20110527Walje Di.pdf

RECEIVED
lUll Min 27 AM '0: 42
UTIL
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 )
AND A PRICE INCREASE OF $32.7 )
MILLION, OR APPROXIMATELY )15.0 PERCENT )
CASE NO. PAC-E-l1-12
Direct Testimony of A. Richard Walje
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-l1-12
May 2011
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Please state your name, business address and present position with Rocky
Mountain Power ("the Company").
My name is A. Richard Walje. My business address is 201 South Main, Suite
4 2300, Salt Lake City, Utah 84111. I am the President of Rocky Mountain Power.
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Please describe your educational and professional background.
I have worked in the electrc utilty industr since 1972 as a joureyman lineman,
field service engineer with General Electrc and as a substation design engineer
for Rocky Mountain Power. At Rocky Mountain Power I have held numerous
management and executive positions with increasing levels of responsibility in the
areas of engineerig, constrction, transmission and distrbution operations,
customer service, procurement, information technology and community affairs. I
have served on PacifiCorp's Board of the Directors since 2000 and I am also
currently the Chairan of the Board of the PacifiCorp Foundation. I have a
Bachelor of Science in Electrcal Engineering degree (1984) and a Master of
Business Administration degree (1991), both from the University of Utah. I have
received additional executive level instrction from the University of Michigan
and electrcal engineering theory from General Electric's Crotonvile education
center.
Please describe your present duties.
My responsibilties, as President of Rocky Mountain Power, cover all of the
Company's affairs in the states ofIdaho, Utah, and Wyoming, including ensurng
that the Company's strategy, infrastrctue investments and operations result in
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the delivery of safe, reliable electrc energy to the Company's customers at
reasonable prices and which provides reasonable retus to investors.
Please describe Rocky Mountain Power's presence in Idaho.
Rocky Mountain Power provides safe, reliable, and low-priced electric service to
over 72,400 customers in Idaho. Rocky Mountain Power 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 distrbution lines. In addition, the Company purchases the output of the
Wolverie Creek wind generation facilty located near Idaho Falls.
What is the purpose of your testimony?
The purose of my testimony is to introduce our case requesting an increase in
base electric rates in Idaho. Based on testimony of Company witness Mr. Steven
R. McDougal, Rocky Mountain Power expects to earn a retu on equity ("ROE")
in Idaho of 5.3 percent durng the 2011 test period. i This filing supports an
overall revenue increase of $32.7 milion, which includes an ROE of 10.5 percent
as supported in the testimony of Dr. Samuel C. Hadaway.
What are the major components contributing to the request for this
increase?
The major factor creating the need for the requested revenue increase is an
increase in net power costs which represents 51 percent of the requested increase.
Total Company net power costs have increased $287 milion above the costs
curently included in customers' rates. As described in Mr. Gregory N. Duvall's
i As described in the testimony of Mr. McDougal, the rate increase request is based on a test year that
covers the period of Januar 1,2010, though December 31, 2010, with known and measurable adjustments
through calendar year 2011.
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testimony, the increase is drven by a range of factors, including increased load,
changes in the Company's portfolio of wholesale purchase and sales contracts,
and increases in coal costs.
Capital additions are also a significant factor in the need for an increase in
revenues. They represent 31 percent of the increase. The details of the capital
investments included in the case are presented by Mr. Chad A. Teply and Mr.
Darrell T. Gerrard. In addition, Mr. McDougal's testimony supports the capital
additions and associated revenue requirement impacts.
Incremental operating costs associated with added generation and
environmental facilities require an increase in O&M to assure proper plant
operations and represent approximately 17 percent of the requested price increase.
What are the Company's major capital investments included in the case?
This case includes investments in required pollution control equipment, essential
for the continued operation of our low cost generation fleet, as well as local, and
system wide, transmission investments. All of these capital investments are
necessary to support increased power production to meet customer demands and
to provide delivery and improve reliabilty. The details of these investments are
presented in the testimony of witnesses Mr. Teply and Mr. Gerrard.
Has the Company adjusted its investment plans based on load projections?
Yes. The Company biennially undertes a rigorous and extensive capital and
resource planning process that results in its integrated resource plan. This plan
provides the basis for making both near term and long term investment decisions.
The plan takes into account the expected load increases and existig and futue
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electrcity resources necessary to meet customer needs. Those projects that can be
delayed, primarily local transmission and distribution projects have been delayed
to reflect curent planning requirements.
Is the Company's load growing in its Idaho service territory and are the
power cost expenses and capital investments necessary to serve Idaho?
Yes. Idaho's load has grown from 2.2 millon megawatt-hours ("MWh") in 1982
to over 3.3 milion MWs in 2010, a fift percent increase over twenty-eight
years. The Company has been contacted by and is curently workig with a large
industral customer with plans to locate in Idao that wil add 40 megawatts
("MW") of additional load. Monsanto recently announced plans to add a thermal
optimizer to scrub emission output at its Soda Springs plant which wil most
likely increase energy consumption. Idaho has been and contiues to be the third
fastest growing jursdiction in the Company's servce terrtory. The Company has
two options to serve this additional load; build new generation facilties or
purchase power from the market. The Company utilizes both options to serve its
customers in the least cost, least risk approach.
What has created the need for the increase in operations and maintenance
expenses ("O&M") in this case?
As described in Mr. Teply's testimony, the Company has added generation and
environmental facilities that require an incremental increase in O&M to assure
proper plant operations. However, even with these increases the Company's
O&M and administrative and general expenses (together, "OMAG") on a cost per
MW generated have essentially stayed flat over the past four years. In Case No.
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PAC-E-07-05 Idaho's allocated OMAG was $61.7 milion or $16.74 per MW.
Idaho allocated OMAG in this application is $62.7 milion or $16.98 per MW,
an increase of 1.3 percent over a four year period when the Company added two
new gas plants and 10 wind sites which increased generation capacity over 1,800
megawatts.
What steps has the Company taken to mitigate the cost increases affecting
customers?
The Company has been able to keep overall expenses low by aggressively
pursuig effciency gains that have allowed the Company to largely offset the
O&M expense for new generation. The Company continues to proactively and
aggressively control OMAG. As a result of the Company's cost-control efforts,
the Idaho-allocated OMAG costs, while higher on a total dollars basis than the
costs included in the last rate case, have slightly declined on a cost per kilowatt-
hour from the level currently included in customer rates.
Contrbuting to this on-going low level of OMAG expense is the
Company's decision to hold flat the number of full-time equivalent employees
("FTEs") since 2006. At December 2006 PacifiCorp's FTE count was 5,658 as of
December 2010 the FTE count was 5,558, a reduction of 100 FTEs even with
addition of FTEs related to new generation facilties. In addition, as discussed in
the testimony of Mr. Erich D. Wilson, the Company has followed the practice of
keeping wage increases at historically low levels and made adjustments to health
care benefits and to employee cost sharig to reduce costs. This significant cost
control effort has been very effective as evidenced by comparng the Company's
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total wage and benefits from December 2006 of $765.5 milion to December 2010
wage and benefits of $710.8 millon, a seven percent overall decrease durng that
period.
Does the Company acknowledge the impact that rising electricity prices has
on Idaho businesses, governmental entities, schools and residential
customers?
One of the most difficult decisions any company has to make is the one to raise
prices. The Company understands and appreciates the concerns of our customers
regarding utility rate increases when the economy is just beginning to recover.
The price increases requested in this case allow the Company an opportity to
recover its actual costs of serving customers and a reasonable retu on its
investment.
How do Rocky Mountain Power's rates compare nationally and in the state
ofldaho?
Based on Edison Electric Institute's ("EEl") summer 2010 report Idaho's average
residential rates were fifth lowest in the nation. Of the 20 largest utilities in Idaho
as reported in the Energy Information Administration (EIA) 2009 report, Rocky
18 Mountain Power ranked lowest of all investor owned utilities and ninth lowest
19 overall, Idaho Power ranks 12th and Avista is 15th.
20 Introduction of Witnesses
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Please identify the witnesses that the Company wil offer to support the
application and the subject of their testimony.
The Company witnesses that have fied direct testimony II support of the
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1 application and the subjects of their testimony are:
2 Steven R. McDougal, Director, Revenue Requirement, explains why the test year
3 that begins on Januar 1,2010, and ends on December 31, 2010, with known and
4 measurable adjustments though calenda year 2011 best reflects the conditions
5 that the Company expects to experience in the rate-effective period. In addition,
6 Mr. McDougal wil present the Company's overall revenue requirement based on
7 the forecasted results of operations for the test year.
8 Bruce N. Wiliams, Vice President and Treasurer, testifies concerning the
9 Company's cost of debt, preferred stock and capital strctue.
10 Dr. Samuel C. Hadaway, FINANCO, Inc. testifies concerning the market
11 required rate of retu on equity capital (ROE) for Rocky Mountain Power.
12 Cathy S. W oollums, Senior Vice President of Environmental Services and chief
13 environmental counsel for MidAmerican Energy Holdings Company (MEHC),
14 testifies to the prudence of the Company's pollution control expenditues for coal-
15 fired power generation plants and the Company's processes to identify
16 environmental policy and compliance drvers that influenced the installation of
17 the emissions controls necessary to assure compliance with state and national
18 laws.
19 Chad A. Teply, Vice President of Resource Development and Constrction for
20 PacifiCorp Energy, supports the prudence of capital investments in pollution
21 control equipment, generation plant, and hydro projects being placed in servce
22 during the test period. His testimony also supports the prudence of incremental
23 generation operations and maintenance costs associated with certin new
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1 resources, new pollution control equipment, and other generation fleet operational
2 changes impacting this case.
3 Darrell T. Gerrard, Vice President of Transmission System Planning, explains
4 and supports the major capital investments in the Company's transmission grid.
5 He explains the primary drver(s) creating the need for these projects, and
6 describes the benefits to customers and the electrcal system overall. He wil also
7 provides additional information supporting rate recovery of all of the Populus to
8 Terminal transmission line.
9 Gregory N. Duvall, Director, Long Range Planning and Net Power Costs,
10 presents the Company's proposed net power costs ("NPC") for the test period. He
11 describes the major cost drvers in the test period NPC and addresses the specific
12 issues related to the GRID model described in the Commission order in the
13 Company's 2010 general rate case.
14 Cindy A. Crane, Vice President, Interwest Mining Company and Fuel Resources
15 for PacifiCorp Energy, explains the Company's overall approach to providing the
16 coal supply for the Company's coal plants and supports the level of coal costs
17 included in fuel expense in this case.
18 Erich D. Wilson, Director, Human Resources, provides an overview of the
19 compensation and benefit plans provided to employees at the Company and
20 supports the costs related to these areas included in the test period.
21 Paul H. Clements, OriginatorlPower Marketer for PacifiCorp Energy,
22 summarizes the status of the Company's efforts to enter into a long-term contract
23 with Monsanto for curilment products and offers an update to the curilment
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valuation based on curent conditions.
Barbara A. Coughlin, Director of Customer and Regulatory Liaison, sumarizes
the progress the Company has made workig with Commission staff on the
miscellaneous consumer and customer service issues and presents the Company's
position on low income weatherization assistance as directed by the Commission
in Case No. PAC-E-1O-07.
C. Craig Paice, Regulatory Consultat in Pricing and Cost of Service, wil
presents the Company's class cost of service study.
Wiliam R. Griffth, Director of Pricing and Cost of Service, wil present the
Company's rate spread and rate design proposals.
Does this conclude your direct testimony?
Yes.
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