20040212Johnson Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Application of
P ACIFICORP for Exempt Wholesale
Generator Determinations Relating to the
Skookumchuck Hydroelectric Plant.
Case No. PAC"'E.l/fd/
PACIFICORP
DIRECT TESTIMONY OF CRAIG P. JOHNSON
Please state your name and business address.
My name is Craig P. Johnson. My business address is 201 South Main, Suite
2300, Salt Lake City, Utah.
Briefly describe your educational background, professional training and
experience.
I graduated from Brigham Young University in 1981 with a Bachelor of Science
Degree in Accounting. After working at General Telephone, I joined PacifiCorp
in 1984. My assignments at the Company have included working in the
Regulation, Financial Planning, and Financial Analysis departments. At present I
am a Regulatory Consultant. My primary responsibilities include preparing rate
cases and analyzing regulatory issues facing the utility.
What is the purpose of your testimony?
My testimony explains the revenue requirement impact of the sale of the
Skookumchuck Dam, hydroelectric generating station and related assets (the
Skookumchuck Project" or the "Project ) and describes the anticipated benefits
to customers from the sale of the Skookumchuck Project.
What is the current and future cost of generating power from the
Skookumchuck Project?
The average cost of energy generated is approximately $250 per megawatt hour
MWh"), according to the Company bus bar report. Looking forward, the cost of
generating energy at the Project is not expected to decline, and it is expected to
exceed projected market prices. Low energy production volume combined with
high investment costs have translated into a high cost per MWh for several years.
Johnson, Di -
PacifiCorp
Historically, the generator produced about 3 000 MWh annually. However, over
the last four years output has been limited to about 1 000 MWh/year. The
Skookumchuck Dam was not built as a generating resource. In fact the reservoir
was primarily constructed to ensure a water supply at the nearby Centralia Steam
Plant.
Are there benefits to PacifiCorp customers if the Project is retained?
Based on the Company analysis, the answer is no. Although the Skookumchuck
Project generated benefits for customers for many years as a reliable water source
for the Centralia Steam Plant, today the situation is different. PacifiCorp no
longer owns the Centralia Steam Plant. The Project is a small 1 MW
hydroelectric generation asset. It is not equivalent to large projects like those on
the Lewis and Umpqua Rivers, which provide valuable peaking power and
generate relatively large amounts of energy compared to the fixed cost of
operations. The reservoir was constructed in 1973 to ensure a water supply at the
Centralia power station during drought years. An electric generator was added in
1991 to mitigate the cost of operating the reservoir. After the sale of Centralia
Steam Plant the new owner, TransAlta, (through its direct wholly-owned
subsidiary, TransAlta Centralia Generation LLC), paid the operating costs of the
Project. Recently, TransAlta (through its direct wholly-owned subsidiary,
Washington LLC) agreed to purchase the Project, i., the Skookumchuck
reservoir and hydroelectric facilities, as the reservoir has more value to the
Centralia Steam Plant owner than it does to PacifiCorp and the other current
owners. The future unit cost of generation is not cost competitive. Continued
Johnson, Di - 2
PacifiCorp
ownership of the Project results in future customers of PacifiCorp paying prices
for energy that will exceed the market value. A sale of the Skookumchuck
Project is expected to benefit customers by lowering future revenue requirements
below what it otherwise would be if the Project were not sold.
What is the revenue requirement impact of selling the Skookumchuck
Project?
Selling the reservoir, powerhouse, water rights and associated assets of the
Skookumchuck Project is expected to lower total future revenue requirement
$12 million on a present value basis. The operating costs of the Project are high
and they may increase. As Mr. Landolt explains, the future cost of operating the
Skookumchuck Project, particularly the cost exposure to mitigate potential
seismic risks, are likely to diminish the economics of generating power from the
Project. The base case assumptions contrasted with future power prices show that
selling the Skookumchuck Project will lower the present value of the total
Company revenue requirement. In other words, it is now and will continue to be
less expensive to purchase energy at market prices than operate the
Skookumchuck Project, which produces power at a cost of $250 per MWh.
What is the revenue requirement benefit in Idaho?
As indicated above, the base case assumptions indicate a total company benefit of
$12 million in present value terms. Idaho s allocated share of that benefit is
approximately $700 000.
Will the sale of the Project produce a gain?
Johnson, Di - 3
PacifiCorp
No. PacifiCorp s share ofthe sale price is equal to PacifiCorp s net book value.
As a result, PacifiCorp estimates a slight loss of $68,613. Exhibit No.3 shows
the calculation of the estimated book and tax gain/loss. These preliminary figures
may change depending upon when the sale actually occurs. In the event there is
any gain realized on the sale, PacifiCorp proposes to credit its Idaho customers
with 100 percent ofIdaho s allocated share of the actual net gain.
Does this conclude your direct testimony?
Yes, it does.
Johnson, Di - 4
PacifiCorp