HomeMy WebLinkAbout20050701Lively direct support stipulation.pdf:F~CEIVED
825 E. Multnomah
Portland, Oregon 97232
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July 1, 2005
Jean D. Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
Re:Application of PacifiCorp dba Utah Power & Light Company
for Approval of Changes to Its Electric Service Schedules
Case No. PAC-05-
Dear Ms. Jewell:
Please find enclosed for filing an original and 9 copies of Robert C. Lively s direct testimony in support of the
Stipulation filed in the above-referenced matter. Also enclosed is a diskette containing the testimony and exhibit.
To the attention of the Court Reporter is a paper copy of all documents along with a diskette containing the
testimony and exhibit.
All formal correspondence and regarding this Application should be addressed to:
Jeff Larsen
ACIFICORP
201 South Main, Suite 2300
Salt Lake City, Utah 84140-0023
Telephone: (801) 220-4561
Fax: (801) 220-3116
Email: ieff.larsen~pacificorp.com
James M. Van Nostrand
STOEL RIVES LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Telephone: (503) 294-9679
Fax: (503) 220-2480
Email: imvannostran ~stoel.com
Communications regarding discovery matters, including data requests issued to PacifiCorp, should be addressed to:
By E-mail (preferred):datarequest~pac ifi corp. com
By Fax:(503) 813-6060
By regular mail:Data Request Response Center
PacifiCorp
825 NE Multnomah St., Suite 800
Portland, OR 97232
Very truly yours
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1ft-Vice President, Regulation
cc:Service List
Enclosures
PROOF OF SERVICE
I hereby certify that on this 1st day of July, 2005 I caused to be served, via U.S. mail
a true and correct copy of the Direct Testimony of Robert C. Lively.
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
Scott Woodbury
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702-5983
Kira Pfisterer
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702-5983
James R. Smith
Monsanto Company
Highway 34 North
Soda Springs, ill 83276
Anthony Yankel
29814 Lake Road
Bay Village, OH 44140
Conley E. Ward
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
Dennis E. Peseau
Utility Resources, Inc.
1500 Liberty St. SE, Suite 250
Salem, OR 97302
Timothy J. Shurtz
411 S. Main
Firth, ID 83236
Brady M. Purdy
Attorney At Law
2019 N. ih Street
Boise, ill 83702
R. Scott Pasley
Assistant General Counsel
J .R. Simp lot Company
999 Main Street
Boise, ID 83702
Katie Iverson
7244 W. Cordova Court
Surprise 85387
David Hawk
Director, Energy Natural Resources
J .R. Simp lot Company
999 Main Street
Boise, ill 83702
Joe Lecki
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702-5983
Peggy
Regula ory Operations Coordinator
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BE FORE THE IDAHO PUBLIC UTILITIES CO MMISS
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IN THE MATTER OF THE UTtLIT\ES enI"1t11SSI0~~
APPLICATION OF PACIFICORP DBA
UT AH POWER & LIGHT COMPANY ) CASE NO. P AC-05-
FOR AUTHORITY TO INCREASE ITS
RATES FOR ELECTRIC SERVICE TO
ELECTRIC CUSTOMERS IN THE ST ATE
OF IDAHO
Direct Testimony of Robert C. Lively
ACIFICORP
July 1,2005
Please state your name, business address and position with PacifiCorp ("the
Company. "
My name is Robert C. Lively, and my business address is One Utah Center
Suite 2300, 201 South Main Street, Salt Lake City, Utah. I am employed by
PacifiCorp as a Regulation Manager.
Qualifications
Please summarize your education and business experience.
I received an undergraduate degree in Accounting from the University of Utah
and a Master of Business Administration degree from Utah State University. I
have been employed by Utah Power & Light Company and subsequently
PacifiCorp since 1983 and have held various positions in accounting, regulation
and customer account management. My current responsibilities include the
management of all regulatory filings that are made by PacifiCorp with the Idaho
Public Utilities Commission.
Purpose
What is the purpose of your testimony?
The purpose of my testimony is to support the Stipulation dated June 10, 2005
and filed with the Commission June 13,2005 and to explain why the terms of
the Stipulation are reasonable and in the public interest. I first provide
background to the rate case filing and settlement. I explain the various
elements of the Stipulation and provide some background as to PacifiCorp
reasons for recommending that the Commission adopt the Stipulation.
Lively, Di -
PacifiCorp
describe why the Stipulation is reasonable and in the public interest and, finally,
I recommend that the Commission adopt the Stipulation in its entirety.
Background
Please describe PacifiCorp s initial rate case filing in this proceeding.
On January 15 , 2005, PacifiCorp filed an Application in this case seeking
authority to increase the Company s base rates for electric service in Idaho by
$15.1 million annually, an average increase of approximately 12.5 percent. The
proposed increase is offset in part by the expiration of the Power Cost/Tax
Surcharge (Schedule 93) in September 2005. The revised tariff schedules reflect
a net increase of $11.4 million (9.2%) and a proposed effective date of
September 16 2005.
Who are the other parties to the rate case proceeding?
In addition to the Idaho Public Utilities Commission Staff ("Staff"), petitions to
intervene in this proceeding were filed by Monsanto Company ("Monsanto
the Idaho Irrigation Pumpers Association ("IIPA"), Agrium, Inc. ("Agrium
J .R. Simplot Company ("Simplot"), Community Action Partnership Association
of Idaho ("CAPAI") and Timothy J. Shurtz ("Shurtz ) (collectively referred to
as "Parties
).
By various orders , the Commission granted these interventions.
Was the Stipulation signed by all Parties to the rate case?
No. The Stipulation is entered into by and among the Company, Staff, IIPA
Agrium, Simplot, CAPAI and Shurtz ("Stipulation Parties
).
Monsanto did not
enter into the Stipulation.
Lively, Di - 2
PacifiCorp
Did Monsanto participate in the settlement discussions that resulted in the
Stipulation?
Yes , Monsanto participated in the May 16, 2005 settlement conference.
Additionally, the Company understands that Monsanto participated in a June 3,
2005 teleconference among Parties (other than PacifiCorp) to discuss settlement
of the case. Finally, the Company informally discussed settlement issues with
Monsanto beginning as early as April 28, 2005 and as late as June 9, 2005.
Throughout this process, it became apparent to PacifiCorp that Monsanto would
not support terms of the Stipulation that were deemed important to the Company
and acceptable to the Stipulation Parties.
Terms of the Stipulation
What are the key elements of the Stipulation?
If approved by the Commission, PacifiCorp would be allowed to implement
revised tariff schedules designed to recover $5.75 million in additional annual
revenue from base rates , representing an aggregate base rate increase of 4.
percent. These revised tariff schedules would become effective as of
September 16, 2005 , contemporaneously with the expiration of the Power
Cost/Tax Surcharge (Schedule 93) currently appearing on customers' bills.
How is this increase proposed to be spread across the customer classes?
This proposed revenue requirement increase results in a 1.7 percent rate
increase above current rates whether or not such current rates include Schedule
, Power Cost/Tax Surcharge and Schedule 94, Rate Mitigation Adjustment.
Lively, Di - 3
PacifiCorp
The overall increase would be reflected in base rate tariffs filed for each
customer class. Exhibit No.1 to this testimony shows the allocation of the
proposed rate increase by rate schedule.
What does the Stipulation provide with respect to inter-jurisdictional cost
allocation issues?
This Stipulation implements the Revised Protocol jurisdictional cost allocation
methodology in Idaho that resulted from the Multi-State Process ("MSP"). In
Case No. PAC-O2-3, Order No. 29708, the Commission approved a
Stipulation and Agreement ("MSP Stipulation ) recommending implementation
of the Revised Protocol. The MSP Stipulation included a Rate Mitigation
Measure to limit the financial impact regarding the choice of allocation
methodology. Under the Rate Mitigation Measure, the impact of
implementation of the Revised Protocol was limited to 101.67 percent of the
rates that would have resulted from use of the Rolled-In method.
Did the Rate Mitigation Measure come into play in this proceeding?
Yes. As a result of application of the Rate Mitigation Measure , the Company
original filing in this case was reduced by $1.8 million below what it would
have been without application of the Rate Mitigation Measure.
Do the Stipulation Parties support continued use of the Revised Protocol?
Yes. Paragraph 7 of the Stipulation provides that the Stipulation Parties support
continued use of the Revised Protocol for future rate proceedings, consistent
with the terms and conditions of the MSP Stipulation.
Lively, Di - 4
PacifiCorp
What is the impact of the Company s contract with Monsanto in this
proceeding?
In Case No. PAC-01-, the Commission adopted a contract standard for the
Monsanto contract. In that proceeding, the Commission approved a fixed price
contract for Monsanto to remain in effect through December 31 , 2006 , finding
that the rates and charges under the contract would "reasonably reflect the
Company s cost of service to Monsanto going forward." Order No. 29157
Recognizing Monsanto s fixed price contract in its initial filing in this
case , PacifiCorp s cost of service study allocated its Idaho revenue requirement
deficiency only to its Idaho tariffed customers eligible for an increase, its
Idaho customers other than Monsanto.
An analysis provided by the Company in response to discovery from the
Staff showed that if Monsanto s cost of service had been updated in a manner
consistent with the cost of service study included in the Company s filing,
approximately $11 million of the $15.1 million rate increase request would have
been attributable to Monsanto.
Staff and other Parties opposed the Company s proposed treatment of
allocating the entire revenue requirement deficiency to tariff customers, and
argued that any revenue requirement deficiency, or shortfall, associated with
service to Monsanto (i.the difference between Monsanto s fixed price
contract rates and the cost of serving Monsanto if its cost of service were
updated) should not be spread to the Company s remaining Idaho customers.
Lively, Di - 5
PacifiCorp
If the result of this proceeding were that the Monsanto shortfall was not
allocated to tariff customers, as proposed by the Staff and other Parties, the
Company would be placed in the inequitable position of potentially absorbing
the $11 million shortfall until rates for Monsanto could be adjusted following the
expiration of the contract term in December 2006. Conversely, if this
proceeding resulted in the Monsanto shortfall being allocated to tariff customers
as proposed by the Company, Staff and other Parties have taken the position that
tariff customers would inequitably bear the burden of the $11 million revenue
shortfall otherwise attributable to Monsanto if its cost of service were updated.
PacifiCorp believes it is likely that either of these outcomes would have
resulted in an appeal of the Commission s decision.
Was the Monsanto shortfall issue anticipated in previous proceedings before
this Commission?
Yes. As the Commission s Order approving adoption of the Revised Protocol
recognized, this contentious issue could arise in the context of a rate case.
Case No. PAC-02-, the Commission considered that:
An issue that could be heard in a rate case under the
Revised Protocol methodology, Staff notes , is the
potential cost shifts to Idaho customers other than
Monsanto when Monsanto rates are fixed during the
contract period. If the cost studies utilized for any rate
case and Monsanto s contract negotiations are the same
there will be no cost shift concerns. If the cost studies are
not the same, any shortfall that would ordinarily be
allocated to Monsanto but left uncovered by contract could
become an issue. This shortfall due to the timing
difference could be absorbed by PacifiCorp or requested
for recovery from other customers in a subsequent rate
case. (Order No. 29708, page 8)
Lively, Di - 6
PacifiCorp
As noted in the Commission s Order, cost shift concerns can be avoided only "
the cost studies utilized for any rate case and Monsanto s contract negotiation
are the same." In this case , however , the cost shift concern associated with the
Monsanto contract shortfall is the direct result of utilizing different cost of
service studies for setting Monsanto rates (based on a 1999 study, as approved
by the Commission in Order No. 29157), and for setting rates for tariff
customers in this rate case (based on the 2004 study proposed in the Company
initial filing in this proceeding).
How does the Stipulation address the Monsanto shortfall issue?
The Stipulation does not resolve the Monsanto shortfall issue in the context of
this proceeding. Rather , the Stipulation proposes to address the cost shift
considerations associated with the Monsanto contract shortfall in the Company
next Idaho general rate case, which would rely on a single cost of service study
for setting rates for both Monsanto and other Idaho customers. This proposal
creates the optimal circumstance referenced by the Commission in Order No.
29708 wherein the cost studies utilized for the rate case and Monsanto s contract
negotiations are the same, thus eliminating cost shift concerns resulting from the
Monsanto shortfall.
This alignment of cost studies can be achieved in the next Idaho general
rate case because the current Monsanto contract will expire on December 31
2006. The Stipulation therefore provides that the Company file its next general
rate case in Idaho no later than April 29, 2006 in order that the effective date of
rates in that proceeding will coincide with the expiration of the current
Lively, Di - 7
PacifiCorp
Monsanto contract and the beginning of a new term for service to Monsanto.
Does the Stipulation address the broader issue of tariff standard versus
contract standard?
Yes. Staff and the Company agree in paragraph 9 of the Stipulation that all of
the Company s Idaho customers should be served under the tariff standard.
any future proceedings involving Company customers seeking electric service
under a special contract, Staff will support the position that any service contract
for Monsanto or any other PacifiCorp customer should be pursuant to the tariff
standard rather than the contract standard.
Will Stipulation Parties other than the Company and Staff support a tariff
standard for Monsanto?
Paragraph 9 provides that Stipulation Parties other than the Company and Staff
that participate in special contract proceedings shall support or not oppose this
position that all Idaho PacifiCorp customers should be served under the tariff
standard. Of course, PacifiCorp recognizes that the Commission is not bound
by any agreement of the Stipulation Parties on this issue in any such
proceedings.
Why is it important to address the tariff standard issue in this Stipulation?
Given the impact and magnitude of the Monsanto shortfall in this proceeding,
the Stipulation Parties believe it was essential to identify a proposed solution to
this controversy. The Stipulation Parties understand that any agreement in the
Stipulation regarding the tariff standard issue in a future proceeding is not
binding on the Commission; however, the Company believes it important that
Lively, Di - 8
PacifiCorp
the Commission understand their intent on this issue.
Paragraph 9 of the Stipulation recognizes that it is preferable to have all
of the Company s Idaho customers served on a tariff standard , which would
allow for the alignment of cost of service studies used to set all customer rates
thus avoiding future occurrences of the controversial cost shifting issue present
in this proceeding. The continuation of the contract standard virtually ensures
the perpetuation of cost shift concerns in the context of future rate cases because
there will almost always be a mismatch between the cost of service studies
utilized to set rates for contract standard customers and the cost of service study
used to set rates for tariff customers. As previously discussed, this situation
creates serious cost recovery issues between the Company and its Idaho
customers , and produces inequity among the Company s Idaho customers.
Moreover, the contract standard jeopardizes the Company s ability to
recover its Idaho revenue requirement. Unless the Company s tariffed
customers are allocated any shortfall attributable to the inability to increase the
rates of the contract standard customers, the Company is denied any reasonable
opportunity to recover its costs of doing business in Idaho. This is not equitable
or sustainable.
Is the Stipulation consistent with Commission Order No. 29157 in which a
contract standard was approved for Monsanto?
Yes. The Stipulation expressly acknowledges the binding impact of Order
No. 29157, in which the Commission approved a fixed price contract for
Monsanto to remain in effect through December 31 , 2006. The Stipulation
Lively, Di - 9
PacifiCorp
addresses only the issue of the Stipulation Parties ' positions on the tariff
standard issue once the existing Monsanto contract expires on December 31
2006.
Is the Stipulation consistent with the MSP Stipulation and the Commission
Order No. 29708 approving the MSP Stipulation?
Yes. As noted above, the Rate Mitigation Measure included in the MSP
Stipulation reduced the size of the Company s original filing in this case by $1.
million. With the Idaho revenue requirement thus reduced, the MSP Stipulation
does not address how the Idaho revenue requirement , once determined, would
be spread across the Idaho customer base. There is nothing in the MSP
Stipulation or Commission Order No. 29708, for example, which affects
Monsanto s existing contract or directs how Monsanto s cost of service may be
determined in the future. Paragraph 7 of the Stipulation in this case indicates
that the Stipulation Parties support continued use of the Revised Protocol for
future rate proceedings, which is entirely consistent with Commission Order
No. 29708.
Does the Stipulation address the possibility of implementing non-traditional
ratemaking mechanisms in Idaho?
Yes. The Company is interested in exploring the possibility of implementing
alternative rate recovery mechanisms in Idaho, including a power cost
adjustment (PCA) mechanism or an alternative form of regulation (AFOR).
Under paragraph 10 of the Stipulation, Staff agrees to meet with the Company
in a collaborative discussion to explore these issues.
Lively, Di - 10
PacifiCorp
What schedule is contemplated for these discussions?
According to paragraph 10 of the Stipulation, the initial meeting to discuss the
development of such mechanisms will occur no later than thirty days after the
Commission s order with respect to this Stipulation. PacifiCorp hopes to pursue
the development of a mutually agreeable form of alternative rate recovery
mechanism on an expedited schedule so that the mechanism could be filed with
the Commission for approval prior to the Company s next general rate
proceeding in Idaho. That would allow the mechanism to be implemented in the
general rate proceeding.
Please explain the provision in the Stipulation regarding calculation of
credits under the Company s Irrigation Load Control Credit Rider.
Paragraph 11 of the Stipulation provides that the Company will meet with lIP
and other interested participants regarding the calculation of credits under the
Company s Schedule 72, the Irrigation Load Control Credit Rider. lIP A has
raised issues regarding the calculation of these credits, and the Company agreed
to meet in an attempt to resolve these issues. The initial meeting is required to
occur no later than August 31 , 2005.
What will be the outcome of those meetings?
In the event the participants reach agreement on the calculation of irrigation
credits , the Company will prepare a stipulation setting forth the agreed -upon
terms and file this stipulation with the Commission no later than September 30
2005. In the event these participants do not reach agreement, paragraph
provides that each party will file its proposal with respect to this issue with the
Lively, Di - 11
PacifiCorp
Commission no later than September 30, 2005 in order to accommodate a
Commission decision that will not delay the scheduled January 15 , 2006
customer notification of the credit level for the 2006 irrigation season.
Does the Company address low-income issues in the Stipulation?
Yes. To increase customer participation and available incentives for installation
of additional cost -effective weatherization measures, the Company has agreed in
paragraph 12 of the Stipulation to file revisions to its Low Income
Weatherization Program tariff (Schedule 21). These proposed revisions will
contain several specific proposed program and tariff changes.
Please describe these changes to the Company s Low Income
Weatherization Program tariff.
The Company proposes to increase the available annual Community Action
Agency incentives from $100 000 to $150 000 annually. The Company will
also commit to increase the rebate on weatherization services available on homes
with installed electric heat from the current maximum of $1 000 per dwelling to
an average annual rebate of $1 500 per dwelling. In addition, the Company
proposes to increase the administrative reimbursement provided to Community
Action Agencies from $150 per completed home to 15 percent of PacifiCorp
rebate on installed measures with set maximums. The Company also will
propose expanding its current program incentives by offering reimbursement of
50 percent of costs associated with additional measures installed in homes
regardless of heating source, including compact fluorescent light bulbs
Lively, Di - 12
PacifiCorp
replacement refrigerators and water heating measures in homes with electric
water heaters.
What about homes that previously received benefits under the prior
programs?
To promote installation of efficiency measures that have become cost-effective
in the last decade, PacifiCorp agrees to offer rebates, once per individual
measure and up to two times per dwelling, for homes in which benefits were
provided under this tariff prior to October 1 , 1993.
Will the Company continue to evaluate its low-income weatherization
programs to ensure that they remain current?
Yes. Paragraph 12 of the Stipulation provides that the Company will evaluate
this tariff (Schedule 21) within two years to determine if further revisions are
warranted.
What does the Stipulation provide with respect to regulatory assets and
liabilities?
In its initial application, PacifiCorp included certain deferred costs and
obligations, recorded on its balance sheet as regulatory assets and liabilities.
Paragraph 5 of the Stipulation provides that all regulatory assets and liabilities
included in PacifiCorp s filing are unadjusted and recognized for purposes of this
settlement.
Impact on the public interest
Is this Stipulation in the public interest?
Yes. The Stipulation enhances the public interest for the following reasons:
Lively, Di - 13
PacifiCorp
1. Combined with the expiration of the Power Cost/Tax Surcharge
(Schedule 93), the Stipulation allows for a modest 1.7 percent price
impact on customers above existing rates. If the proposed increase is
granted, PacifiCorp' s Idaho retail average rates will remain among
the lowest in the nation, based on information from the Edison
Electric Institute. When comparing PacifiCorp s electric rates to
those of other utilities , the proposed rate increase is reasonable.
2. The proposed rate increase enhances the Company s ability to
continue to safely and reliably meet the electrical service needs of
customers in Idaho.
3. While not asking the Commission to prejudge the issue, the
Stipulation proposes a solution to cost shift concerns in the context of
the next Idaho general rate case proceeding. The proposed tariff
standard aligns the cost of service basis upon which all customer
rates are set, thus avoiding (as acknowledged by the Commission in
Order No. 29708) controversial cost shifting that arises, as in this
case , as a result of cost study mismatches associated with contract
standard customers.
4. The Stipulation provides for collaborative discussion of non-
traditional rate making mechanisms in Idaho and the calculation
methodology for the Irrigation Load Control Credit. Such
discussions promote communication and understanding among
participants as enhancements to current regulatory practices are
Lively, Di - 14
PacifiCorp
explored.
5. The Stipulation also provides for important additions to the
Company s low-income initiatives in Idaho , thus improving the
ability of low-income customers to manage their energy costs , and
allowing a greater number of PacifiCorp ' s Idaho customers to benefit
from a wider array of weatherization services.
6. The Stipulation implements and sustains previous Commission orders
authorizing the current Monsanto contract (Order No. 29157) and the
MSP allocation methodology (Order No. 29708).
7. The Stipulation avoids the potential appeal of a Commission order
either allowing allocation of the Monsanto shortfall to tariff
customers, or in the alternative , denying allocation of the Monsanto
shortfall to tariff customers.
What action is the Company proposing that the Commission take with
respect to the Stipulation?
For the reasons stated above the Company believes , and the Stipulation Parties
agree, that the Stipulation is in the public interest and that all of its terms and
conditions are fair, just and reasonable. The Company therefore recommends
that the Commission adopt the Stipulation in its entirety to resolve the contested
issues in this proceeding and that the terms of the Stipulation go into effect
September 16 , 2005.
Does this conclude your testimony?
Yes.
Lively, Di - 15
PacifiCorp
Case No. P AC-05-
Exhibit No.
Witness: Robert C. Lively
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ACIFICORP
Exhibit Accompanying Direct Testimony of Robert C. Lively
Allocation of Proposed Rate Increase by Rate Schedule
July 1 , 2005
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