20050118Direct Testimony Summary.pdf

SUMMARY OF P ACIFICORP DIRECT TESTIMONY
P A C- E-O5-
Below is a summary ofPacifiCorp testimony filed in support of its general rate case
application. Copies of the filing are available online at www.nacificorp.com; click on
News and Info" and then select "Regulatory Information" and "Idaho." Copies of the
filing can also be reviewed during regular business hours at the offices of the Idaho
Public Utilities Commission in Boise and in these Utah Power offices:
25 East Main, Rexburg
509 South 200 East, Preston
852 E. 1400 North Shelley
24852 U.S. Highway 89, Montpelier
JOHN W. STEWART
Managing Director, Regulation for PacifiCorp s Eastern Service States
Company witness Stewart provides an overview of the Company s 2005 Idaho
general rate case filing and explains that PacifiCorp s last general rate increase in Idaho
took place in 1986. As a result of several limited issue base rate reductions, PacifiCorp
ongoing base rates are approximately 7% lower today than they were in 1986.
Due to the effects of increasing inflation on the Company s operating costs
increases in employee pension and health care costs, and investments in new generation
resources, Pacifi Corp is requesting a rate increase of $15.1 million. This represents an
average overall price increase of 9.2 percent in net rates from rates in effect today. The
net increase reflects the expiration of the Power Cost / Tax Surcharge in September 2005
which produces a net increase of $11.4 million. To determine its revenue requirement
the Company used an historical test year beginning April 1 , 2003 , and ending March 31
2004 (FY 2004) adjusted for known and measurable costs and investments.
Mr. Stewart testifies that Commission approval of this increase will enable the
Company to maintain the financial strength necessary to attract the requisite capital to
meet the growing electrical service needs of its Idaho customers. He also explains the
Company s efforts to mitigate rate impacts on Idaho customers, the Company s cost
control efforts, and the reasonableness of the rate increase.
SAMUEL C. HADAWAY
FINANCO, Inc.
Company witness Hadaway presents testimony concerning the Company s return
on equity (ROE). Based on his review of alternative versions of the constant growth and
multistage growth Discount Cash Flow (DCF) model, Mr. Hadaway proposes an 11.125
percent point value for PacifiCorp s cost of equity. His analysis is confirmed by a risk
premium analysis and a review of economic conditions expected to prevail during the
rate effective period. Mr. Hadaway further explains that this estimate is reasonable
balance between consensus economic forecasts for significantly higher interest rates
during the rate effective period and the lower ROEs that can be obtained from traditional
DCF methods based on recent historically low dividend yields and traditional DCF
growth estimate methodologies.
BRUCE N. WILLIAMS
Treasurer
Company witness Williams offers testimony concerning the Company s capital
structure, cost of debt and cost of preferred stock as of September 30, 2004, updated
through September 30, 2005, for known and measurable changes. He determines the
Company s embedded cost of long-term debt to be 6.34 percent and the embedded cost of
preferred stock to be 6.64 percent. Mr. Williams also calculates the average PacifiCorp
capital structure for the test year to be 51 percent long-term debt, 1.2 percent preferred
stock, and 47.8 percent common stock equity. When combined with Company witness
Hadaway s 11.125 percent return on equity recommendation, PacifiCorp proposes an
overall weighted cost of capital of 8.633 percent.
J. TED WESTON
Regulation Manager
Company witness Weston presents the Company s overall revenue requirement
based on normalized results of operations for a FY 2004 test year with known and
measurable adjustments. Based upon these results of operations, Mr. Weston explains
that PacifiCorp is presently earning an overall ROE of 5.8 percent in its Idaho
jurisdictional service territory - far below any other ROE recently authorized for other
Idaho investor-owned utilities and less than what is required to provide a fair and
equitable return for PacifiCorp shareholders.
The Company requests a price increase of $15.1 million based on the Revised
Protocol stipulation that resulted from the multi-state jurisdictional cost allocation
process. This request is $1.8 million less than the increase otherwise supported by the
Company s revenue requirement analysis, but was limited due to the Revised Protocol's
rate mitigation cap. Mr. Weston explains the normalizing adjustments made to actual test
period results related to revenue, operation and maintenance expense, net power costs
depreciation and amortization, taxes and rate base.
MARK T. WIDMER
Director, Net Power Costs
Company witness Widmer describes the results of the production cost model
study for the twelve-month test period ending March 31 , 2004, when updated for known
and measurable changes. He also describes how and why input data is normalized for use
in the Company s production cost model- the Generation and Regulation Initiates
Decision Tools (GRID) model- when calculating net power costs. Finally, Mr. Widmer
explains hydro modeling associated with the VISTA hydro model and inclusion of the
Aquila Hydro hedge in rates.
STAN K. WATTERS
Senior Vice President, Commercial Trading
Company witness Watters testifies regarding PacifiCorp s acquisition of three
long-term resources that are or will be in-service when the general rate change goes into
effect. These proj ects are the West Valley Lease, the installation of three generation units
at the Gadsby Plant site, and the 525 MW combined cycle combustion turbine at Currant
Creek. Mr. Watters demonstrates that these resources were prudently acquired and
provide benefits both system-wide and to PacifiCorp s Idaho customers.
DANIEL J. ROSBOROUGH
Director of Employee Benefits
Company witness Rosborough testifies to the Company s increased pension and
employee benefit costs. PacifiCorp proposes to recover in base rates $48.5 million in
annualized pension costs it expects to incur for its defined benefit pension plan. The
Company also seeks to recover in base rates $3 million in pension expense associated
with a contribution to a separate pension plan negotiated with employees represented by
the International Brotherhood of Electrical Workers. Mr. Rosborough describes the
Company s proposal to recover in rates $110.4 million in medical, dental and other
benefit coverage costs and explains the major reasons for these increased costs. Finally,
Mr. Rosborough addresses the actions the Company is taking to control these rising costs.
DAVID L. TAYLOR
Principal Regulatory Consultant
Company witness Taylor explains how the Multi-State Process Revised Protocol
cost allocation methodology and the stipulated Rate Mitigation Mechanism filed in Case
No. P AC-02-03 affect the Company s Application. He then describes the jurisdictional
allocation differences between the Modified Accord Allocation Methodology previously
adopted by the Idaho Commission and the currently proposed Revised Protocol allocation
methodology, and details the impacts of those allocation changes on the Idaho revenue
requirement. Finally, Mr. Taylor presents PacifiCorp s class cost of service study that
functionalizes, classifies, and allocates costs to each customer class.
WILLIAM R. GRIFFITH
Director of Pricing and Regulatory Operations
Company witness Griffith testifies that PacifiCorp s pricing objective is to
implement the 9.2 percent overall net price increase while reflecting cost of service and
minimizing customer bill impacts. To that end, the Company proposes a rate increase
cap so that no rate schedule class receives more than 1.5 times the overall net increase
(13.8 percent). The Company also proposes that no class receive less than one-half the
overall net increase (4.6 percent). Consequently, PacifiCorp proposes the following
allocation of the net price increase for the major customer classes:
Residential: 9.
General Service
Schedules 23 and 23A: 5.
Schedules 6, 6A and 35: 7.
Schedules 8, 9 and 19: 4.
Irrigation: 10.4%
. Nu-West Special Contract: 13.
Public Street Lighting: 13.
Lastly, Mr. Griffith describes the Company s proposed changes in price design for the
affected rate schedules.
PROOF OF SERVICE
I hereby certify that on this 14th day of January, 2005 I caused to be served, via
Overnight mail, a true and correct copy of the foregoing Application to the following:
IDAHO IRRIGATION PUMPERS
ASSOCIATION, INC;
Eric L. Olsen
Racine, Olson, Nye, Budge
Bailey, Chartered
201 E. Center
O. Box 1391
Pocatello, ID 83204-1391
MONSANTO
Randall Budge
Racine, Olson, Nye, Budge
Bailey, Chartered
201 E. Center
O. Box 1391
Pocatello, ID 83204-1391
Pegg
Regula ory Operations Coordinator