20070928Nobbs direct.pdf

RECEI\/E.
BEFORE THE
ZOO? SEP 28 Pi"12: 18
IDAHO PUBLIC UTILITIES CQM~I~~i~(~~\~slor,
IN THE MATTER OF THE APPLICATION OF
PACIFICORP DBA ROCKY MOUNTAIN
POWER FOR APPROVAL OF CHANGES
TO ITS ELECTRIC SERVICE SCHEDULES
CASE NO. PAC-07-
DIRECT TESTIMONY OF JOHN NOBBS
IDAHO PUBLIC UTILITIES COMMISSION
SEPTEMBER 28, 2007
Please state your name and business address for
the record.
My name is John Nobbs.My business address is 472
West Washington Street, Boise, Idaho.
By whom are you employed and in what capacity?
I am employed by the Idaho Public Utilities
Commission (Commission) as an auditor in the Utilities
Division.
What is your education, experience and background?
I received a Bachelor of Science degree in 1971
from Fresno State College , with thirty units in accounting.
In 2000, I received a Master of Science degree, with twelve
units in accounting and taxation.I completed the National
Association of Regulated Utility Commissioners ' Annual
Regulatory Studies Program in 2007.
I have worked on budgets, forecasts, inventory
accounting, cost accounting and on currency transactions.
have drawn trial balances and developed financial statements
from those trial balances.I performed financial analysis.
I have worked as a Chief Accountant, Internal Auditor,
Assistant Controller and as a Controller.I was a Medicaid
audi tor.
During the time I have worked at the Idaho Public
Utilities Commission, I have worked as an auditor in the
Utilities Division.
CASE NO. PAC-07-
09/28/07
NOBBS, J.
STAFF
(Di)
What is the purpose of your testimony in this
case?
The purpose of my testimony is to explain audit
results for five expense accounts for the fiscal year 2006.
These accounts are Corporate Aircraft Expenses; FERC Account
921 , Office Supplies and Expenses; FERC Account 923, Outside
Services; FERC Account 930., General Advertising expenses;
and FERC Account 930.2, Miscellaneous General Expenses.
have recommended adjustments totaling $1,583,426.For FERC
Account 921 , adj ustments total $387,243; for FERC Account
923 $347,067; $121,887 for FERC Account 930.1 and, $727,229
for FERC Account 930.The effect of these adjustments is
to reduce the Idaho revenue requirement by $93,040.
SUMMARY
Please describe the results of your audit of
corporate aircraft expenses.
I reviewed aircraft operations and maintenance
expenses for 2006.The reported expenses were found to be
reasonable for ratemaking purposes.
When you audited FERC Account 921 , what did you
find?
Staff adjustments to FERC Account 921, Office
Supplies and Expenses, are shown on Exhibit No. 101.
FERC Account 921 included expenses for setting up
market monitor activities.These market monitor set up
CASE NO. PAC-07-
09/28/07
NOBBS, J.
STAFF
(Di)
expenses totaled $86 132.These expenses result from
MidAmerican Energy Holdings Company (MEHC) acquisition of
PacifiCorp.Acquisition Commitments limit costs to no more
than those prior to the acquisition.These expenses are set
up costs, are non-recurring and would not have been incurred
absent the acquisition.There are also on-going charges for
continuous monitoring, which are not specifically
identif ied.These on-going monitoring charges would not be
incurred at this time if MEHC had not purchased the Company.
These additional expenses should not be included in rates
until customer benefits can be shown to offset costs similar
to other acquisition related costs discussed specifically in
the Acquisition Commitments.Staff recommends that the
Company be directed to isolate these expenses in separate
sub accounts.A cost/benefit analysis should be provided by
the Company for these on-going market monitoring
expenditures and reviewed prior to inclusion in future rate
cases.
This account also included brokerage fees of
$66,600 for stock options.These costs were incurred due to
changes in the Company retirement plan.They are not
recurring expenses and therefore, were removed by Staff.
For fiscal year 2006, the account included $36,841
of expenses for the 2005 health fair.No expenses were
found in fiscal year 2006 for a health fair.Consequently,
CASE NO. PAC-07-
09/28/07
NOBBS, J.
STAFF
(Di)
the $36,841 was removed as an out of period expense.FERC
Account 921 included general rate case expenses for other
states, totaling $108,286.Staff also found general rate
case advertising expenses totaling $89,384 for other states.
This is a total of $197 670 in general rate case expenses,
which should be directly assigned to other states.General
rate case expenses for Idaho are reflected in the Idaho
revenue requirement.All adjustments for FERC Account 921
total $387 243 on a system basis and reduce the Idaho
revenue requirement by $22 754.
Please describe what you found in FERC Account
923.
FERC Account 923 is used to record expenses from
outside services, such as professional consultants.Staff
adjustments to FERC Account 923 are shown on Exhibit No.
102.
FERC Account 923 included $67,250 in non-recurring
consul ting expenses resulting from changes in the Company
retirement plan to a 401k plan.These were removed.This
account contained expenses for consulting services on
general rate cases for states other than Idaho.These
services totaled $190,433.Staff also found advertising
expenses for general rate cases in other states totaling
$89,384.The combined total for general rate case expenses
in other states is $279,817.This amount should have been
CASE NO. PAC-07-
09/28/07
NOBBS, J.
STAFF
(Di)
assigned to the other states.All adj ustments to FERC
Account 923 total $347,067 on a system basis.These
adj ustments reduce the revenue requirement for Idaho by
$20,393.
What did you find during your audit of FERC
Account 930.
General advertising expenses are found in FERC
Account 930.Staff adjustments to this account are found
on Exhibit No. 103.
Audit Staff found $49,611 in image enhancement
advertising.The Commission has consistently held that this
type of advertising should be recorded below the line.
second group of advertising expenses was found.Thi s group
includes advertising via signs, banners or as portions of
printed programs or publications.Some items included in
this group were American Legion baseball games, holiday
parades, The Rocky Mountain Elk Foundation, cattle dog
trials and sports events at schools.These advertising
expenses totaled $19,100.While supporting such
organizations and events is good corporate citizenship, they
should not be reflected in customer rates.This adj ustment
is consistent with Commission policy in numerous cases.
General rate case advertising expenses for states
other than Idaho were also found.This advertising totaled
$53,176.These expenses should have been assigned to the
CASE NO. PAC-E- 07 - 5
09/28/07
NOBBS, J.
STAFF
(Di)
respective states for ratemaking purposes, not allocated to
Idaho.
The total of all adj ustments for FERC Account
930.1 equals $121,887 on a system basis.The effect of
these adj ustments is to reduce the Idaho revenue requirement
by $7,162.
What did you find in your audit of FERC Account
930.2 ?
FERC Account 930.2 is identified as the account to
record expenses not properly recorded in other accounts, in
addition to dues and memberships.Staff adj ustments to this
account are shown on Exhibit No. 104.
Staff found membership expenses for organizations
such as chambers of commerce, rotary clubs and economic
development associations, etc.These expenses totaled
$39,970.While supporting these organizations is beneficial
to the areas involved, the Commission has consistently
removed this type of expense for ratemaking purposes.Audi t
Staff found challenge grants totaling $32 250.These
donations may support worthy causes, but they are not costs
to be included in customer rates.
This account also contained $982,514 for a
set tlement with the Internal Revenue Service.This tax
settlement is associated with $22 million of tax-exempt,
pollution control revenue bonds issued in 1995.Staff
CASE NO. PAC - E - 07 - 5
09/28/07
NOBBS, J.
STAFF
(Di)
requested a comparison showing the difference between the
tax-exempt interest cost and the taxable interest cost if
the tax-exempt status was lost.This interest differential
was then compared to the $982,514 settlement amount.The
Company believes the settlement option was the least costly
from a total cost perspective.Staff examined the
comparison and supports the Company s position that the
settlement was reasonable.However , Staff believes that it
is not appropriate to expense the entire $982,514 in a
single year for this one-time settlement.Staff believes it
is more appropriate to allocate this expense over three
years, and recommends including an amortization expense of
$327 505.Total adj ustments to FERC Account 930.2 are
$727 229, system wide.This reduces the Idaho revenue
requirement by $42,732.
Does this conclude your direct testimony in this
proceeding?
Yes, it does.
CASE NO. PAC-E- 07 - 5
09/28/07
NOBBS, J.
STAFF
(Di)
Rocky Mountain Power
FERC Acct 921-0ffice Supplies and Expenses
FYE 2006
Adjustment to expense
Market Monitor Set up
Brokerage Fees
2005 Wellness Fair
General Rate Case Expenses
Subtotal
$20 087
$21 933
$26 829
$16 892
$22 545
General Rate Case Advertising Expenses
Subtotal
$12 553
$61 887
$123
$10 899
922
Account 921 Total
Amount
$86 132
$66 600
$36 841
$108 286
$89 384
$387 243
Exhibit No. 101
Case No. PAC-07-
J. Nobbs, Staff
9/28/07
Rocky Mountain Power
FERC Acct 923 - Outside Services
FY 2006
Adjustment to Expense
401 k Consulting Expenses
Consultants - General Rate Case Expenses
Subtotal
Advertising - General Rate Case Expenses
Subtotal
Account 923 Total
Amount
$67 250
$23 874
$95 644
$30 825
$40 090
$190,433
$12 553
$61 887
$123
$10 899
922
$89 384
$347 067
Exhibit No.1 02
Case No. PAC-07-
J. Nobbs, Staff
9/28/07
Rocky Mountain Power
FERC Acct 930.1 - Advertising
FYE 2006
Adjustment to expense
Image Enhancement Advertising
Sports events, RMEF , etc.
General Rate Case Advertising Expenses
Subtotal
645
525
031
$37 975
Account 930.1 total
Amount
$49 611
$19 100
$53 176
$121 887
Exhibit No.1 03
Case No. PAC-07-
J. Nobbs, Staff
9/28/07
PacifiCorp
FERC Acct 930.2 - Dues & Other Expenses
FYE 2006
Adjustment to expense Total
Memberships: C of C , Rotary, etc
Challenge Grants
$39 970
$32 250
Pollution Control Revenue Bond Tax Settlement
Allocation FY 2006 (1/3 X $982 514) $327 505
Allocation other years (2/3 X $982 514)$655 009
Account 930.2 Total $727 229
Exhibit No.1 04
Case No. PAC-07-
J. Nobbs, Staff
9/28/07
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 28TH DAY OF SEPTEMBER 2007
SERVED THE FOREGOING DIRECT TESTIMONY OF JOHN NOBBS, IN CASE
NO. PAC-07-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
mSTIN BROWN
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
MAIL: iustin.brown~pacificorp.com
DATA REQUEST RESPONSE CENTER
P ACIFICORP
825 NE MUL TNOMAH STE 2000
PORTLAND OR 97232
MAIL: datarequest~pacificorp.com
(ELECTRONIC COPIES ONLY)
JAMES R SMITH
MONSANTO COMPANY
PO BOX 816
SODA SPRINGS ID 83276
MAIL: jim.smith~monsanto.com
ERIC L OLSEN
RACINE OLSON NYE BUDGE & BAILEY
PO BOX 1391
POCATELLO ID 83201-1391
MAIL: elo~racinelaw.net
CONLEY E WARD
MICHAEL C CREAMER
GIVENS PURSLEY LLP
PO BOX 2720
BOISE ID 83701-2720
MAIL: cew((l),givenspursley.com
BRIAN DICKMAN
MANAGER, ID REGULATORY AFFAIRS
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
MAIL: brian.dickman~JJacificorp.com
RANDALL C BUDGE
RACINE OLSON NYE BUDGE & BAILEY
PO BOX 1391
POCATELLO ID 83201-1391
MAIL: rcb~racinelaw.net
MAURICE BRUBAKER
KATIE IVERSON
BRUBAKER & ASSOCIATES
1215 FERN RIDGE PARKWAY
SUITE 208
ST LOUIS MO 63141
MAIL: mbrubaker((l),consultbai.com
ki verson~consultb ai. com
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
MAIL: tony((l),yanke1.net
DENNIS E PESEAU, Ph.
UTILITY RESOURCES INC
1500 LIBERTY ST SE STE 250
SALEM OR 97302
MAIL: dpeseau~excite.com
CERTIFICATE OF SERVICE
BRAD M PURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE ID 83702
MAIL: bmpurdy~hotmai1.com
KEVIN B HOMER
ATTORNEY AT LAW
1565 SOUTH BOULEVARD
IDAHO FALLS ID 83404
MAIL: kbh~khomer1aw.com
TIMOTHY SHURTZ
411 S. MAIN
FIRTH ID 83236
MAIL: tim~idahosupreme.com
k'~
SECRETARY
CERTIFICATE OF SERVICE