HomeMy WebLinkAbout20070608Walje direct.pdfJ::..:; H i '
, . !'
i' i '
. '
ii:;2~:
';,
;i;,
::;:.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF ROCKY
MOUNTAIN POWER FOR
APPROVAL OF CHANGES TO ITS
ELECTRIC SERVICE SCHEDULES
CASE NO. PAC-O7-
Direct Testimony of A. Richard Walje
ROCKY MOUNTAIN POWER
CASE NO. P AC-O7-
June 2007
Please state your name, business address and position with the Company
(doing business as Rocky Mountain Power).
My name is A. Richard Walje. My business address is 201 South Main, Suite
2400, Salt Lake City, Utah 84111. I am President of Rocky Mountain Power.
Qualifications
Briefly describe your educational and professional background.
I have worked in the electric utility industry since 1972. My experience includes
working as a journeyman lineman, field service engineer with General Electric
and as a substation design engineer for Utah Power. At Utah Power I held
numerous management and executive positions with increasing levels of
responsibility in the areas of engineering, construction, transmission, and
distribution operations, customer service, procurement, information technology
and community affairs. I have served on PacifiCorp s board of directors since
2000, and I am also currently the chairman of the board ofthePacifiCorp
Foundation. I have a Bachelor of Science in Electrical Engineering degree (1984)
and a Master of Business Administration degree (1991), both from the University
of Utah. I have received additional executive level instruction from the
University of Michigan and management and electrical engineering theory from
General Electric s Crotonville education center.
What are your responsibilities as President of Rocky Mountain Power?
As President of Rocky Mountain Power, I am responsible for all of the
Company s delivery service, customer service and external affairs in Idaho
Wyoming and Utah, including the Company s strategy, investments and
Walje, Di -
Rocky Mountain Power
operations that contribute to the delivery of safe, reliable and affordable electric
service to the Company s customers.
Purpose and Summary of Testimony
What is the purpose of your testimony?
The purpose of my testimony is to provide an overview of the Company s 2007
Idaho general rate case application and to introduce the other Company witnesses
testifying in support of the proposals in this application. In outlining the
Company s case, and the need for the proposed revenue increase, I will cover the
following areas:
External business factors that create the requirement for utility
investments and the increased operating expenses required to ensure the
Company continues to meet its statutory obligation to provide adequate
efficient, just andreasonable service to our Idaho customers.
The Company s financial strength and why the increase sought in this
application is essential to maintaining the financial health of the Company,
especially as it relates to the significant capital investment program.
The initiatives and investments the Company has undertaken to serve
Idaho loads and control costs, while at the same time continuously
improving customer service and reliability.
The evidence that even with the price increases proposed in this
application, the Company s electricity prices remain an excellent value for
Idaho customers and local Idaho communities.
How commitments related to MidAmerican Energy Holdings Company
Walje, Di - 2
Rocky Mountain Power
(MEHC) acquisition of Rocky Mountain Power have been addressed in
this filing.
Idaho Operations and Case Overview
Please describe Rocky Mountain Power s presence in Idaho.
Rocky Mountain Power provides safe, reliable, and low-cost electric service to
over 67,000 Idaho customers. Rocky Mountain Power also provides nearly 200
jobs in the communities of southeast Idaho. The Company owns and operates 94
substations in Idaho pluS over 2 000 miles of transmission lines and 5 600 miles
of distribution lines. In addition, the Company purchases the output of the
Wolverine Creek wind generation facility located near Idaho Falls.
In what other ways does Rocky Mountain Power support local Idaho
communities and the Idaho economy?
The Company works closely with state and local government agencies on
economic and community development projects and is actively involved in giving
back to our Idaho communities. In 2006, Rocky Mountain Power Foundation
grants in Idaho exceeded $15 900 for programs such as the United Way and other
worthwhile local programs. The Company s corporate giving also contributed
over $25,000 in contributions and sponsorships for activities in Idaho
communities. Rocky Mountain Power s Lend-a-Hand program provides bill
payment assistance to low-income households and the Company has committed to
ensure $40 000 from corporate funds, employee and customer donations, or other
sources is contributed to the program each year. The Company understands that
its responsibility of providing safe, reliable electric service at competitive prices
Walje, Di - 3
Rocky Mountain Power
contributes in a positive respect to a healthy Idaho economy.
Please explain why the Company is f"ding a request to increase its rates in
Idaho at this time.
The Company fmds itself in a position similar to that of many utilities across the
nation-increasing loads, environmental requirements and improved reliability
expectations from customers are driving the need for new utility plant investments
which have associated fuel costs, financing costs and operation and maintenance
expenses. Rocky Mountain Power s need for the revenue increase in this
application is primarily caused by cost increases in the following areas:
1. Fuel, wholesale market and transmission wheeling price increases,
which contribute to significant increases in net power costs.
2. New generation, transmission and distribution plant investments.
3. Labor-related cost increases.
If approved in its entirety, this filing will assist Rocky Mountain Power in
meeting its goals of delivering safe and reliable electric service, and of providing
excellent customer service, while setting reasonable prices that provide the
Company a fair opportunity to recover the cost to serve customers and to earn a
reasonable return on its investment.
We recognize that our Idaho residential, irrigation and small agricultural
customers are in a period of electric cost uncertainty with the loss of the
Bonneville Power Administration residential exchange credit. Under the
ownership ofMEHC, it is our objective to be conservative in the amQunt of our
requests for rate increases. Consistent with that objective, the Company has
Walje, Di - 4
Rocky Mountain Power
carefully prepared this application to ensure that all elements of the rate request
are necessary to maintain and provide safe and reliable service to our customers at
a level they both expect and deserve.
Please explain the Company s requested revenue increase in this application.
In order to recover the costs of providing safe and reliable electric service and to
provide a reasonable opportunity for the Company to earn a fair return on its
investments, the Company is requesting an increase of$18.5 million, or 10.3
percent, to Idaho revenue. The revenue requirement is described in detail in the
directtestimony of Company witness Steven R. McDougal. This increase
includes a request for a return on equity of 10.75 percent, which is Rocky
Mountain Power s cost of equity capital as explained in the direct testimony of
Dr. Samuel C. Hadaway. Later in my testimony I discuss efforts the Company is
making to keep controllable costs down and how the Company s rates today
remain reasonable even with the price increases proposed in this application.
Externally Influenced Costs and Marginal Cost Pressure
Please explain external business factors and cost drivers that impact the
Company.
The Company is experiencing significant cost increases to its business inputs
such as certain labor-related costs and net power costs. I will provide an overview
of these cost pressures, and subsequent witnesses will provide additional detail
and thorough explanations of the impacts these and other areas have on the Idaho
revenue requirement.
Walje, Di - 5
Rocky Mountain PQwer
Please explain the cost pressures associated with labor-related issues?
The Company continues to incur cost increases in employee health insurance and
pension benefits. Although the Company has mitigated some of the impact of
these cost increases with internal control initiatives, such as an increase in
employee contributions to these benefits, those that are externally driven are
largely unavoidable. For example, the Company has implemented a transition
plan for health insurance premium costs that, when completed on January 1 2008,
will require all employees to pay 20 percent of the premium. With regard to the
pension program, the Company has implemented a change effective June 1 , 2007
to a cash balance pension plan for non-union employees. The cost of employee
benefits and recent changes to the Company s program are discussed further by
Company witness Erich D. Wilson. Company witness Wilson will 'also discuss
Rocky Mountain Power s success in achieving long-term cost savings for our
customers, the operating efficiencies that have been obtained through a work-
force restructuring program, and the Company s effort to manage costs and
remain competitive with other companies in the energy industry. Even with these
internal cost control efforts, externally driven cost pressures, particularly in the
health care area, are largely unavoidable, and the Company continues to incur cost
increases that need to be included in the Idaho revenue requirement.
Please explain the cost pressures on Rocky Mountain Power and its
customers related to net power costs.
Net power costs consist of all fuel costs, net wholesale transactions and wheeling
costs, which in total represent approximately 30 percent of the Idaho revenue
Walje, Di - 6
Rocky Mountain Power
requirement. The Company does not own sufficient generating resources to meet
our customers' peak power needs; therefore, we must buy and sell power in the
wholesale market to meet our load requirement and to balance hourly, daily and
seasonal load fluctuations. Net power costs continue to trend upward and remain
volatile. The combination of higher fuel prices and wholesale market volatility
has produced a much riskier environment for all participants in the wholesale
energy markets, including regulated utilities. Company witness Mark T. Widmer
will testify regarding the details of the net power costs included in this
application.
How does the marginal cost to serve customers today compare to the average
embedded cost currently reflected in rates?
Providing power in today s environment is more expensive than it has been in the
past. Because the incremental cost to serve our customer base is much higher
than the embedded costs currently reflected in rates, upward pressure is placed on
rates for all of our customers. For example, the marginal cost of generation to
serve load is in excess of 6.5 cents per kWh ifbased on a traditional,gas
combined-cycle turbine facility or in excess of 5.5 cents per kWh if based on a
supercritical pulverized coal plant, and these are exclusive of carbon taxes that
could add another cent per kWh or more. A new integrated gasification combined
cycle (IGCC) plant that does not capture nor sequester carbon dioxide will cost
approximately 9 cents per kWh. Additionally, current market prices for wholesale
power purchases can be higher than 8 cents per kWh for on-peak energy. In
contrast, based on current rates the Company is recovering 4 cents per kWh on
Walje, Di - 7
Rocky Mountain Power
average for generation-related costs, with rates for large industrial customers
recovering about 3.6 cents per kWh.
Financial Strength
If the requested revenue increase proposed in this application is not
approved will the Company have a reasonable opportunity to earn its
authorized rate of return?
No. At current rate levels, the Company s return on equity will drop to an
estimated 5.3 percent by December 2007. Without a general rate increase now
the additional investments made by the Company, coupled with rising costs for
fuel, operation, maintenance, depreciation and other costs, will make it impossible
for the Company to earn anywhere near its authorized rate of return.
Will the Company s significant investments in production, transmission and
distribution plant impact its financial strength?
Yes. PacifiCorp s most recent Form lO-, filed with the Securities and Exchange
Commission on March 2, 2007, indicates that the Company s increasing capital
expenditure program already exceeds one billion dollars per year and will
increase to as much as $16 billion over the next ten years.
What are the major components of Rocky Mountain Power s capital
investment strategy?
To address the demand for electricity across the Company s system, the Company
is in the process of adding significant new generation, transmission, and
environmental resources. A few of these new resources are specifically addressed
in this application, including the Company s Lake Side gas-fired generation
Walje, Di - 8
Rocky Mountain Power
facility and several new wind resources, including the Leaning Juniper, Marengo,
and Goodnoe Hills projects. These generation investments are described in more
detail in the direct testimony of Company witness William J. Fehrman. Further
the Company is investing in maintaining its aging thermal fleet and fulfilling its
environmental obligations with respect to hydroelectric facility relicensing and
emissions control requirements.
Additionally, the Company plans significant investment in its power
delivery system over the next several years. Company witness Douglas N.
Bennion will describe three large projects included in this application, including
two large transmission projects required to integrate new generation resources and
one large distribution substation project needed to improve reliability in the
Company s service territory near Idaho Falls, Idaho. Rocky Mountain Power
recently announced plans to construct transmission lines originating in Wyoming
and connecting into Utah, Idaho, Oregon, and the desert southwest to deliver
needed resources to key load centers and to integrate multiple resource types.
These lines coupled with other transmission investments will exceed $4 billion
over the next several years.
How would a failure to address these issues affect Rocky Mountain Power
ability to attract the capital it requires to maintain its system and to continue
to provide safe and reliable service to its customers?
Absent supportive and appropriate regulatory treatment in this general rate case
and with the attendant improved earnings, the combination of the Company
current construction cycle, rising labor, materials and fuel costs and risks
Walje, Di - 9
Rocky Mountain Power
involving resource coordination among the six states served by PacifiCorp (Rocky
Mountain Power and Pacific Power), could affect the Company s credit ratings
position, making it difficult for the Company to obtain the capital it needs at
competitive prices. While the Company has benefited from its ownership by
MEHC, which has invested approximately $215 million 1 in cash capital
contributions into the Company since the acquisition, without the return of any
dividends to MEHC, the Company continues to rely on external parties for its
significant debt financing needs. The debt securities markets are competitive, and
to the extent investors perceive higher risk in Rocky Mountain Power because of
regulatory uncertainty, they will require a greater return through higher interest
rates. Higher interest rates on debt will result in higher retail rates for our retail
customers. Company witness Bruce N. Williams provides testimony regarding the
debt financing and the capital structure of the Company.
What is the Company s requested return on equity in this application?
Rocky Mountain Power is requesting an authorized return on equity (ROE) of
10.75 percent in this application, which is supported in the direct testimony of Dr.
Samuel C. Hadaway. In his testimony, Dr. Hadaway explains the quantitative
model results, market and industry conditions, and specific Company financial
and operating risks that provide the basis for his recommendation. I must
emphasize that the financial and operating challenges that Dr. Hadaway discusses
are genuine. Rocky Mountain Power is in an extensive, both in size and duration
construction cycle and the Company s ongoing level of investment far exceeds
1 MERC plans on investing an additional $150 million in the Company in 2007. R~fer to the direct
testimony of Company witness Bruce Williams.
Walje, Di -
Rocky Mountain Power
both its net operating income and depreciation expense. As a result, the Company
requires substantial levels of new financing to fund the investment necessary to
meet its customers' electric energy needs.
How will the proposed rate increase sought in this application contribute to
Rocky Mountain Power s financial health in Idaho?
The proposed rate increases will provide the Company a reasonable opportunity
to earn its Commission authorized rate of return. The Commission authorized
revenues will contribute to favorable credit ratings from the fmancial markets,
thereby keeping debt costs at levels commensurate with the needs of the business
and the best interests of customers. The authorized revenues will also permit the
Company to maintain and operate its system with good reliability given the
environmental and operating conditions it faces. In addition, the authorized
revenues will permit the Company to continue its extensive investment program
in generation, transmission and distribution facilities to serve load in Idaho.
Regulatory Lag
Does the test year in this application capture some of the significant capital
additions mentioned previously?
Yes. Consistent with past Commission practice, the Company used a historical
test year ending December 31, 2006, for this application. Certain known and
measurable adjustments have been applied to the base year to capture changes in
cost and investment levels through December 31, 2007. The Company is
including over $1.1 billion in system-wide investments that will be made during
2007, some of the incremental costs of doing business, and any known and
Walje, Di -
Rocky Mountain Power
measurable benefits that flow through to customers. These adjustments are
explained in further detail by Company witness Steven R. McDougal.
Is this adjusted test year sufficient to allow the Company the opportunity to
recover its prudently incurred costs?
No. Even with the addition of major capital investments, approved rates will not
be reflective of the true cost of business in the rate-effective period because of the
delay in the recognition and recovery of prudent costs or return on investment due
to the lengthy regulatory process. For example, rates resulting from this
application will likely not take effect until 2008. Costs included in the revenue
requirement calculation, on the other hand, are based on expenditures incurred
during 2006, adjusted for limited changes known to occur during 2007. This
delay is inherent in the regulatory process and in effect prevents the Company
from earning its authorized rate of return during a period of rapidly rising costs or
when significant levels of capital investment are required. In the current case the
Company is responding to both situations, and given the business conditions
facing the Company in the foreseeable future, a historical test year does not
adequately provide the Company with the opportunity to earn its authorized rate
of return. Conversely, a forecast test year approach reduces this "regulatory lag
because it better reflects a utility's financial needs during the rate-effective period.
To reemphasize, this is especially the case during the extensive build cycle the
Company is currently experiencing. Thus, a forecast test year allows for results
that maintain a utility' sfinancial strength during such periods. The Company
respectfully requests that the Commission consider fully forecasted test periods
Walje, Di - 12
Rocky Mountain Power
for use in future Rocky Mountain Power proceedings to match costs and revenues
during the rate-effective period.
Cost Control Efforts
Explain the efforts the Company has made to control costs in an effort to
maintain electricity prices at reasonable levels?
Effective management of power costs and operating costs is one of the key
elements of the Company s strategy to keep electricity prices as low as possible.
Since MEHC's acquisition ofPacifiCorp, Rocky Mountain Power has achieved
increased efficiencies through a wide range of productivity based initiatives
including improved call center operations, new procurement cost savings, internal
process improvements and staffing reductions. The Company has also made an
effort to strike a balance between operational expenses and preventative
maintenance on the Company s transmission and distribution facilities to achieve
maximum value for each dollar spent on maintaining and operating our growing
system. This effort is discussed in detail in the testimony sponsored by Company
witness Douglas N Bennion. While these and other initiatives are essential, they
are unfortunately not enough to offset the significant cost increases discussed
earlier.
Has the Company continued improvements in customer service and service
quality while undertaking cost management initiatives?
Yes. As operational efficiencies are achieved, customer service performance
levels have also improved. Many of the commitments made at the time of the
merger with Scottish Power addressed improved customer service, and Rocky
Walje, Di -
Rocky Mountain Power
Mountain Power has met or exceeded each of these promises as demonstrated by
the recent recognition the Company has received for its ex-cellent customer
service. For example, in both 2005 and 2006, Rocky Mountain Power ranked
number one out of 60 United States utilities in overall satisfaction for large
commercial and industrial customers in the report prepared by TQS Research, an
independent survey group. This back-to-back accomplishment as the top utility in
the nation is unprecedented in TQS history. In both. studies, 94 percent of
customers with at least one megawatt of demand reported they are "very satisfied"
with the level of service provided to them by the Company.2 Additionally, Rocky
Mountain Power s call centers received the 2005 Call Center of the Year award
from the International Call Management Institute. Finally, J.D. Power &
Associates recently released the results of its 2007 small and mid-sized business
customer satisfaction survey. Overall, customer satisfaction scores increased 32
points for Rocky Mountain Power, but the Company s ranking in the Western
region stayed the same at 9th place, suggesting that several other utilities in the
West outperformed the Company. We are not satisfied with this level of
performance and are working on measures to improve customer satisfaction for
all classes of service.
What changes has the Company made to its maintenance and reliability
improvement investment programs to continue its focus on service
reliability?
Beginning in 2007, the Company refined its maintenance approach to incorporate
the outage history of individual customers and circuits. This program, known as
2 The 2007 TQS report and ranking results will be released in August 2007.
Walje, Di - 14
Rocky Mountain Power
customers experiencing multiple interruptions" (CEMI), is meant to further
refine the Company s maintenance and reliability improvement investments in
those areas that have the worst reliability.
Has the Company made improvements in service reliability?
Yes. Rocky Mountain Power has continued to implement an investment strategy
that is focused on both transmission and distribution asset replacement and
reinforcement as a consequence of load growth and the need to replace assets
close to the end of their operational lives. As a result, Rocky Mountain Power has
successfully delivered its System Average Interruption Frequency Index (SAIFI)
target during the period January 1 through December 31 , 2006 and is on track to
deliver its System Average Interruption Duration Index (SAID I) during the period
September 1 , 2006 through August 31 , 2007.
What network performance commitments has the Company made and how
do the actual results compare to the commitments?
Within the three year period ending March 31 , 2008, the Company has committed
to deliver no more than 167.4 minutes of average customer interruption and no
more than 2.07 average interruptions per year. During the period January 1
through December 31 , 2006, the Company delivered an actual average customer
interruption of 206 minutes and a system average frequency of 1.99 interruptions.
What additional efforts has the Company undertaken and when does the
Company anticipate that it will achieve its outage duration commitments?
In the latter part of2005 the Company observed its distribution reliability was
continuing to improve; however, it was experiencing more frequent loss of supply
Walje, Di - 15
Rocky Mountain Power
events than historically, due to both transmission and substation outages. As a
result the Company initiated investigation and corrective plans to turn around this
performance. .During 2006 the beginning of these results were seen with the
successful achievement of the company s frequency commitment target. At this
time, the Company is on track to deliver its outage duration commitment target of
no more than 167.4 minutes of average customer interruption during 2007.
What other commitments has the Company made to continue its focus on
service reliability?
The MEHC transaction stipulation commits the Company to continue investment
in the "Saving SAIDI Initiative" and the "Fusing Improvement Program" (MEHC
Commitment No. 35(d)). In setting prices for a public utility, the Commission
must keep in mind the balance between the cost of utility service and an
appropriate level of service reliability. Rocky Mountain Power has achieved a
reasonable balance of cost and reliability and the Company continues to seek
improvements. Due to weather conditions, vandalism, mechanical failure or other
events beyond our control, we will experience service outages, which
unfortunately sometimes result in added costs and inconvenience for our
customers. Most of the Company s facilities are exposed to unavoidable risk, but
we work with our customers to identify and mitigate these risks in the most cost-
effective manner possible.
Please describe Rocky Mountain Power s current and proposed prices in an
historical context.
Rocky Mountain Power s present and proposed base rates, when adjusted for
Walje, Di - 16
Rocky Mountain Power
inflation, are significantly lower than they were 2() years ago. As described in
detail by Company witness William R. Griffith, including the effects of the full
increase proposed in this application, overall base rates for the Company s major
rate schedule customers in Idaho will have increased only 2 percent since 1986 on
a nominal basis. Over that same 21-year period, the Consumer Price Index has
increased by over 89 percent. In light of the significant investment that the
Company is making to ensure that the electrical infrastructure can cope with the
demands placed on it in Idaho and elsewhere in our system, as well as to ensure
that aging assets can be replaced and environmental obligations met, the rate
increase proposed in this application is both necessary and reasonable.
MEHC Acquisition of PacifiCorp
Please generally describe the terms of the Commission s approval of
acquisition ofPacifiCorp by MidAmerican Energy Holdings Company.
On July 15, 2005, the Company filed an application seeking approval of the
proposed acquisition ofPacifiCorp by MEHC (Case No. PAC-05-08). The
Company along with the Commission Staff, Idaho Irrigation Pumpers
Association, Community Action Partnership Association of Idaho, Monsanto, and
R. Simplot Company negotiated a settlement stipulation resulting in 52 general
commitments and 41 Idaho-specific commitments. The commitments cover a
broad range of benefits including customer service, financial protection
Commission access to information, affiliate transactions, generation (including
renewable and environmental issues), transmission projects, low income and
community programs, and corporate presence. The stipulation and commitments
Walje, Di - 17
Rocky Mountain Power
were ultimately approved by the Commission on March 14, 2006.
Please describe how the MEHC commitments are reflected in this
application.
The commitments identified in the stipulation cover a broad range of benefits
including customer service, financial protection, Commission access to
information, affiliate transactions, generation (including renewable resource and
environmental issues), transmission projects, low-income and community
programs, and corporate presence. Adjustments were made to the revenue
requirement to include impacts of the commitments made in the merger
agreement as well as known changes to operational expenses implemented after
the acquisition. For example, the Company committed to $142.5 million (total
Company) of off-settable rate credits in Commitment 126 (detailed in
Commitments 127 through 131) that reduce the revenue requirement and would
not otherwise be available without the transaction. Company witness Steven R.
McDougal testifies about how the commitments impacting the calculation of
revenue requirement are included in the application, including the deferred
accounting treatment for certain commitments as approved in Commission Order
No. 30076.
As previously mentioned, the Company has undertaken a workforce
restructuring program resulting in long-term cost savings and operating
efficiencies that will benefit customers. Company witness Erich D. Wilson
further describes the details of this program, and Company witness McDougal
explains how the related costs and benefits of this program have been included in
Walje, Di - 18
Rocky Mountain Power
this filing, including the deferred accounting treatment approved in Commission
Order No. 30225.
In summary, all applicable cost saving measures, efficiencies, investments
and improvements in the MEHC commitments have been properly included in
this application, can be supported by the appropriate Company witness, and are
the result ofMEHC's ownership and stewardship of Rocky Mountain Power.
Please briefly describe how the Company s organization has changed and
how these changes will benefit customers.
The Company has been reorganized to enable it to respond quickly and decisively
to the needs of its customers in the Rocky Mountain Power service area. In the
past, the Company had a single president and numerous executive and senior vice
presidents and directors who were responsible for activities and issues across the
six-state service territory. That former single president's role is now largely filled
by Mr. Greg Abel, the Company s chief executive officer. In addition, numerous
positions have been eliminated across the spectrum of responsibility at the
Company, including many directors, managing directors, and vice presidents. The
three president positions that exist today have been created to oversee the
operations of Rocky Mountain Power, Pacific Power, and PacifiCorp Energy and
to focus responsibility, accountability, and leadership on more defined
components of the business. This allows employees to focus on a smaller set of
goals and issues and, as a result, to be more responsive to our customers' service
needs.
Walje, Di - 19
Rocky Mountain Power
In what other ways has MEHC ownership impacted the Company?
MEHC's acquisition of the Company brought with it enhanced leadership and a
superior commitment to operational excellence and integrity. The business has
been refocused on local responsibility and accountability with a renewed
emphasis on prudent long-term business planning. MEHC is determined to deliver
on every commitment made as a condition of the transaction which will bring
improved customer service, greater system reliability, more open communication
of business planning and direction, and other protective measures benefiting our
Idaho customers.
The Company is making every effort to control its costs while at the same
time providing safe and reliable service to our customers; in fact, expenses that
the Company can control have been kept at the same level existing at the time of
the MEHC transaction in March 2006. While the Company s initiatives are
essential, they are unfortunately not enough to offset the steeply rising costs
experienced by the Company in today s business environment, which gives rise to
the rate increase requested in this application.
Introduction of Witnesses
Please identify the witnesses that the Company will offer to support the
application and the subject of their testimony.
The Company witnesses that have filed direct testimony in support of this
application and a brief summary of their testimony are as follows:
Samuel C. Hadaway, of FINAN CO, Inc., will testify in support of the
Company s ROE. He will also describe the unique operational risks that Rocky
Walje, Di - 20
Rocky Mountain Power
Mountain Power faces and why the Commission should authorize a ROE that will
account for Rocky Mountain Power s higher risks and operating challenges.
Bruce N. Williams, vice president and treasurer, will testify in support of the
Company s cost of debt, preferred stock and capital structure.
Steven R. McDougal, director, revenue requirements, will testify in support of
the Company s overall revenue requirement based on the results of operations for
the test year and describe the normalizing adjustments related to revenue
operation and maintenance expense, net power costs, depreciation and
amortization, taxes and rate base. Company witness McDougal will also testify on
deferred accounting costs and support the Company s proposed inter-
jurisdictional cost allocation.
Mark T. Widmer, director of net power cost, will testify in support of the
Company s net power costs. Company witness Widmer will also describe the
Company s production cost model and explain how input datais normalized.
William J. Fehrman, president, PacifiCorp Energy, will testify in support of the
Company s major new generation resource acquisitions, and will provide
investment information on and prudence justification for these items, including
the increased generation related overhaul and maintenance expenses for the test
period.
Doug N. Bennion, managing director of network reliability, will testify in support
of the capital investments that the Company is making in transmission and
distribution facilities to serve customer loads and deliver reliable power where it
is needed in Idaho.
Walje, Di - 21
Rocky Mountain Power
Erich D. Wilson, director, human resources, will testify in support of the
Company s new compensation, pension, and benefits program and related costs.
In addition, Company witness Wilson will support the severance costs incurred by
the Company in reshaping its corporate workforce.
Mark E. Tucker, regulatory analyst, will testify in support of the Company
class cost of service study.
William R. Griffith, director of pricing, cost of service, and regulatory
operations, will testify in support of the Company s rate spread and rate design
proposals. Company witness Griffith will also present an analysis of the
residential time-of-use schedule structure as ordered by the Commission in Order
No. 30229.
Carole A. Rockney, director, customer and regulatory liaison, will testify in
support of proposed housekeeping and needed operational changes to the
Company s electric service regulations.
Does this conclude your testimony?
Yes.
Walje, Di - 22
Rocky Mountain Power