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HomeMy WebLinkAbout20050701Lively direct support stipulation.pdf:F~CEIVED 825 E. Multnomah Portland, Oregon 97232 (503) 813-5000 :LED r~" ~",","~, 1+ PACIFICORP :;qqr; "n - LhU o;.J,Cl. iW" j. . ~ PACIFIC POWER UTAH POWER IDAi'jO f)UBLIC .. 1 T "' ~T """' '. , w,ILIJ'L.J L. ft,I! vi 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 ~~a :!: 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 (ECEIVED !LED =-. i xik",, ;'""-'1 2005 JUt - 1 AM ~: IS BE FORE THE IDAHO PUBLIC UTILITIES CO MMISS I~ rrm PUB LIe 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 EX H I B I T N O . UT A H P O W E R & L I G H T C O M P A N Y ES T I M A T E D I M P A C T O F P R O P O S E D R E V E N U E S O N N O R M A L I Z E D P R E S E N T R E V E N U E S FR O M E L E C T R I C S A L E S T O U L T I M A T E C O N S U M E R S DI S T R I B U T E D B Y R A T E S C H E D U L E S I N I D A H O 12 M O N T H E N D I N G M A R C H 2 0 0 4 Pr e s e n t R e v e n u e $0 0 0 Pr o os e d R e v e n u e $0 0 0 Ch a n e i n Av e r a g e Sc h . Sc h . 9 4 Ba s e R e v e n u e Ne t R e v e n u e Li n e No . o f RM A Ba s e Sc h . 9 3 Ne t RM A Ba s e Sc h . 9 3 Ne t No . De s c r i p t i o n Sc h . Cu s t o m e r s MW H Re v . Re v . Re v . Re v . Re v . Re v . Re v . Re v . Re v . Re v . 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