HomeMy WebLinkAbout20071026Tallman rebuttal.pdfBEFORE 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-
Rebuttal Testimony
of Mark R. Tallman
ROCKY MOUNTAIN POWER
CASE NO. P AC-O7-
October 2007
Please state your name, business address and present position with the
Company (also referred to as Rocky Mountain Power).
My name is Mark R. Tallman and my business address is 825 NE Multnomah
Suite 2000, Portland, Oregon 97232. My present position is Managing Director
of Renewable Resource Acquisition. My position reports to the President of
PacifiCorp Energy. Both Rocky Mountain Power and PacifiCorp Energy are
divisions ofPacifiCorp (the Company).
How long have you been the Managing Director of Renewable Resource
Acquisition?
I have been the Managing Director of Renewable Resource Acquisition since
April 2006. Prior to that date I held the position of Managing Director of Front
Office from September 2003 to April 2006. Prior to being the Managing Director
of Front Office, I worked in the Origination Department, first as an Originator
(beginning March 1995), then as the Manager of Origination (beginning January
1999), then as the Director of Origination (beginning September 2000), and
finally as the Managing Director of Trading & Origination, Commercial &
Trading (beginning September 2003). I have worked at the Company for more
than 22 years.
Please describe your educational history.
I have a Bachelor of Science degree in Electrical Engineering from Oregon State
University and a Masters of Business Administration from City University. I am
also a registered Professional Engineer in the states of Oregon and Washington.
Tallman, Di-Reb - 1
Rocky Mountain Power
What is the purpose of your rebuttal testimony?
The purpose of my testimony is to respond to Staffs proposed revenue
requirement adjustments based upon increases to and imputations of renewable
energy credit (REC) revenue credits from the Company s new wind projects
including Wolverine Creek, Leaning Juniper, Marengo, and Goodnoe Hills wind
projects (collectively, the Wind Resources).
Would you please summarize your rebuttal testimony?
Through my rebuttal testimony, the Company accepts Staffs adjustment of$0.
million (total Company) designed to update the Company s REC revenues to
include known and measurable changes to these revenues in 2007. Indeed, as
reflected in the updated revenue requirement results sponsored by Company
witness Mr. Steven R. McDougal, the Company proposes to more than double
this adjustment to $2.3 million (total Company) by extending it to cover all of
2007, instead of just the first five months of 2007 as proposed by Staff.
The Company disputes, however, Staffs adjustment of $3.4 million (total
Company), which forecasts and imputes REC revenues based upon REC values
assumed in the Company s integrated resource plan (IRP). This portion of the
adjustment is inconsistent with test year conventions followed in all other aspects
of this case, misuses the IRP to forecast and impute REC revenues, and
inconsistently fails to include offsetting costs included in the IRP related to intra-
hour integration of Wind Resources. The Company s support of an increased
adjustment for 2007 known and measurable REC revenues is contingent upon
rejection of this aspect of Staffs adjustment.
Tallman, Di-Reb - 2
Rocky Mountain Power
Does Staff contest the prudence of the Wind Resources?
No. Staff does not contest the prudence of the Wind Resources. Staff witness Mr.
Bryan Lanspery testified that he has no concerns about the projects selected or the
manner in which the resources were acquired.
Increased and Imputed REC Revenues
What REC revenue credits does Staff propose?
Staff makes two adjustments with respect to REC revenues during the proforma
test year: (1) an adjustment of $825 390 (total Company) based on known and
measurable historical actual sales through the first six months of 2007 (increasing
the level of assumed REC revenues from all renewable resources in the
Company s portfolio), and (2) an adjustment of $3,445,533 (total Company) from
imputed REC revenues forecast for the Wind Resources using REC values
assumed in the IRP.
Please explain the basis for the first adjustment made by Staff.
The first adjustment ($825 390 total Company) is based on historical actual REC
revenues (for the period January 1 , 2007 through May 2007) that exceeded actual
REC revenues during 2006.
Does the Company object to the first adjustment made by Staff'.
, the Company does not object to the basic adjustment because it is based on
known and measurable historical actual REC revenues. The revenue requirement
originally proposed by the Company included 50 000 megawatt hours (MWhs) in
Leaning Juniper REC revenues made during 2006. Staffs adjustment includes
235 000 MWhs of additional REC revenues associated with the Wind Resources
Tallman, Di-Reb - 3
Rocky Mountain Power
in the first six months of 2007.
Has the Company extended and increased this adjustment?
Yes. The Company has extended the adjustment to cover known and measurable
changes in REC revenues through the end of 2007. The Company calculated this
adjustment by using actual results through October 2007 and annualizing these
revenues through December 2007 by applying October 2007 revenues to
November 2007 and December 2007. The Company used these results instead of
the 2006 REC revenues filed in the case. The resulting adjustment is an increase
in REC revenues of$2 271 991 (total Company) in this case.
Why did the Company propose to increase Staff's known and measurable
REC adjustment?
Throughout this case, the Company has supported consistency in the application
of test year conventions to avoid mismatching costs and revenues. This is true
whether the result increases revenue requirement or, as here, decreases revenue
requirement.
Does the Company have any reservations about Staff's proposal to increase
the REC revenue credit in this case?
Only one. The Company objects to Staff s proposal to impute additional REC
revenues based upon IRP REC values. Because this proposal is inconsistent with
a known and measurable approach to calculating the REC revenue credit, the
Company s support of an increase to the REC revenue credit in this case for 2007
full year revenues is based upon the assumption that the adjustment will be
adopted in lieu of (and not in addition to) Staff s proposal to impute additional
Tallman, Di-Reb - 4
Rocky Mountain Power
REC revenues based upon IRP valuations.
Please explain the basis for Staff's REC adjustment related to IRP
valuations.
This adjustment ($3,445 533 total Company) is based upon Staffs view (using
Staffs interpretation ofREC valuation assumptions in the Company s IRP) of
incremental revenues that Staff believes should be associated with the Wind
Resources. This adjustment is not based on known and measurable REC revenues.
Staff based its proposed imputation on the erroneous assumption that the value for
RECs was a necessary component in the IRP planning process to include
renewable resources in the Company s preferred generation portfolio.
Is it appropriate for Staff to impute revenues during the pro forma test year
from the Wind Resources on anything but a known and measurable basis?
No. The revenue requirement in this case is based on a historical test year (2006)
with known and measurable adjustments. The revenue requirement in this case is
not based on a future test year.
Does the IRP reflect costs associated with wind resources that are not
included in the revenue requirement associated with the Wind Resources?
Yes. The IRP takes into account costs associated with integrating wind resources.
The cost of integration consists of intra-hour costs and inter-hour costs. The
GRID production cost model (used to determine net power costs in this case)
accounts for inter-hour costs. Because the Company is still developing its
methodology for including intra-hour costs in the Company s net variable power
costs, these costs are not reflected in this case. The Company s intra-hour
Tallman, Di-Reb - 5
Rocky Mountain Power
integration costs are real and significant, however, and the Company intends to
include these costs in future filings.
Does the IRP quantify the cost associated with intra-hour integration?
Yes. The cost of intra-hour integration reflected in the IRP is $1.33/MWh on a
nominallevelized basis over 25-years.
What is the effect of taking into account intra-hour integration costs on
Staff's proposed imputation?
As Exhibit No. 57 shows, the intra-hour cost of integration for the Wind
Resources (excluding Goodnoe Hills) is $842 144. Any imputation ofREC
revenues based upon IRP assumptions must be offset by IRP assumptions
regarding intra-hour integration costs.
Based on your testimony, what conclusions do you reach with respect to
Staff's proposed adjustments?
It is not appropriate to impute REC revenues in this case unless they are based on
actual, known, and measurable REC revenues. This is because the revenue
requirement in this case is based on a historical test year (with known and
measurable adjustments) and not a future test year. Staffs proposed revenue
requirement decrease of $3 445 533 (total Company) is inappropriate and should
be disregarded by the Commission. On the other hand, Staff s proposed
adjustment for known and measurable changes in revenues, a decrease in revenue
requirement of$825 390, should be adopted and adjusted to $2 271 991 to reflect
changes through the end of 2007.
Tallman, Di-Reb - 6
Rocky Mountain Power
Does this conclude your testimony?
Yes.
Tallman, Di-Reb - 7
Rocky Mountain Power
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Rebuttal Testimony of Mark R. Tallman
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October 2007
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