably and prudently by
5 Idaho Power.
6 CLASSIFICATION OF DSM COSTS AND ALLOCATION AMONG CUSTOMER
CLASSES
7
8 Q. How have DSM costs incurred by Idaho Power
9 been classified and allocated among customer classes in
10 the past?
11 A. The Commission has approved classification
12 of DSM costs between energy and demand in "...the same
13 manner in which generation resources are classified,
14 i.e., on the basis of the system load factor." (Order
15 No. 25880, page 29, Case No. IPC-E-94-5) Allocation of
16 these costs among customer classes is then accomplished
17 in the same manner as any other production resource.
18 Q. What is the justification for this method of
19 classification and allocation?
20 A. The justification for almost all of Idaho
21 Power's DSM programs was that they were the least-cost
22 resources for meeting its customers' demand for
23 electricity and, as such, it follows that DSM costs
24 should be classified and allocated among customer classes
25 just as generation resources are. The one possible
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IPC-E-97-12 ANDERSON (Di) 15
05/08/98 Staff
1 exception to this justification is the Low Income
2 Weatherization Program, which did not necessarily have to
3 meet the same least-cost criteria, although it was
4 anticipated that it would reduce "uncollectibles" and
5 provide other societal benefits in addition to saving
6 electricity at a claimed cost of $.015 per kWh. In any
7 event, this program comprised only about 5% of the
8 Company's DSM costs and thus does not materially affect
9 the overall justification for the system load factor
10 method of classification and allocation.
11 Q. Please briefly describe Idaho Power's
12 proposed allocation of DSM costs in its present
13 application.
14 A. Idaho Power proposes that DSM costs incurred
15 prior to 1994 be allocated as directed by the Commission
16 in Case No. IPC-E-94-5, i.e. classified by system load
17 factor and allocated accordingly. But the Company
18 proposes that DSM costs incurred after 1993 (69% of the
19 $42 million requested, including carrying charges and
20 taxes associated with prior programs) be allocated based
21 upon the ability of the customer class to participate in
22 programs.
23 Q. What is the justification offered by Idaho
24 Power for this proposed change to DSM cost classification
25 and allocation.
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IPC-E-97-12 ANDERSON (Di) 16
05/08/98 Staff
1 A. Idaho Power witness Greg Said, on pages 11
2 and 12 of his prefiled testimony, says only that in the
3 past DSM was viewed as a system resource, but that now
4 DSM is "viewed from the perspective of the benefits ...
5 that customers receive from expenditures made on their
6 behalf."
7 Q. Please explain why you believe Idaho Power's
8 allocation of post-1993 DSM costs based upon "ability to
9 participate" is unwarranted.
10 A. As explained earlier, all but one of Idaho
11 Power's DSM programs and 95% of its total costs were
12 justified by their being least-cost resources. In other
13 words, all customers benefitted from DSM, whether they
14 participated, could have participated but did not, or
15 were excluded from participation. While participants may
16 have benefitted more than did non-participants, they
17 usually had to pay some of the up-front costs and bear
18 some of the risk that the DSM measure would not produce
19 the expected energy savings in their particular
20 situations. Non-participants, on the other hand, always
21 benefitted from successful DSM programs and did not have
22 to pay any up-front costs. It seems unnecessary and
23 unreasonable to now, after the fact, change the cost
24 allocation of programs that benefit all customers from a
25 method that charges all customers to one that charges
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IPC-E-97-12 ANDERSON (Di) 17
05/08/98 Staff
1 only those who happened to be classified as "able to
2 participate," whether or not they did, in fact,
3 participate and whether or not it was cost-effective for
4 particular customers.
5 The Committee on Energy Conservation of the
6 National Association of Regulatory Utility Commissioners
7 in a report titled "Cost Allocation for Electric Utility
8 Conservation and Load Management Programs" (February,
9 1993) would seem to agree that the proposed change is not
10 warranted. In this report the Committee said:
11
For costs related to conservation and
12 load management programs which have been
implemented on a least cost basis and
13 which serve a resource function, cost
causation is generally not related to
14 participation in, eligibility to
participate in, or the receipt of
15 benefits from such programs. Such
expenditures would not have been incurred
16 except for their contribution to meeting
system-wide or regional kW and kWh
17 requirements. (p. 3)
18 To the extent that regulators may be
concerned with rate impacts on
19 non-participating customers, allocating
costs to participating customer classes
20 may not be an effective means for
addressing that concern. Direct
21 allocation will protect some
non-participants, but may lead to
22 significantly higher rate increases for
non-participating consumers in the
23 participating customer class. (p. 4)
24
25
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IPC-E-97-12 ANDERSON (Di) 18
05/08/98 Staff
1 In addition, Idaho Power's proposal adds
2 unnecessary complexity by requiring a melding of two
3 completely different classification/allocation methods
4 for programs that span both time periods. Although the
5 proposal may be workable, it is unwarranted and less
6 easily understood by customers who will be required to
7 pay these costs. Idaho Power has not provided any
8 reason, let alone a compelling one, to justify this
9 proposed change.
10 Q. What is your recommendation regarding
11 allocation of DSM costs among customer classes?
12 A. I propose that DSM costs (both pre-1994 and
13 post-1993) not be explicitly allocated, but instead that
14 customers total electricity bills be increased by a
15 uniform percentage. For a small increase such as
16 proposed in this case, a uniform percent increase will
17 not unreasonably distort the historical system load
18 factor classification/allocation. A uniform percent
19 increase has the advantages of being readily understood
20 by customers and quickly and easily implemented in tariff
21 changes without requiring verification of complex energy
22 and demand usage patterns and calculations. Uniform
23 percent rate changes are often used to implement small,
24 incremental rate changes that occur outside of a general
25 rate case application.
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IPC-E-97-12 ANDERSON (Di) 19
05/08/98 Staff
1 The top half of Staff Exhibit No. 102 shows
2 the revenue requirement from various customer classes
3 using a uniform percent distribution compared to the
4 Company's proposal.
5 RATE DESIGN FOR RECOVERY OF DSM COSTS
6 Q. Please briefly describe Idaho Power's
7 proposed rate design for recovery of its DSM costs.
8 A. Except for special contract customers, the
9 Company proposes a class-specific uniform percent rate
10 increase spread over five years. The percent increase
11 would be calculated by dividing one-sixtieth (1/60) of
12 each customer classes DSM revenue requirement by the
13 1996 normalized total monthly revenue. The five-year
14 period for individual customer classes could be shortened
15 in the event of increased electricity sales due to
16 customer growth or increased usage per customer, thus the
17 actual termination date of the charges would likely be
18 different for each customer class. The four special
19 contract customers would be charged a flat monthly fee
20 for five years equal to one-sixtieth (1/60) of their
21 total revenue requirement.
22 Q. Do you concur with the Company's proposed
23 rate design?
24 A. Not exactly. Idaho Power has provided no
25 rationale for treating the four special contract
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IPC-E-97-12 ANDERSON (Di) 20
05/08/98 Staff
1 customers any differently than all other customers.
2 Thus, I recommend that all customers be treated equally.
3 In other words, if the Commission granted Idaho Power its
4 full requested rate increase, all customers' bills,
5 including those of special contract customers, would
6 increase by 1.82% until the revenue amount was collected
7 in approximately 60 months.
8 The bottom half of Staff Exhibit No. 102
9 shows the percentage rate increases proposed by the
10 Company compared to my proposed uniform percent increase.
11 The top half of Staff Exhibit No. 103 shows
12 the effects of Idaho Power's requested temporary rate
13 increases on average bills, low bills and high bills in
14 various customer classes. The bottom half of that
15 exhibit shows the effects of the Company's revenue
16 request, but with Staff's allocation method.
17 Q. Staff witness Carlock has recommended a
18 lower revenue requirement than that requested by Idaho
19 Power, including your recommendation of disallowing
20 $274,000 of CLP expenditures. Do your recommendations
21 regarding classification, allocation and rate design
22 change with a lower revenue requirement?
23 A. No. The absolute amounts change but my
24 recommendation for a uniform percent rate increase among
25 all customer classes does not change. Staff Exhibit
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IPC-E-97-12 ANDERSON (Di) 21
05/08/98 Staff
1 No. 104 shows the estimated effects on monthly bills over
2 a five-year period to be a 1.36% increase using Ms.
3 Carlock's recommended lower revenue requirement compared
4 to the Company's 1.82% requested increase.
5 SUMMARY OF TESTIMONY
6 Q. Would you please summarize the major points
7 of your testimony?
8 A. Idaho Power has not presented sufficient
9 documentation to determine that its continuation since
10 1993 of the Commercial Lighting Program was reasonable
11 and prudent and I have recommended disallowing ratepayer
12 recovery of the $274,000 deferred in 1996 and 1997.
13 Idaho Power's proposed classification and
14 allocation of pre-1994 DSM costs based on the system load
15 factor is consistent with prior Commission orders, but
16 its proposed allocation of post-1993 costs based on
17 "class ability to participate" is unwarranted and
18 unnecessarily complicates a relatively minor rate
19 increase. As a simple and reasonable alternative I
20 recommend a uniform percent rate increase for all
21 customers, including those with special contracts, to
22 recover all DSM costs This recommendation does not
23 materially affect existing cost classification and
24 allocation and is easily compatible with the Company's
25
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IPC-E-97-12 ANDERSON (Di) 22
05/08/98 Staff
1 proposed uniform percent rate increases within customer
2 classes.
3 Q. Does this conclude your direct testimony in
4 this proceeding?
5 A. Yes, it does.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
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1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Do you have questions,
4 Mr. Budge?
5 MR. BUDGE: No questions.
6 COMMISSIONER SMITH: Mr. Richey.
7 MR. RICHEY: I've got just a few.
8
9 CROSS-EXAMINATION
10
11 BY MR. RICHEY:
12 Q Mr. Anderson, in your prefiled testimony,
13 you state that non-participants of the DSM program always
14 benefit from these programs. Can you tell me what
15 benefits you mean from that statement?
16 A A lower cost of electricity for Idaho Power
17 and its customers.
18 Q And is that true in all cases? With DSM
19 expenditures, is it always going to result in lower power
20 costs?
21 A Theoretically or specifically to Idaho
22 Power's programs?
23 Q Specifically -- well, theoretically first.
24 A Theoretically, no. Sometimes, certainly,
25 the cost of a DSM program can exceed the cost of
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1 producing electricity.
2 Q So your statements with respect to a
3 non-participant benefiting from DSM programs, it is
4 specific to the Idaho Power program, it's not a general
5 statement?
6 A Yes.
7 Q And did you -- have you quantified that to
8 show what the benefit is to each non-participant of these
9 programs?
10 A No, I have not gone ahead and made the
11 calculations that if Idaho Power had paid for a resource
12 rather than the DSM costs that they claim in their
13 conservation plans, no, I haven't calculated that
14 difference and multiplied it out and divided by the
15 number of customers.
16 Q But you're certain that it is the case that
17 with respect to Idaho Power's programs that
18 non-participants always benefited more than the costs
19 they're going to be asked to incur to pay these back?
20 A In total, yes.
21 Q In total, that's looking as a customer base
22 as a whole, not class by class?
23 A No, that is class by class, but it's their
24 total DSM program. There are a couple of programs that
25 were marginal, I guess I should say, but in total, the
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1 DSM costs were below production costs.
2 Q On page 19 of your testimony, you state
3 that with respect to Idaho Power's allocation proposal,
4 Idaho Power has not provided compelling reason to justify
5 the proposed change. Do you agree with that?
6 A That I made that statement?
7 Q Yes.
8 A Yes.
9 Q Is it your opinion, sir, that a compelling
10 reason is needed to justify any of the changes Idaho
11 Power is requesting in this application?
12 A In general, yeah, or at least a good
13 reason. If not a compelling one, at least a good reason.
14 Q Well, is there a difference between, as far
15 as requiring a compelling reason, is there a difference
16 between Idaho Power's request, allocation request, and
17 their request for a change in amortization period, would
18 they not also need a compelling reason to change the
19 amortization period in your view?
20 A Well, my answer was that they would need at
21 least a good reason, not necessarily a compelling one.
22 Q And my question is, can you tell me what
23 the difference would be why the allocation would be
24 compelling and the amortization period would just be
25 good?
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1 A I did not say that they had a compelling or
2 needed a compelling reason to change the allocation. I
3 just said they did not have a reason, let alone a
4 compelling one. Perhaps my words have --
5 Q Can we look at that real quick? Maybe I've
6 just mischaracterized what you've said.
7 A That was at page 15?
8 Q Page 19, lines 7 through 10, I believe, is
9 the sentence I'm referring to and you can just read that
10 and maybe explain if I've mischaracterized it.
11 A "Idaho Power has not provided any reason,
12 let alone a compelling one, to justify this proposed
13 change." I guess you're assuming by my words "let alone
14 a compelling one" that I think it should have to have a
15 compelling reason. Perhaps to get out of this, could I
16 strike those words?
17 Q Well, I like those words.
18 A Compelling reasons are always better than
19 just good reasons, but I don't know that the Commission
20 needs a compelling reason to make any changes for any
21 utility requirement. They need a reason, a good reason,
22 and if it's a compelling reason, then I think the
23 Commission would be compelled to make that change.
24 Q But you would agree that there has to be at
25 least a -- there's got to be some benchmark of at least a
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1 good reason to make any of these changes; would you agree
2 with that?
3 A Yes, I would.
4 Q And would you also agree that -- strike
5 that question. In your view, I was going to ask you how
6 one would go about telling a compelling reason for
7 change, but from your experience, how would one go about
8 telling a good reason for change, requesting a change in
9 an application such as this?
10 MR. PURDY: I'm sorry, I think we need a
11 little clarification. I'm personally getting lost as to
12 whether we're talking about the amortization period or
13 some other issue. Perhaps counsel could clarify a little
14 bit.
15 MR. RICHEY: Sure, I would be happy to.
16 Q BY MR. RICHEY: In the case of Idaho
17 Power's application requesting a change in the allocation
18 process, if it needs a good reason to do that, what would
19 you base a good reason on from your experience and in
20 your opinion?
21 A From my experience, a good reason to make
22 any changes to rates, there's any number of good reasons,
23 revenue requirement, change in circumstances since the
24 last Commission decision was made, that can affect
25 allocation changes. I guess I need something more
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1 concrete. When you asked that question, I could just
2 envision hundreds of good reasons.
3 Q I think you've answered that. Do you have
4 any testimony, any opinion -- strike testimony -- do you
5 have any opinion with respect to Idaho Power's request to
6 change the amortization period from 24 years to five
7 years that you'd like to share?
8 A I wish you'd keep that question to
9 testimony, then I could easily say no. I'm pretty
10 ambivalent about that. I'm a person who likes to pay
11 things off early, so I personally might not even mind a
12 one-year amortization, but on the other hand, I can see
13 lots of reasons for leaving it at a much longer time
14 period.
15 Q Can you state what some of those might be?
16 MR. PURDY: I'm sorry, I'm going to have to
17 object. Clearly, Ms. Carlock is the Staff witness who's
18 filed testimony on this subject and while Mr. Anderson no
19 doubt has an opinion, nonetheless, the Staff position on
20 this issue is stated in Ms. Carlock's testimony and I
21 think she would be the proper witness to answer it.
22 COMMISSIONER SMITH: Mr. Richey?
23 MR. RICHEY: Yeah, I'll save the questions
24 for the next witness.
25 COMMISSIONER SMITH: Thank you.
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1 MR. RICHEY: That's all the questions I
2 have.
3 Mr. Richardson.
4 MR. RICHARDSON: Thank you,
5 Madam Chairman.
6
7 CROSS-EXAMINATION
8
9 BY MR. RICHARDSON:
10 Q At the risk of going too far, let me ask
11 you, Mr. Anderson, you were here throughout the
12 proceeding today?
13 A Yes, pretty much.
14 Q Were you present when there were some
15 questions and answers about the -- of Dr. Peseau relative
16 to whether he viewed this as an accounting or an
17 economist issue in terms of the amortization period?
18 A I remember something about that.
19 Q Do you recall that Dr. Peseau concluded, I
20 think it was counsel for Idaho Power Mr. Ripley, that he
21 thought that this was not an accounting issue because the
22 accountants apparently, I'll just paraphrase, can just
23 plug in the numbers and come up with an answer, but the
24 question of the appropriate amortization period was
25 properly an economics issue; do you recall that?
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1 MR. PURDY: Madam Chair, I'll have to
2 interpose the same objection that I made a moment ago. I
3 believe that Ms. Carlock is the Staff witness who is
4 sponsoring and presenting this testimony and I think it's
5 not an efficient use of the Commission's time to ask
6 these questions of Mr. Anderson.
7 COMMISSIONER SMITH: Mr. Richardson?
8 MR. RICHARDSON: Madam Chairman, this
9 witness has testified in his prefiled testimony that he
10 is the Staff economist. I'm trying to explore what that
11 means in terms of where his areas of expertise lie.
12 MR. PURDY: Well, regardless of where his
13 areas of expertise lie, he has the expertise to testify
14 on the issues that he has presented testimony on. Those
15 do not include the amortization period.
16 MR. RICHARDSON: I'll save them for
17 Ms. Carlock.
18 COMMISSIONER SMITH: Thank you,
19 Mr. Richardson.
20 Mr. Jauregui.
21 MR. RICHARDSON: I'm not finished.
22 COMMISSIONER SMITH: I keep trying. Okay.
23 MR. RICHARDSON: And I will do my best as
24 well.
25 COMMISSIONER SMITH: I know.
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1 Q BY MR. RICHARDSON: You state on page 2
2 that one of the primary purposes of your testimony is to
3 suggest that Idaho Power was prudent in its continuation
4 of most, but not all, of the demand side management
5 programs; correct?
6 A Yes.
7 Q Okay; so essentially, you conducted a
8 prudency evaluation of the DSM programs?
9 A At least some, yes.
10 Q Are you aware of whether or not Idaho Power
11 addresses prudency in its direct case?
12 A I can't recall that it does.
13 Q If you recall, would you let us know
14 because I don't recall that either, so you're sort of
15 doing the Company's case for it, aren't you, in terms of
16 prudency?
17 A No, I think the Company needed, should have
18 presented more evidence that its programs and its
19 implementation of those programs was prudent.
20 Q And it didn't present any, did it?
21 A Not directly associated with the case until
22 after production requests were asked.
23 Q Until after you asked about prudency, they
24 came forward and said, yeah, we think these are prudent
25 investments?
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1 A Yes.
2 Q Let's look at the DEAP program mentioned in
3 your testimony at page 6. Backtrack a bit first, let's
4 go back to page 5, lines 14 through 23, you talk about
5 several programs that you specifically did not review for
6 prudence. Do you see that?
7 A Yes.
8 Q Do you know if this -- do you have any idea
9 whether the investments in those programs are or are not
10 prudent?
11 A Well, at least one or more the Commission
12 did rule -- well, actually, I believe most of these the
13 Commission did rule they were prudent at the time the
14 Commission reviewed the information during Idaho Power's
15 last rate case about three years ago.
16 Q And we're talking prudency, aren't we, just
17 between that time and today?
18 A Yes, that's all I looked at.
19 Q So just between that time and today, do you
20 have any idea as you sit here this afternoon whether any
21 of those investments in those programs were prudent?
22 A My assumption is that they were prudent and
23 if by chance they weren't, I'm not sure that Idaho Power
24 had an awful lot of control or certainly didn't have
25 complete control of some of them.
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1 Q They were spending ratepayer dollars on
2 those?
3 A That's correct.
4 Q Okay, and your assumption is that they're
5 prudent and you testify here on page 5, line 14, "Staff
6 did not specifically review other programs for various
7 reasons," and then you list these. What is your
8 assumption that these investments are prudent based upon?
9 A The fact that they were determined to be
10 prudent in the last rate case.
11 Q And so -- finished?
12 A Yes.
13 Q -- for the time period from the last rate
14 case to today, do you have an assumption that those are
15 prudent investments?
16 A I guess by my testimony there's at least an
17 implicit assumption that they were prudent because I
18 didn't look at them and find them to be imprudent.
19 Q You did not look at them or you did look at
20 them and found them not to be imprudent? The double
21 negatives confused me, I'm sorry.
22 A It was intended to confuse you.
23 Q It worked.
24 A I did give a cursory review of all of those
25 programs, but I didn't look at any of them in detail. By
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1 my cursory review, I couldn't see anything that was going
2 to be fruitful for the reasons stated and the other
3 assumptions in the programs.
4 Q Tell me about your cursory review.
5 A I looked at the reports in the conservation
6 plans and the technical appendices.
7 Q You looked at the reports that were filed
8 with the Commission on an annual basis?
9 A Yes.
10 Q You didn't go to the Company and say let me
11 look at your files?
12 A No, I did not.
13 Q No audits were done?
14 A Well -- I'll let my answer stay.
15 Q Were any audits completed?
16 A Not by me.
17 Q By anyone at the Staff?
18 A Not that I'm aware.
19 Q Now, let's go to the DEAP program. On
20 page 6 of your testimony, you comment that the last time
21 the Staff looked at this program it sought to disallow
22 half of the costs because its cost-effective evaluations
23 did not attempt to account for buildings that would have
24 been built to DEAP standards without the DEAP program;
25 correct?
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1 A Yes.
2 Q Now, why is that a flaw in a conservation
3 program? Why did the Staff recommend such a large
4 disallowance?
5 A I would have to review Staff witness Wayne
6 Hart's testimony if you want me to cite exactly.
7 Q Well, on page 6 of your testimony, you say
8 "Staff recommended disallowing" -- I'm reading starting
9 at about line 14. "Staff recommended disallowing
10 ratepayer recovery of one-half of the costs the Company
11 incurred for DEAP during 1992 and 1993 because its
12 cost-effectiveness evaluations did not attempt to account
13 for buildings that would have been built to DEAP
14 standards even without the DEAP program," and you're
15 testifying that you would have to go back and read
16 someone else's testimony to know what that means?
17 A No.
18 Q Why is that a problem, then?
19 A I guess it's not a problem. I don't know
20 why you're asking me the question. My testimony stays
21 the same.
22 Q I'm just trying to understand --
23 MR. PURDY: I'm sorry, were you finished?
24 THE WITNESS: Yes.
25 MR. PURDY: Okay.
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1 Q BY MR. RICHARDSON: I'm just trying to
2 understand why it's a flaw in the conservation program if
3 half the buildings that would have been -- that had been
4 beneficiaries of the program would have been built to
5 those standards anyway. It seems it's a fairly
6 fundamental question, why is that an issue?
7 A Okay, it's just because, then, if that's
8 true, then the cost effectiveness is half of what the
9 Company says it is.
10 Q Okay. On page 7 of your testimony at
11 line 7 you state, "However, in none of these calculations
12 did Idaho Power attempt to adjust its estimate of energy
13 savings by the amount of energy savings that would have
14 occurred due to more efficient building standards and
15 construction practices in the absence of DEAP." Is that
16 the same issue?
17 A Yes.
18 Q Now, you were not the Staff witness who
19 testified in the last case that's referenced in your
20 testimony, were you?
21 A That's correct.
22 Q And who was?
23 A Wayne Hart.
24 Q And did Wayne Hart review this program for
25 this case?
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1 A No, he did not.
2 Q Now, at the bottom of page 7 of your
3 testimony, you note that XENERGY found that the actual
4 savings of the DEAP program were about one-half the
5 energy savings claimed by the utilities. Do you see
6 that?
7 A Yes.
8 Q And then you state that the overstatement
9 of claimed savings was due largely to the fact that many
10 program participants would have used energy efficient
11 buildings without the programs; correct?
12 A Yes.
13 Q So the same flaw from the last case,
14 according to the Staff, flows through to this case;
15 correct?
16 A That's correct.
17 Q And then your conclusion is that the
18 Company's investment was reasonable and prudent?
19 A While the same flaw existed, the Company
20 did participate in this third-party evaluation, that's
21 the difference, and even after the third-party
22 evaluation, that party's conclusion was that the program
23 was still cost effective. It was just at a different
24 number than what the Company had claimed in conservation
25 plans and the fact that the Company funded this
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CSB REPORTING ANDERSON (X)
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1 evaluation, yes, I did find the program to be prudent.
2 Q So even though the energy savings were
3 overstated by a factor of one-half and this other party
4 said that the program was cost effective, your conclusion
5 is qualified, if you will, by the word "probably" cost
6 effective? That's at page 8, line 10.
7 A I'm sorry for the delay. I'm trying
8 frantically to remember why exactly I inserted the word
9 "probably."
10 Q Take all the time you need, Mr. Anderson.
11 A Well, I don't know that I'm going to
12 remember exactly why I inserted that word.
13 COMMISSIONER SMITH: Would you like to take
14 it out?
15 THE WITNESS: I could either take it out if
16 that would shorten this or I could review the information
17 again and see if I want to take it out.
18 Q BY MR. RICHARDSON: Well, let me ask you
19 this, Mr. Anderson: Did you conduct an independent
20 evaluation of the cost effectiveness of this program?
21 A No, I did not and perhaps that's why I
22 inserted the word probably.
23 Q Is that true for your evaluation of the PIE
24 program because you used the same word probably in there
25 as well if I'm right on page 10, line 15?
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1 A Yes, I'm sure I could or did.
2 Q If you'd like to refer to it, it's page 10,
3 line 15. On the PIE program, you reach the same
4 conclusion that it probably was prudent.
5 A Yes.
6 Q And you qualify that because you didn't
7 conduct an evaluation; correct?
8 A No, I did not.
9 Q All right. Looking at that PIE program, it
10 appears that you observe that the Company was funding
11 projects that should not be funded. Do you see that? At
12 the bottom of page 9 you say, "This evaluation said that
13 the Company had used its discretionary authority to not
14 fund some projects that likely would have been completed
15 absent PIE funding, but it also noted that improvements
16 in the screening process were still desirable and
17 possible." Do you see that?
18 A Yes.
19 Q Do we know how many or what percentage of
20 the PIE program costs didn't get screened out?
21 A I do not know that.
22 Q But you would agree that the Company should
23 have improved its screening process; correct?
24 A I would not disagree that the Company said
25 it could still improve its screening process and I assume
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1 they did after that.
2 Q But you don't know for a fact that they
3 should have because you didn't conduct an independent
4 evaluation; correct?
5 A Yes.
6 Q Okay. Would you say on sort of a global
7 basis -- let's go back to the Company's application here
8 and this is a quote from the Commission Order that
9 appears in lots of folks' testimony. Referencing that
10 Commission Order 27200 where Mr. Said talks about how the
11 Commission issued this Order that says, "In the
12 meantime" -- it says, "We encourage the Company to
13 initiate a proceeding that would permit a comprehensive
14 review of its existing DSM investment and recovery."
15 Would you conclude that the Staff has conducted a
16 comprehensive review of the Company's DSM investment and
17 recovery in this case?
18 A Yeah. It's perhaps not -- comprehensive is
19 a relative term and certainly, the Staff could have
20 conducted a more thorough review, but I think it was
21 comprehensive.
22 Q In the fact that you read the Company's
23 reports?
24 A And evaluated what was in those reports.
25 Q And I just want to be clear at the risk of
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1 an objection, but I'm going to try and avoid it, you have
2 no authority or, I guess, portfolio to discuss the
3 amortization period length; correct? All those questions
4 should be directed to Ms. Carlock?
5 A That would be much better, yes.
6 Q Is that a yes?
7 A Yes.
8 MR. RICHARDSON: Thank you. That's all I
9 have, Madam Chairman.
10 COMMISSIONER SMITH: Mr. Jauregui.
11 MR. JAUREGUI: No questions.
12 COMMISSIONER SMITH: Mr. Ward.
13 MR. WARD: Yes.
14
15 CROSS-EXAMINATION
16
17 BY MR. WARD:
18 Q Mr. Anderson, I didn't have any questions
19 until your additional comments and, obviously, since my
20 questions are going to be directed to your live comments,
21 I'll try to paraphrase your comments as accurately as
22 possible. In your testimony at pages 20 and 21, bottom
23 of 20, if you'd turn to that testimony, beginning with
24 the question at line 22 --
25 MR. PURDY: I'm sorry, what page again,
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1 Counsel?
2 MR. WARD: 20, page 20, line 22.
3 MR. PURDY: Thank you.
4 Q BY MR. WARD: Do you have that in front of
5 you, Mr. Anderson?
6 A Yes.
7 Q There you're asked, "Do you concur with the
8 Company's proposed rate design?"
9 And you answer, "Not exactly. Idaho Power
10 has provided no rationale for treating the four special
11 contract customers any differently than all other
12 customers." You go on, and I won't read that all, you go
13 on to recommend that all customers be treated equally by
14 the use of a rate design that amounts to a uniform
15 percentage increase on all customers' bills; is that
16 correct?
17 A Yes.
18 Q Now, I'm not sure whether I understood you
19 correctly, but did I understand you in response to
20 questions from counsel in additional direct to say that
21 because FMC has had the temerity to propose that their
22 second block should not receive any DSM allocations that
23 you therefore propose in their case that the somewhat
24 higher Idaho Power allocation should be used simply
25 because they proposed that?
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1 A No, not simply because FMC proposed that
2 there not be any DSM allocation to their second block.
3 Q What did you say in response to counsel?
4 What did you mean to say or what was your intent?
5 A My intent was just to clarify that my
6 proposed allocation and rate design really only works for
7 customers of Idaho Power who are customers of Idaho
8 Power. For any customer who is able to negotiate a
9 special contract that essentially opts them out of paying
10 DSM costs -- this is getting into a long sentence -- then
11 those customers the allocation should be based on what
12 Idaho Power's total bill to that customer would have been
13 pre, before this special contract.
14 Q All right.
15 A I'm sorry, I didn't state that very well,
16 but I think you know what I mean.
17 Q Let me paraphrase and see if I understand
18 now. What you're saying is, then, the 1.82 percent
19 regardless of whether -- regardless of what the
20 contractual disposition of the second block is, the
21 1.82 percent should be applied to FMC's total bill prior
22 to the new contract?
23 A Yes.
24 Q All right. Now, then you went on to say
25 that even as to the second block, FMC has benefited in
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1 the past and will in the future from DSM measures, and I
2 think I caught your quote exactly there. Now, as to
3 expenditures made in the past and that are now in dispute
4 here, let's keep in mind that the questions I'm going to
5 ask you here are about those expenditures, okay, prior
6 to, let us say, today, okay?
7 A Okay.
8 Q Now, it can be argued that at the time
9 those expenditures were made, FMC was a customer, of
10 course, and to the extent non-participating customers are
11 deemed to benefit, that same contention can be made with
12 respect to FMC subject to whatever conclusion we reach
13 about the impact of interruptibility. Would you agree
14 with me on that?
15 A Yes.
16 Q Okay; so let's leave that aside now and
17 subject to the disputes about interruptibility and what
18 that means, let's go to today's contract, the '98
19 contract. Now, as to today's contract, clearly, the
20 Commission has the authority to make some allocation to
21 both the primary -- the first and the second block if it
22 chooses to do so, but isn't it a fact, Mr. Anderson, that
23 at some point there must be a disconnect between DSM
24 programs and the second block of power purchased by FMC?
25 Let me ask it another way. Are you
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1 seriously contending that DSM programs have any
2 discernible impact on a Pacific Northwest power market
3 which drives the price for FMC's second block of power,
4 are you seriously contending that?
5 A Yes, I am.
6 Q That Idaho Power's --
7 A DSM programs in the Northwest do affect
8 market prices, there's no question about it.
9 Q Mr. Anderson, if the price paid to Idaho
10 Power for power reflects the market price, do you think
11 that price reflects in part payment for DSM programs that
12 may be undertaken by participants in the market?
13 A It depends on whether or not those DSM
14 costs are in the price. If you want to try that question
15 again, I didn't see it as --
16 Q Well, let me put it this way,
17 Mr. Anderson: Suppose we focus on dollars. Let's assume
18 we talk about dollars that will be spent from this day
19 forward, okay, for DSM programs?
20 A Okay.
21 Q Now, it's one thing to say that a customer
22 whose prices are based on market prices has some
23 responsibility for past DSM expenditures, that's the
24 exception I told you to set aside. We may quarrel about
25 that, but that's a different question. For tomorrow's
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1 dollars, does the fact that a DSM expenditure spent
2 tomorrow may lower ratepayers' overall costs because its
3 cost effective, does that have any benefit whatsoever to
4 FMC's second block price?
5 A Yes, I think it does.
6 Q And how does it benefit it?
7 A It reduces the market price.
8 Q Does it necessarily -- well, first of all
9 as a practical matter, are you seriously telling me that
10 the very tiny DSM expenditure for Idaho Power which is
11 only a fraction of the Northwest market has any effect on
12 that market price?
13 A Going forward, Idaho Power's primary DSM
14 program is its involvement in the Northwest Energy
15 Efficiency Alliance and, yes, I think that will have an
16 effect on market prices.
17 Q And let me ask it another way: Do you
18 suppose that participants in the market when selling into
19 the market seek to recover some portion of their DSM
20 costs in those market sales if they can, if the market
21 price will let them do so?
22 A Could you just restate that? I think I
23 missed a word.
24 Q Do you suppose that participants in the
25 market, that is, sellers in the Northwest market, attempt
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1 to recover some portion of their DSM costs, just like
2 they recover all other resource costs, in market sales as
3 well as in sales to their own indigenous customers?
4 A Certainly, sellers in the market sell at
5 the highest price they can which depends on demand. If
6 it recovers twice what their costs are, that's fine with
7 them.
8 Q And in fact, it could be the case that in
9 any given case, FMC could be paying Idaho Power twice
10 what its costs are or, for that matter, half what its
11 costs are; correct?
12 A That's correct.
13 Q And isn't that a complete disconnect
14 between Idaho Power's costs -- isn't it clear that going
15 forward, at least, there's a complete disconnect between
16 Idaho Power's costs and the price FMC pays and the price
17 any other ratepayer pays in the second block?
18 A You said any other ratepayer pays.
19 Q Presumably -- I don't want to get into a
20 quarrel, Mr. Anderson. I'll ask it just one more time.
21 Would you agree with me that other ratepayers' rates are
22 presumably based on Idaho Power's costs in some fashion?
23 A Today, yes.
24 Q Today and tomorrow and as long as Idaho
25 Power is a regulated entity?
475
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 A Yes.
2 Q Would you agree with me that there's a
3 complete disconnect between Idaho Power's costs and FMC's
4 price for the second block of power going forward?
5 A I guess I wouldn't see it as a complete
6 disconnect, but, no, there's not as much connection.
7 It's not as direct. I still see some connections.
8 MR. WARD: Okay, that's fair enough. Thank
9 you. That's all I have.
10 COMMISSIONER SMITH: Mr. Gollomp.
11 MR. GOLLOMP: No.
12 COMMISSIONER SMITH: Mr. Fothergill.
13 MR. FOTHERGILL: Yes, I have a couple of
14 questions.
15
16 CROSS-EXAMINATION
17
18 BY MR. FOTHERGILL:
19 Q Beginning on page 2, line 16 of your
20 testimony, you describe your purpose and you testify that
21 IPC's proposed allocation of DSM costs among customers
22 based upon ability to participate is unwarranted and the
23 Company witness Mr. Said has testified that the change it
24 is making is based on a change in the way DSM
25 expenditures are currently viewed, implying an alteration
476
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 in thinking on this and I was wondering, what is your
2 response to their argument?
3 A My response was I didn't understand the
4 argument.
5 Q You did not understand their argument?
6 A No, I did not.
7 Q I see, but you do say it's unwarranted?
8 A The change in allocation? Yes, I said that
9 was unwarranted.
10 Q Let me ask you one further thing. Don't
11 you think a standard such as ability to participate may
12 be a detriment to public support for DSM programs?
13 A It could be, yes.
14 Q It could be?
15 A Yes.
16 MR. FOTHERGILL: Thank you. That's all I
17 have.
18 COMMISSIONER SMITH: Mr. Ripley.
19 MR. RIPLEY: Yes.
20
21 CROSS-EXAMINATION
22
23 BY MR. RIPLEY:
24 Q Mr. Anderson, perhaps I can approach it
25 this way: You were asked a number of questions by
477
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 counsel for the Industrial Customers in reference to the
2 Company's DEAP program. Do you recall that?
3 A Yes.
4 Q Well, if I turn to page 7 of your prepared
5 testimony and I read lines 1 through 12, are you not
6 saying in your testimony that Idaho Power Company made
7 changes to the DEAP program?
8 A Yes, that's what it says.
9 Q So if you were looking at the 1993
10 criticisms of the Staff and then looked at the 1994
11 ongoing program of Idaho Power Company, Idaho Power
12 Company made changes to DEAP, did it not?
13 A Yes.
14 Q Wasn't that true as to all of the programs,
15 that they were not static programs, but that the Company
16 attempted to make changes to its conservation programs
17 taking into account what it was learning in those
18 particular conservation programs?
19 A Certainly many or most. I'm not sure if
20 every single program was changed.
21 Q Many or most?
22 A Yes.
23 Q Now, in addition, I'm troubled somewhat by
24 your recommendation, obviously, to discontinue a portion
25 of the commercial lighting program expenditures and let
478
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 me ask you this: First, as you and Ms. Carlock note,
2 before the Company engaged in any conservation program,
3 it obtained approval from the Commission for that
4 particular program.
5 A Yes.
6 Q And each year under the Commission's
7 requirements it filed a conservation report in which it
8 pointed out the detriments as well as the benefits of
9 those particular conservation programs; true?
10 A Yes. Some were more thorough, some
11 programs were described more thoroughly, than others, but
12 that's true, yes.
13 Q But the Company did submit information
14 which could be viewed as being critical of the program?
15 A Yes.
16 Q Now, the Company recently has filed an
17 application to discontinue the agricultural choices
18 program. Are you generally aware of that?
19 A Yes.
20 Q And the Company received criticism from the
21 Irrigators and from the Staff that the Company could not
22 choose to discontinue any programs on its own, it had to
23 apply to the Commission for discontinuance of those
24 programs.
25 A Yes.
479
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 Q So, on the one hand, the Company is
2 obligated to continue the programs until it receives
3 authorization from the Commission to discontinue the
4 program?
5 A Yes.
6 Q While, at the same time, it's subject
7 evidently to some criticism that it should not continue
8 the programs if they're not cost effective.
9 A That's true.
10 Q That's somewhat of a conflict, is it not?
11 A Well, certainly, there's some tension
12 there, but if the Company sees that a program is not
13 producing cost-effective benefits, then it should
14 immediately either file to change the program or
15 discontinue or whatever.
16 Q Now, let's choose the PIE program as an
17 example. About how long did it take the Company to
18 discontinue the PIE program after it applied, roughly? A
19 year-and-a-half?
20 A I'll accept that, subject to check. I
21 don't recall.
22 Q And, again, I don't mean to chisel in the
23 granite the year-and-a-half, but it took a considerable
24 period of time for the Company to discontinue that
25 program, did it not?
480
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 A Yes, but I don't think it was -- when the
2 Company applied to discontinue, correct me if I'm wrong,
3 I don't think it was because the program was not cost
4 effective.
5 Q That's right, it just desired to
6 discontinue the program.
7 A And perhaps that explains why it took so
8 long to discontinue it.
9 Q All right, and let's look at the commercial
10 lighting program. If I understood your answers to your
11 counsel, the commercial lighting program you are not
12 contending is not cost effective. I know I put a double
13 negative in there, but you're not contending that the
14 commercial lighting program is not cost effective, are
15 you?
16 A No, I'm not, but what I'm saying is that
17 there was not a proper evaluation or really any
18 evaluation of any kind that was conducted to actually
19 determine whether or not it was cost effective or whether
20 it could be made more cost effective even if it was cost
21 effective.
22 Q But I find it some bewildering that you as
23 the Staff member do not take a position as to whether
24 commercial lighting is cost effective or not and yet you
25 recommend disallowance of some of the Company's
481
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 expenditures. Am I paraphrasing your testimony correctly
2 on this issue?
3 A I think that's pretty close.
4 Q All right. Now, if the Company applied to
5 the Commission for discontinuance of commercial lighting,
6 could it apply on grounds other than it was not cost
7 effective prior to the time it began to discontinue its
8 DSM programs for industry changes?
9 A Certainly, the Company can apply to the
10 Commission to discontinue any program for any number of
11 reasons.
12 Q But being reasonable, what do you think the
13 Commission's reaction would have been had the Company
14 applied to discontinue a program and when asked is it
15 cost effective, the Company would have said, oh, yes,
16 it's cost effective, but we desire to discontinue the
17 program anyway?
18 A Well, I'm having a number of problems with
19 that because a program that's cost effective -- it can be
20 cost effective for several years, but most programs have
21 a life of cost effectiveness and after awhile they often,
22 if not usually or always, become ineffective programs.
23 Q Let's explore that. The commercial
24 lighting program that we are discussing has been
25 discontinued by the authorization of the Commission?
482
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 A Yes.
2 Q So now what we're doing is we are going
3 back in time and saying we're going to disallow some of
4 the expenditures the Company made for commercial
5 lighting, but not on the grounds that it was not cost
6 effective, but on the grounds that the Company should
7 have done more evaluations and reports?
8 A That's basically it, yes.
9 Q Now, the evaluation and the reports would
10 have been used to do what? Evaluate whether the program
11 should be continued or not?
12 A Could have been or modified. When Idaho
13 Power had its last rate case and Staff witness Wayne Hart
14 looked at several of your programs, he did look at the
15 commercial lighting program which was just beginning at
16 that time and said if the savings aren't verified through
17 an evaluation, the Company should be cautioned that some
18 of their costs may be disallowed in the future.
19 Q But isn't the ultimate disallowance
20 discontinuance of the program? Surely, you would not
21 recommend that Idaho Power Company continue a program
22 after Staff had recommended disallowance of the
23 expenditures?
24 A I can't envision that happening, but --
25 Q Well, it can't, can it? Surely, the
483
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 Company is entitled to recover its expenditures in a DSM
2 program if it's required to continue that program.
3 A Yes, if it continues the program reasonably
4 and prudently, but not if it doesn't do so.
5 Q Okay, if it's not being reasonable and
6 prudent, wouldn't the Commission say discontinue the
7 program?
8 A The Commission might or the Commission
9 might just say continue it but in a reasonable and
10 prudent manner.
11 Q Okay, and if it continued it in a
12 reasonable and prudent manner, would the Company be
13 entitled to recover its expenditures?
14 A Yes, it would.
15 Q So what we have here is the situation where
16 you're critical of the Company not because the program
17 was not cost effective or was cost effective, but that
18 certain reports were not prepared upon which you could
19 make a determination as to whether or not the program
20 should be continued?
21 A No, whether or not the program was in fact
22 cost effective. Simply stating so in the conservation
23 plans was not sufficient evidence to me to determine that
24 it was reasonable and prudent.
25 Q Now, the cost effectiveness of the plan
484
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 that you're looking it is whether or not there would be
2 free riders; true?
3 A That's certainly part of it, but I have a
4 hard time with the term "free rider," but we'll let that
5 go.
6 Q Now, let's not let that go because it's
7 important to your recommendation to disallow the 274,000,
8 because you say a number of these customers would have
9 installed the lights any way; true?
10 A Yes.
11 Q That's a free rider, is it not?
12 A That's not what I term a free rider and
13 that's getting into that other problem I have with the
14 use of that term.
15 Q Well, if the customer would have installed
16 the lights anyway, are you saying that the Company should
17 not have made any contributions toward the installation
18 of those lights?
19 A I'm just saying the cost-effectiveness
20 evaluation should have taken that into account.
21 Q All right. Now, the cost-effectiveness
22 evaluations that the Company prepared on the conservation
23 plans always indicated that the commercial lighting
24 program was one of the most cost-effective programs.
25 A That was a question?
485
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 Q Yes.
2 A Yes, I believe it did.
3 Q Now, if we're not going to put a lot of
4 weight on whether these individuals would or would not
5 have made the expenditures for the lights, then what we
6 have to go to is Mr. Hart's other criticism which was
7 that you should go out and determine if the lights have
8 remained, the light fixtures have remained, in existence
9 so that there is a continued savings. That was one of
10 his --
11 A Yes.
12 Q Now, the reports that you reviewed show
13 that that persistence remained; that is, the lights did
14 remain in existence.
15 A I can't say that those reports --
16 MR. PURDY: I object.
17 Q BY MR. RIPLEY: Yeah, it is. Isn't it in
18 the reports?
19 COMMISSIONER SMITH: Is that an objection,
20 Mr. Purdy?
21 MR. PURDY: That was an objection.
22 COMMISSIONER SMITH: I didn't hear it.
23 MR. PURDY: I'm sorry. I objected and I'm
24 asking Counsel to either put these in question form or
25 save this for oral argument.
486
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 Q BY MR. RIPLEY: Didn't the reports indicate
2 that you reviewed that there was a persistence of the
3 lights remaining in place?
4 A No, they did not. The reports were often,
5 as I said, they were inconsistently completed and often
6 let blank. Like I said, the reports contained fairly
7 poor data, although the format looked promising and if
8 the Staff had been informed that these reports even
9 existed after we asked for any such reports several
10 times, then perhaps I could have made a more thorough
11 study and perhaps would be a friendlier witness right
12 now.
13 Q Be that as it may, Mr. Anderson, what
14 you're testifying is that you needed the reports to
15 determine if the program should be continued or modified?
16 A Yes.
17 Q And the program has been discontinued?
18 A Yes, it has.
19 Q And you're still recommending that the
20 Company expenditures be disallowed even though it takes a
21 Commission order to permit the Company to discontinue any
22 of its DSM programs?
23 A Yes, for a small part of the program. As I
24 point out, it's only the last two years and it's only
25 about 30 or 40 percent of the program costs during those
487
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 years. Yes, I am recommending disallowance of those
2 costs because of the failure to provide any performance
3 evaluation.
4 Q Okay. Now, one final question. When the
5 Company defers an expenditure, it reduces its expenses in
6 the year that the expenditure has been made; is that
7 correct?
8 A Yes.
9 Q If it reduced its expenses in the year 1997
10 when you've testified that certain amounts should be
11 disallowed, wouldn't that increase the expenses in that
12 year to the extent you've disallowed the deferral of that
13 expense? Do you want me to go through it again?
14 A Yes.
15 Q Okay, my question is simply this: Let's
16 take 1997. The Company makes an expenditure of, say,
17 $5.00 for a light fixture which it defers into its DSM
18 accumulated account. Are you with me so far?
19 A Okay.
20 Q Now, under that assumption, it reduces its
21 expenses by five years in -- by $5.00 in 1997 because
22 it's deferred the expense into an asset account, if you
23 will, the regulatory asset account, all right?
24 A Okay.
25 Q So, therefore, it has reduced its expenses
488
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 in 1997.
2 A That's correct.
3 Q Now, if it's underearning sharing and it
4 reduces its expenses by $5.00, who gets the benefit of
5 that reduction other than the stockholder? Does the
6 customer?
7 A I'm not intimately familiar with the
8 Company's revenue sharing plan, but after a certain
9 amount, yes, the customers do share with the stockholders
10 in that benefit.
11 Q So the Company made an expenditure,
12 deferred it, you're going to disallow it, now it must
13 write off that expenditure in 1998, is that the ultimate
14 result of your recommendation?
15 A Yes, I assume so. I'm not familiar with
16 how the Company does its accounting.
17 Q Should I ask Ms. Carlock the effective
18 recommendations?
19 A Yes.
20 MR. RIPLEY: Okay. That's all the
21 questions I have.
22 COMMISSIONER SMITH: Thank you,
23 Mr. Ripley.
24 Do we have questions from the Commission?
25 COMMISSIONER HANSEN: I believe I have
489
CSB REPORTING ANDERSON (X)
Wilder, Idaho 83676 Staff
1 one.
2 COMMISSIONER SMITH: Commissioner Hansen.
3
4 EXAMINATION
5
6 BY COMMISSIONER HANSEN:
7 Q Mr. Anderson, I'd like to ask you, are you
8 aware of any time, say, in the last eight or ten years
9 that the Staff has reviewed and upon the review have
10 recommended to the Commission to disallow any of Idaho
11 Power's DSM programs or to discontinue those programs?
12 A Was that two questions, to disallow the
13 costs or to discontinue?
14 Q Right.
15 A Certainly, yes, the Staff has reviewed
16 programs and recommended the disallowance of certain
17 expenditures. The second question, I'm not --
18 Q Are you aware of the Staff recommending to
19 discontinue any of those programs?
20 A I can't recall that, but I wasn't really
21 involved with Idaho Power's DSM at that time. I'm only
22 familiar with the Staff's recommendation to disallow
23 expenses because I read the testimony in the Idaho Power
24 rate case. I didn't do sufficient research to see if the
25 Staff had ever recommended discontinuing a program.
490
CSB REPORTING ANDERSON (Com)
Wilder, Idaho 83676 Staff
1 COMMISSIONER HANSEN: That's all I have.
2 COMMISSIONER SMITH: And I just have one,
3 Mr. Anderson.
4
5 EXAMINATION
6
7 BY COMMISSIONER SMITH:
8 Q In his questioning, Mr. Richardson seemed
9 to be criticizing the Staff, in essence saying you did
10 the Company's work for them by some kind of prudency
11 analysis, and I'm curious whether you believe that it's a
12 PUC Staff function to do that kind of analysis.
13 A No, I do not. I felt compelled in this
14 case that we had to review, but like I told
15 Mr. Richardson, I had hoped the Company would have
16 presented its case better than what it did.
17 Q So you don't think the Staff needs to be
18 concerned with prudency?
19 A No, that was not my intent at all. We do
20 need to review it. It's just more difficult when the
21 Company doesn't make its own case and we have to, in
22 essence, go fishing for it.
23 COMMISSIONER SMITH: Do you have redirect,
24 Mr. Purdy?
25 MR. PURDY: I do, several, thank you.
491
CSB REPORTING ANDERSON (Com)
Wilder, Idaho 83676 Staff
1 REDIRECT EXAMINATION
2
3 BY MR. PURDY:
4 Q Mr. Anderson, I believe that you were asked
5 some questions about whether Staff conducted some type of
6 evaluation or audit, as Commissioner Smith just
7 mentioned, and you said that with respect to certain
8 programs or certain years during certain programs, you
9 did not go in and conduct some type of an audit or
10 analysis. Was that the gist of your testimony?
11 A Yes.
12 Q You're not saying, are you, though, that
13 the Staff never audited the Company's books and records
14 to determine whether the amounts that they are claiming
15 in this case, seeking recovery for in fact, are
16 consistent with their books and records, you're not
17 making that assertion?
18 A No, not at all. In fact, I'm quite certain
19 the Commission auditing Staff did that.
20 Q I wanted to make that distinction, thank
21 you. Now, you were asked questions by Mr. Richardson
22 about the Commission's Order, I've lost track of the
23 number, but where Idaho Power was invited in for a
24 comprehensive review of the manner in which its DSM costs
25 are recovered; correct?
492
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 A Yes.
2 Q All right. Now, in your opinion, could
3 that mean that the Commission was inviting Idaho Power to
4 come in to do just that, to determine how those costs
5 should be recovered and not simply whether those costs
6 were prudently incurred? Is it possible that that's what
7 the Commission meant by a comprehensive review?
8 A Certainly, that's possible.
9 Q Now, we talked a little bit about Idaho
10 Power's position with respect to DSM and you acknowledged
11 there might be some tension, I think was the word you
12 used, in how to manage these DSM programs, but I guess my
13 question is, isn't it pretty much a fundamental fact of
14 regulation and regulatory rate setting that the utility
15 bears the burden of establishing or of proving that its
16 expenses that it seeks recovery for during the course of
17 a rate case or any type of rate proceeding were in fact
18 prudent or reasonable?
19 A I think that's generally the case, yes.
20 Q And is that the primary purpose of
21 performing an evaluation of a DSM program to determine
22 whether those costs are being prudently incurred?
23 A Yes, I suppose that's part of it, although
24 the question of prudence is really one that includes
25 whether or not there was a proper evaluation. The
493
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 evaluation generally gets more at the cost effectiveness
2 as an impact evaluation or a procedural evaluation. The
3 test of prudence usually comes after.
4 Q All right. Would it be fair to say that a
5 cost-effectiveness evaluation is one benchmark anyway of
6 whether a program is prudent or whether it's prudent to
7 continue that program?
8 A Certainly.
9 Q All right, and to your knowledge, is there
10 anything that prevented Idaho Power at any point in time
11 from coming before the Commission seeking to terminate
12 any of its DSM programs if it believed that they were no
13 longer cost effective and therefore no longer prudent?
14 A Not that I'm aware of.
15 MR. PURDY: That's all I have. Thank you.
16 COMMISSIONER SMITH: Thank you, Mr. Purdy,
17 and thank you for your help, Mr. Anderson.
18 (The witness left the stand.)
19 COMMISSIONER SMITH: It seems to me that
20 this might be a good place to stop for the day and take
21 up again tomorrow morning at 9:30.
22 Mr. Ripley.
23 MR. RIPLEY: I was just wondering if we
24 could start at 9:00 simply because then I think the odds
25 are we'd be done at noon.
494
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff
1 COMMISSIONER SMITH: We have Ms. Carlock
2 and we have your two rebuttal witnesses.
3 MR. RIPLEY: Yes. The choice is obviously
4 the Commission's.
5 COMMISSIONER SMITH: 9:30.
6 (The Hearing recessed at 4:30 p.m.)
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495
CSB REPORTING ANDERSON (Di)
Wilder, Idaho 83676 Staff