20020108Testimony of Brian Hedman.pdf

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Q. Please state your name, position, and address.
A. My name is Brian Hedman. I am Manager, Regulation at PacifiCorp. My
address is 825 NE Multnomah, Portland, Oregon.
Q. Please describe your education and business experience.
A. I have a bachelor’s degree in business administration from the University of
Washington and a masters degree in economics from Portland State University. I
have been employed by PacifiCorp since 1980 and have held several positions. I
have held my current position for the last 5 years.
Q. Have you previously testified?
A. Yes. I have represented the Company before this Commission on many
regulatory issues over the years and have testified or submitted testimony before
the Utah Public Service Commission, the Washington Utilities and Transportation
Commission, the Oregon Public Utilities Commission and the Federal Energy
Regulatory Commission.
Q. What is the purpose of your testimony?
A. The purpose of my testimony is to describe the benefits that PacifiCorp’s
customers in Idaho will receive from the Bonneville Power Administration
through its residential and small farm exchange credit.
Q. What is the Bonneville Power Administration (BPA) Residential and Irrigation
Exchange Credit?
A. The BPA credit is a mechanism to provide benefits to qualifying customers of
investor owned utilities (like Utah Power) from the Federal Columbia River
Hydroelectric System in satisfaction of BPA’s obligations under the Northwest
Hedman, Di 1
PacifiCorp
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Power Act of 1980. The credit is available only to residential and small farm
customers and is provided to the Company’s customers in Idaho through Electric
Service Schedule No. 34.
Q. Please give a brief history of the BPA credit in Idaho.
A. Prior to 1997 the amount of credit received from BPA was based on the actual
energy used by the customer, the average system cost of Utah Power and BPA’s
seasonally adjusted Priority Firm Exchange rate. In 1996 this methodology
changed. A settlement with BPA in 1996 resulted in a fixed monetary benefit
being provided to the Company to pass-on to qualifying customers. In advice
filing 98-002, the Company proposed an allocation of 43 percent of the 1996
settlement amount to residential customers and 57 percent to irrigation customers.
These proportions were based on a calculation of what the respective classes
would have expected to receive had that settlement not been reached. In Order
No. 27709 the Commission accepted the Company’s proposal. The exchange
agreement with BPA expired in 2001, and a new agreement (the “2001
settlement”) was entered into to provide a continuation of exchange benefits.
Q. Please describe the 2001 settlement.
A. In its 2001 rate case, BPA proposed an alternative to the traditional exchange.
The alternative was to provide investor owned utilities the option to purchase
actual power or rights to power through a subscription process. The amount that
the IOU’s could subscribe to was based on their qualifying residential and small
farm load in consultation with the regulatory commissions of Idaho, Washington,
Montana and Oregon. IOU’s that chose subscription did so as a settlement of
Hedman, Di 2
PacifiCorp
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their exchange rights for this period. The subscription was further split between
actual power and a monetary portion that was calculated as the difference between
BPA’s price and BPA’s forecasted market price. Finally, BPA expected to need
to purchase additional resources in order to serve that portion of the subscription
that was delivered as actual power. Faced with the potential of very high costs for
these additional resources, PacifiCorp agreed to forgo its right to actual power for
an overall financial settlement of its exchange benefits. The resulting financial
settlement provides $34 million in benefits to qualifying Idaho customers for the
first year in benefits and $35.2 million in the second year.
Q. How does this level compare with historical levels?
A. It is substantially higher. From 1990-1996 BPA provided to PacifiCorp, for its
Idaho customers, between $16 and $22 million in exchange benefits annually.
The actual amount varied with energy use. As a result of a 1996 settlement with
BPA for the period 1997-2001, BPA provided a fixed amount of $47 million for
that 5-year period. Annual payments declined from $14 million in 1997 to $8.5
million in 2001, including an additional $5.5 million to cover the period between
June 30, 2001 when the previous contract ended and October 1, 2001 when the
new contract period started.
Q. How are these benefits distributed among the qualifying customers?
A. As explained above, in recent years the benefits have been allocated 43 percent to
residential customers and 57 percent to irrigation customers. In this case, the
Company proposes to continue to allocate the settlement amounts between the
residential and irrigation customers based on that same approach.
Hedman, Di 3
PacifiCorp
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Q. Why is the Company requesting that the BPA credit be implemented immediately,
even if the other aspects of the filing are suspended?
A. BPA increased its credit effective October 1, 2001. The Company has a
contractual obligation to pass the credit through to its customers in a timely
manner. Consequently, the Company is proposing that Schedule 34, the BPA
credit, be approved immediately.
Q. What happens to the increased credit for the period from October 1 until the new
credit level is implemented in rates?
A. The Company proposes to add the anticipated four month’s worth of credit for
residential customers to the first year’s credit rate. In other words, the rate for the
first year will be set to distribute 16 months worth of a normal year’s amount for
residential customers. At the end of the first year, the rate will be reset to match a
normal 12 month’s worth of credit.
Q. Why is only the residential credit adjusted for the four-month lag?
A. Irrigation usage is largely completed by October 1. Irrigation payments fluctuate
significantly year to year due to differences in irrigation usage during the
irrigation season. The Company believes that it is most important to make an
explicit adjustment to the residential customers in order to reflect the winter
heating months and to assure that the credit is ultimately distributed according to
the 43 percent residential/57 percent irrigation proportion mentioned earlier.
Q. Does this conclude your testimony?
A. Yes.
Hedman, Di 4
PacifiCorp