20050701Lobb Direct.pdf

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BEFORE THE
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LUU'J ""UL- I t fl
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IN THE MATTER OF APPLICATION OF
PACIFICORP DBA UTAH POWER & LIGHT
COMPANY FOR AUTHORITY TO
INCREASE ITS RATES FOR ELECTRIC
SERVICE TO ELECTRIC CUSTOMERS IN
THE STATE OF IDAHO.
) CASE NO. PAC-05-
DIRECT TESTIMONY OF RANDY LOBB
IN SUPPORT OF STIPULATION
IDAHO PUBLIC UTILITIES COMMISSION
JULY 1 , 2005
Please state your name and business address for
the record.
My name is Rpndy Lobb and my business address
472 West Washington Street, Boise, Idaho.
By whom are you employed?
I am employed by the Idaho Public Utilities
Commission as Utilities Division Administrator.
What is your educational and professional
background?
I received a Bachelor of Science Degree in
Agricul tural Engineering from the Uni versi ty of Idaho in
1980 and worked for the Idaho Department of Water Resources
from June of 1980 to November of 1987.I received my Idaho
license as a registered professional Civil Engineer in 1985
and began work at the Idaho Public Utilities Commission in
December of 1987.My duties at the Commission currently
include case management and oversight of all technical staff
assigned to Commission filings.I have conducted analysis
of utility rate applications, rate design, tariff analysis
and customer petitions.I have testified in numerous
proceedings before the Commission including cases dealing
with rate structure, cost of service, power supply, line
extensions, regulatory policy and facility acquisitions.
What is the purpose of your testimony in this
case?
CASE NO. PAC-05-
7/01/05
LOBB , R
STAFF
(STIP)
The purpose of my testimony is to describe the
process leading to the filed Stipulation (Proposed
Settlement) signed by all parties to this case except
Monsanto and to explain the rationale for Staff's support.
Please summarize your testimony.
My testimony reflects that the process used by
Staff in arriving at the Proposed Set tlement was much the
same as that used to develop its case conventionally.Staff
conducted an audi t of the Company s test year resul ts of
operations, examined the jurisdictional allocation study
used to assign costs to Idaho and evaluated class Cost of
Service (COS) including that for Monsanto.
Based on Staff review, it became apparent that the
test year incorporated by the Company in this case was
relatively free of inappropriate rate base additions and
expenses due to extensive review by other state
jurisdictions.It also became apparent that a significant
portion of the requested increase represented costs
associated wi th service to Monsanto.While Staff recognized
the use of Revised Protocol and situs treatment of the costs
associated with the Monsanto contract in establishing the
Idaho jurisdictional revenue requirement, it did not believe
that costs of service deficiencies attributable to Monsanto
and unrecoverable under its fixed price contract were
recoverable from other Idaho customers. Staff also
CASE NO. PAC-05-7/01/05
LOBB , R.
STAFF
(STIP)
recognized that varlOUS parties including Agrium and the
Idaho Irrigation Pumpers Association (IIPA) disputed the
Company s Cost of Service study raising questions regarding
exactly how much cost would ultimately be allocated to the
varlous customer classes, how much of the Company s costs
would be unrecoverable in the short term due to Monsanto
fixed price contract and how large of an increase Monsanto
could ul timately face when its service contract expires in
December 2006.
Weighing the uncertainties Staff determined that a
settlement implementing a modest rate increase for the Idaho
customers of PacifiCorp, other than Monsanto, that
significantly below what the Company had requested
represented a reasonable resolution of this case.The total
increased revenue requirement, arrived at through
negotiation , is within a range of reasonableness and well
below what Staff believes could have been achieved by the
Company through hearing.The proper allocation of the Idaho
revenue requirement through cost of service and the
viability of continued fixed price contracts, Staff notes,
can be more thoroughly addressed next year when all parties
including Monsanto, will be included in a general rate case
and Monsanto s replacement service contract will be
lssue.
Wha t was the overall lncrease proposed by
CASE NO. PAC-05-7/01/05 (STIP)LOBB , R
STAFF
PacifiCorp in its original filing in this case?
The Company proposed to lncrease base Idaho
revenue requirement by approximately $15.1 million annually
or 12.6%.The net revenue impact wi th expiration of the tax
surcharge, Schedule 93, would have been approximately $11.
million or a 9.2% increase over current revenues.The
revenue requirement increase requested by PacifiCorp
$1.84 million less than the Company-calculated revenue
deficiency of $16.9 million to reflect the Company
application of the Rate Mitigation Measure included in
Commission approval of the MSP Stipulation (Case No.
PAC-02-3, Order No. 29708)
Did the Company in its Application propose a
uniform increase for all customer classes?
The Company recommended net increases ranglngNo.
from 15.6% for Agrium to 10.4% for Irrigators to 9.6 % for
residential service to 6% for General Service customers.
Was Monsanto included in the Company s Cost of
Service analysis?
While the cost of servlng Monsanto and theNo.
revenues generated under the Monsanto contract were used to
establish the Idaho revenue deficiency, the additional
revenue requirement was allocated to customers other than
Monsanto.
How did the parties in this case arrl ve at a
CASE NO. PAC-E- 05-7/01/05 (STIP)LOBB , R.
STAFF
Stipulated Settlement?
The filed Stipulation is the resul t of intense
negotiation by the parties that focused on three important
factors: 1) an approved jurisdictional allocation
methodology that establishes an Idaho revenue requirement
with Monsanto as an Idaho situs customer; 2) a fixed price
contract for Monsanto extending through 2006 that subject to
the public interest contract standard prohibits rate changes
during the term of the contract; and 3) a disputed class COS
study that allocates much of the identified revenue
deficiency to Monsanto.
What are the primary provlslons of the Proposed
Settlement?
The primary provlslon of the Settlement is an
annual base revenue requirement increase of $5.75 million
representing an aggregate base rate increase of 4.8%.Cost
of Service issues pursuant to the understanding of the
parties will be deferred until 2006 when a rate case will be
filed to coincide with expiration of the existing Monsanto
fixed price contract.
Are there any other lssues addressed in the
Settlement?
The Settlement contains a variety of otherYes.
provisions designed to meet the needs of the various parties
to the Stipulation.The provisions include implementation
CASE NO. PAC-E- 05-7/01/05 (STIP)LOBB, R
STAFF
and support for future use of the Revised Protocol
jurisdictional allocation methodology, a statement of Staff
support for future use of a tariff standard for PacifiCorp
Idaho customers, a Staff agreement to discuss wi th the
Company the possibility of developing an alternative rate
recovery mechanism, a Company commi tment to meet wi
interested parties to discuss the calculation of credits
provided under the Company s Schedule 72 , Irrigation Load
Control Credit Rider and a commitment by the Company to file
revlslons to its Schedule 21 Low Income Weatherization
Program.
What is the rate impact of the Settlement?
The Settlement specifies that Idaho
jurisdictional revenue requirement will lncrease by $5.
million annually when combined with expiration of Schedule
93, the Power Cost/Tax Surcharge, a net increase of 1.
over current revenues will resul The net increase of 1. 7 %
will be spread uniformly among all Idaho customers and rate
components beginning September 16, 2005.Monsanto, a non-
tariff special contract customer , is not affected by the
lncrease
How does the revenue requirement increase set
forth in the Proposed Settlement compare to the increase
originally requested by PacifiCorp?
The Proposed Stipulation s increase represents
CASE NO. PAC-E- 05-7/01/05 (STIP)LOBB , R
STAFF
about 38% of the $15.1 million lncrease originally requested
by the Company.
What process did the Commission Staff undertake to
evaluate PacifiCorp s filing?
As part of its investigation in this case Staff
audi ted the Company s test year resul ts of operations,
evaluated the jurisdictional allocation methodology employed
by the Company to allocate costs to the Idaho jurisdiction
and reviewed the Company s class Cost of Service study.The
Staff also conducted two customer workshops in PacifiCorp
service territory to explain the Company s filing, discuss
the potential for settlement and solicit comment and opinion
from its customers.
Based on its audi t, Staff determined that the
adjusted test year employed by the Company had been refined
through extensive review in rate cases by at least three
other state jurisdictions and was relatively free of
inappropriate plant additions or expenses.Notwi thstanding,
Staff identified $4 to $6 million in test year adjustments
that Staff believed could reasonably be approved by the
Commission leaving an incremental revenue requirement
increase for Idaho in the $9 to $11 million range.The
Staff adjustments were not associated with regulatory assets
and I i ab i lit i e s .Therefore all regulatory assets and
liabilities are unadjusted and recognized for purposes of
CASE NO. PAC-E- 05-7/01/05 (STI P)LOBB, R
STAFF
this settlement.
Staff also verified that the Company utilized the
Revised Protocol jurisdictional allocation methodology wi
a Rate Mitigation Measure of $1.84 million to establish the
$15.1 million proposed increase in Idaho revenue
requirement.The Revised Protocol Methodology treats
Monsanto as an Idaho si tus customer for the purposes of
allocating system costs and revenues.
Finally Staff noted that the Company s class Cost
of Service study did not include any allocation to Monsanto
even though Monsanto is included as an Idaho customer for
the purpose of allocating system cost to Idaho.
Consequently, Staff requested that the Company modify its
Cost of Service to include Monsanto.The resul ts of the
modified study showed that as much as two thirds of the
proposed revenue requirement increase was the responsibility
of Monsanto.
Did PacifiCorp in its Application propose to
recover any of the identified Idaho revenue requirement
deficiency from Monsanto?
Due to Monsanto s current fixed prlceNo.
contract, the Company proposed to collect the entire
identified deficiency from its other Idaho customers.
Did Staff agree with the Company s proposal?
Staff did not believe that service costNo.
CASE NO. PAC-E- 05-7/01/05 (STIP)LOBB , R.
STAFF
deficiencies attributable to Monsanto were recoverable from
other Idaho customers.
parties to the case support Staff'Did the other
position?
Yes,the other
posi tion with respect
parties agreed with Staff'
the inappropriateness of other
customers absorbing an identified Monsanto revenue
deficiency.However , several parties had questions
regarding the validity of the Company s Cost of Service
study.Agrium believed that the study was biased against
high load factor customers such as Agrium and Monsanto and
would be modified to show lower cost of service if addressed
at hearing.Irrigators also believed the Company s study
was flawed.The Company, while believing its Cost of
Service study was correct, simply maintained that under
Revised Protocol it was entitled to recover prudently
incurred costs properly allocated to Idaho.If costs could
not be recovered from Monsanto, then the Company bel ieved
they were appropriately recovered from other customers.
What was Staff's understanding of Monsanto
posi tion regarding cost of serVlce and recovery of Idaho
revenue requirement deficiency?
Monsanto maintained that it had a firm fixed prlce
contract through 2006 and was not subj ect to the outcome of
this rate case.It also maintained that other Idaho
CASE NO. PAC-05-7/01/05 (STIP)LOBB , R
STAFF
customers should not be held responsible for cost of serVlce
deficiencies attributable to Monsanto.It maintained that
any identified deficiency in Monsanto s cost of service
during the term of the contract should be unrecoverable by
the Company.
How does the Stipulated Settlement resolve the
cost of service and revenue requirement recovery disputes
identified in this case?
The Settlement essentially shares the disputed
revenue requirement deficiency associated with serving
Monsanto between other Idaho customers and Company
shareholders in the short term until the Monsanto contract
expires next year.The Settlement reflects PacifiCorp
stated intention to file an Idaho rate case next year to
coincide wi th renegotiation of the Monsanto contract.This
will bring Monsanto in synch with other customer classes
regarding determination of cost of service responsibility
and will enable an appropriate revenue requirement to
established for all of PacifiCorp s Idaho tariff and special
contract customers.
How is the disputed Monsanto revenue deficiency
shared in the short term?
Generally, Staff has identified a $9 to $11
million-revenue deficiency that it believes could result
from proceeding without settlement.Based on the Company
CASE NO. PAC-05-7/01/05 LOBB , R
STAFF
(STIP)
modified Cost of Service study that includes Monsanto, some
$7 to $9 million of the deficiency is the responsibility of
Monsanto.The $5.75 million revenue increase proposed for
other PacifiCorp customers under the Settlement leaves
approximately $3.25 to $5.25 million left to be recovered
from PacifiCorp shareholders ($9-$5.75 million to $11-$5.
million) If Monsanto s cost of service responsibility were
found to be less than that shown in the Company s study,
then other Idaho customers may ul timately be required to pay
more than the agreed to amount.If the Company s Cost of
Service study were found to be correct in this case, then
Monsanto could ul timately be required to move to full cost
of service as determined in this proceeding when its
contract is renewed.This Settlement balances the interests
of the various Idaho customer classes wi th those of Company
shareholders.
Why was a commi tment by Staff to support a tariff
standard for customers seeking special contracts in the
future included as part of the Settlement?
Including the Staff commitment in the Stipulated
Settlement was the result of negotiations with the Company.
While Staff recognized that Monsanto would likely not slgn
the Settlement with such a commitment included, Staff also
recognized the merits of the Settlement for other parties
and the potential problems created by continued use of a
CASE NO. PAC-E- 05-7/01/05 LOBB , R.
STAFF
(STIP)
contract standard for Monsanto in the future.
What does Staff see as the potential problems of
continuing a contract standard contract for Monsanto in the
future?
The primary problem includes the risk that
PacifiCorp s Idaho customers will be asked to cover cost of
service deficiencies that occur during the term of the fixed
price contract.This possibility appears more likely given
the approval of the Revised Protocol allocation methodology
that treats Monsanto as an Idaho si tus customer.Monsanto
represents approximately 40% of PacifiCorp s Idaho load and
approximately 25% of PacifiCorp s Idaho revenues.
prudently incurred Idaho revenue requirement cannot be
recovered from Monsanto or any other Idaho customer during
the term of a fixed price contract, then PacifiCorp
shareholders would bear the unrecovered costs.
Staff does not believe this is a sustainable or
viable approach to cost allocation and cost recovery for the
future.Therefore, Staff believes a tariff standard
contract under the control of the Commission is a more
appropriate approach.Staff has verbally articulated this
posi tion to all parties in this case and consequently, did
not oppose supporting the tariff standard language as part
of the Settlement.
Does the Commission have to decide the tariff vs.
CASE NO. PAC-E- 05-7/01/05
(STIP)LOBB , R
STAFF
contract standard issue in this case?
The Commission s approval of the SettlementNo.
does not commit the Commission to employ a tariff standard
for Monsanto in the future.The Commission does not need to
make a decision on tariff standard in this case nor does the
Staff suggest it do so.Staff recommends that this issue be
addressed in conj unction wi th the Company s next rate case or
the next Monsanto contract case.At that time Monsanto can
make its case for contract standard service.
How does Staff view the other provisions of the
Settlement?
While Staff does not support a Power Cost
Adjustment (PCA) or an Alternative Form of Regulation (AFOR)
mechanism for PacifiCorp at this time, we have no obj ection
to meeting wi th the Company to discuss these issues.Staff
supports and plans to participate in discussions regarding
calculation of credits under the Company s Schedule 72,
Irrigation Load Control Program.Staff agrees wi th the
specified action dates for establishing appropriate credit
levels for implementation in time for the 2006 irrigation
season.
Finally, Staff does not obj ect to the Company
plan to propose revisions to its Low Income Weatherization
Program Tariff Schedule 21.Staff looks forward to
participating in the Company s filing to increase annual
CASE NO. PAC-E- 05-7/01/05 (STIP)LOBB, R.
STAFF
Community Action Agency incentives, to increase the annual
per dwelling rebate levels and to expand its cost
reimbursement and promote installation of a wide variety of
energy efficiency measures.
Could you please summarize Staff's position on the
Settlement?
Staff fully supports the StipulatedYes.
Settlement and believes the Settlement to be just, fair and
reasonable and in the public interest.The Settlement
represents a compromlse by all parties in this case.Staff
believes the Settlement provides a reasonably modest overall
lncrease in Idaho revenue requirement and equi tably shares
cost responsibility in the interim among the Company and its
customers.More importantly, it defers the highly
controversial issue of cost allocation to a period when all
customers including Monsanto, the Company s largest Idaho
customer, are active participants in the case and subj ect
the outcome.
Does this conclude your testimony in this
proceeding?
Yes, it does.
CASE NO. PAC-05-7/01/05 (STI P)LOBB , R
STAFF
CERTIFICA TE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 1ST DAY OF mLY 2005
SERVED THE FOREGOING DIRECT TESTIMONY OF RANDY LOBB IN SUPPORT
OF STIPULATION IN CASE NO. PAC-05-, BY MAILING A COpy THEREOF
POSTAGE PREPAID
THE FOLLOWING:
JEFF LARSEN
ACIFICORP
201 S MAIN ST., SUITE 2300
SALT LAKE CITY, UT 84140
MAIL: jeff.1arsen~pacificorp.com
DATA REQUEST RESPONSE CENTER
ACIFICORP
825 NE MUL TNOMAH SUITE 800
PORTLAND OR 97232
MAIL: datarequest~pacificorp.com
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
MAIL: tony~yanke1.com
JAMES R SMITH
MONSANTO COMPANY
PO BOX 816
SODA SPRINGS ill 83276
MAIL: iim.smith~monsanto.cOln
DENNIS E PESEAU
UTILITY RESOURCES INC
1500 LIBERTY ST SE
SUITE 250
SALEM OR 97302
MAIL: dpeseau~excite.com
JAMES M. VAN NOSTRAND
STOEL RIVES LLP
900 SW FIFTH AVE SUITE 2600
PORTLAND OR 97204
MAIL: jmvannostrand~stoe1.com
ERIC L OLSEN
RACINE OLSON NYE BUDGE
& BAILEY, CHARTERED
PO BOX 1391
POCATELLO ill 83204-1391
MAIL: elo~racinelaw.net
RANDALL C. BUDGE
RACINE OLSON NYE BUDGE
& BAILEY, CHARTERED
PO BOX 1391
POCATELLO ill 83204-1391
MAIL: rcb~racinelaw .net
CONLEY E WARD
GIVENS PURSLEY LLP
601 WBANNOCKST
PO BOX 2720
BOISE ill 83701-2720
MAIL: cew~givenspursley.com
BRAD M. PURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE ill 83702
MAIL: bmpurdy~hotmai1.com
CERTIFICATE OF SERVICE
R. SCOTT PASLEY
ASSISTANT GENERAL COUNSEL
J R SIMP LOT COMPANY
999 MAIN ST (83702)
PO BOX 27
BOISE ill 83707
MAIL: spasley~simplot.com
DA Vill HAWK, DIRECTOR
ENERGY NATURAL RESOURCES
J R SIMPLOT COMPANY
999 MAIN ST (83702)
PO BOX 27
BOISE ill 83707
MAIL: dhawk~simplot.com
TIMOTHY J SHURTZ
411 S MAIN
FIRTH ill 83236
MAIL: tim~idahosupreme.com
CERTIFICATE OF SERVICE