19911025Reading Rebuttal.pdf

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D/N/IS \TRIGHT TREMAINE
Law Orucrs
7oz Wesr Ioauo Srnmr Surre 7oo ' Borsr, Ioexo 837o2
(zo8) 38-8zoo
Prren J. RrcnennsoN
(zo8) 38-8216
October 25, 1991
Ms. Myrna Walters
Commission SecretaryIdaho Public Utilities commission
472 W. WashingtonBoise, ID 83720
Re: Case No. IPC-E-90-20
Dear Ms. Walters:
Enclosed please find an originalRebuttal Testimony of Don Reading, Ph.D.referenced matter.
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and nine copies of thefor filing in the above-
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Enclosures
.€!*Richardson
ff you have any questions, please do not hesitate to contact
Sincerely yours,
DAVIS WRI
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RECEIVT;D E
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u;r'-irirs co I'it'{ I s s I c ll
BEFORE THE IDAIIO PUBTIC UTII.ITIES COI{UTSSION
IN THE U.ATTER OF IIHE APPI,ICATION
OF IDAEO POWER COI,TPAIIY FOR
APPROVAI., OF E}I INTERCONNECTION
TARIFF FOR NON UTIIJITY GENERA-
ATION-SCHEDUIJE ?2
cAsE NO. IPe-E-90-20
REBUTTaL IESTTIIONy OF DON READTNG, ph.D
ON BEHAI,'F OT IHE INDEPENDENT ENERGY
PRODUCERS OF IDAIIO
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O. What is your name and address?
A. Don Reading, 131-1 North LSth Street, Boise,
Idaho.
O. Are you the same Don Reading who earlier
presented direct testimony in this proceeding?
A. Yes, I am.
a. What is the purpose of your rebuttal testi-
mony?
A. I am here to respond to certain statements and
allegations appearing in the direct testimony (on
reconsideration) of Dr. Robert M. Spann, a witness in
this proceeding for Idaho Power Company. My primary
purpose is to correct errors in Dr. spann's representa-
tion and interpretation of incremental costs and of my
direct testimony concerning that concept and its applica-
tion to the present case. I wiII also register my
disagreement with his characterization of the Company's
efforts at incremental cost analysis. Fina11y, I will
point out serious omissions in Dr. Spann's references to
the testimony of Dr. Peseau in Case No. IPC-E-89-11. My
silence on other parts of Dr. Spann's testimony does not
in any way imply my agreement.
O. First, would you explain what is erroneous in
Dr. Spann's description of your approach to incremental
costs?
READING (Di-Reb)
IEPI
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A. Yes, we were trying to determine the incremen-
tal costs to IPCo for PURPA interconnect facilities. It
sras our hope to accomplish this task without forcing the
parties to undertake an expensive, detailed study that
would, in the end, sinply corroborate our conclusions.
AIl the data we used were those supplied by the Company.
They weren't perfect for the job (for example, the base
data used for the calculation of the monthly O&M charge
reflected the costs associated with total Company
overhead distribution lines rather than just the costs
for lines and interconnects for PURPA power projects).
However, w€ concluded that the figures were reasonable
for an approximation of the costs. In addition, the cost
to find the exact numbers would overwhelm the value of
the results. (In this same vein, it is interesting to
note the Company's witness Willmorth rejected Staff
witness Faul's |ttiltingt' proposal because it would create
rran administrative burden. rr [Willmorth Direct, p. 8 . ] )
Dr. Spann says that rrBoth Idaho Power and Dr.
Reading are trying to estimate the incremental annual O&M
expenses which are incurred by Idaho Power Company when
Idaho Power Company is interconnected to a CSPP. tr tp.
7.) He is only half right. I was trying to make such an
estimate. But the Company came up not with incremental
costs but with average costs. The evidence is clear that
READING (Di-Reb)
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Idaho Power tras only attempting to use average costs.
For example:
The O&It{ charges proposed in Schedule 72 only
recover Idaho Power's average cost of oD€ra:
tion and maintenance of ecruipment and facili-
ties of a similar size and type to those
provided to QF's. The O&M percentage charge
includes physical maintenance as well as an
allocation for taxes, insurance, and other
overheads that are legitinate costs paid by
the Company.
[IPCo Reply Cornments, p. 3, emphasis added. ]
It was clear to us from this passage as well as
from our review of method that the Company was calculat-
ing monthly o&M costs on an average, not an incremental
basis.
a. Dr. Spann claims you are, ttattempting to
divert attention from the real issue by portraying the
dispute in theoretical terms .rt tp. 6.1 What is
your response?
A. Again, he is only half right. I am portraying
the dispute in theoretical terms -- average cost versus
incremental costs. But this is not a diversion.' The
difference between these two approaches is real enough.
READING (Di-Reb)
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There is a sad tendency these days to stretch the
meaning of words. I had hoped economics has yet to reach
this point. An economist cannot just define a figure as
Itincrementalrr without support. The terms rraverage costtl
and rrincremental costrr are well defined by the discipline
of economics. They are terms of art. Proper use must
meet that standard. Although I have used the terms as
they are recognized by the economics profession, the
Company has not done so.
Because the Company,s figures, ds f have noted,
were the ones we had to start with, the best proxy we
could find for fixed costs (which are included in average
costs but excluded frorn incremental costs) $/ere the
Company's A&G cost figures. I was careful to point out
in my direct testimony that we used these figures not
because they would give us mathematically precise
incremental costs, and not because A&G costs are totally
unaffected by interconnection decisions, but because they
are less affected by those decisions than other costs and
thus removing them is the best available method for
estimating incremental costs, short of doing an expensive
study. That is why I used relative and qualified terms
like rrmore consistentrr and rressentially fixed.tr tp. 9.l
a. Can you point to any support for this claim?
READING (Di-Reb)
IEPI
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A. Yes. Dr. Spann cites the testimony of Dr.
Peseau in Case No. IPC-E-89-11 to attack the exclusion of
A&G expenses from my incremental cost calculations. He
correctly notes that Dr. Peseau finds some increase in
A&G costs resulting from purchased power. What he fails
to note is 1.h:t tha i nr:rea <o i q, nn'l rr alrnrrt ;l th i rd what
it would be if the same amount of power were added
internally. That is, contrary to Dr. Spann's assertions,
Dr. Peseau's testimony supports my claim that purchasing
from CSPPs saves the Companv money in A&G expenses.
According to Dr. Peseau, there is an avoided cost of
$44.13/kw (a reduction in A&G expense) and an increase in
A&G expense from an equivalent purchased power source of
$f s.75/kw. The net savings to the Company, if Dr.
Peseau's regressions are accepted (as Dr. Spann apparent-
Iy recommends), is $28.28/kw. So the Company saves 652
of its A&G costs when it buys power from CSPPs. This is
the difference I was trying to capture by removing A&G
expenses from the incremental cost calculations. This is
also the difference the Company ignores when it charges
company-wide A&G costs to CSPPS.
a. Finally, do you agree with Dr. Spann,s claim
that his nsurveyrr of NW power companies supports IPCo,s
leve1 of charges for o&M expenses?
READING (Di-Reb)
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A. No, Dr. Spann's survey does not teII us much.
Of the ten utilities included (the Company counts eleven,
but PP&L and UP&L are the same company), only three
charge at the same level as IPCo. One charges at a level
half of IPCo's, five charge at the actual cost leve1, and
one does not charge at aII. In short, 7OZ of the sample
does it differently. This is hardly overwhelming
support.
a. Does this conclude your rebuttal testimony,
prefiled on october 25, L99L?
A. Yes, it does.
READING (Di-Reb)
IEPI
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 25th day of October, L99L,served the foregoing REBUTTAL TESTIMONY OF DON READING, Ph.D ON
BEHALF OF THE INDEPENDENT ENERGY PRODUCERS OF IDAHO, Case No. IPC-E-90-20, upon all parties of record in this proceeding by themethod indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. WashingtonBoise, ID 83720
Larry D. Ripley, Esq.Legal DepartmentIdaho Power CompanyP.O. Box 70Boise, ID 837O7-OO7O
Barton L. K1ine, Esq.Legal DepartmentIdaho Power CompanyP.O. Box 70Boise, ID 83707-OO7O
Gary A. DahlkeR. Blair StrongPaine, Hamblen, Coffin, Brooke & Miller
1200 Washington Trust Financial Center
Spokane, WA 99204
Tom Dukich
Rates & Tariff Administration
Washington Water Power CompanyP.O. Box 3727Spokane, WA 99220
John M. ErikssonUtah Power & Light Companyl4O7 North West TempleSalt Lake City, UT 84L40-0001
W. F. MerrillMerrill & MerrillP.O. Box 99LPocatello, ID 83201--0091
James FeII, Esq.Stoel, Rives, Bo1ey, Jones & Gray900 Sw Fifth Ave., Suite 23ooPortland, OR 97204
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Gregory N. DuvallUtah Power & Light Company424 Public Service Building
92O SW Sixth Ave.Portland, OR 972O4
A.W. BrownA.W. Brown Company, Inc.
34L6 Via Lido, Suite F
Newport Beach, CA 92663
C. Tom Arkoosh
Roden & ArkooshP.O. Box 2L1OBoise, fD 83701-2110
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