20151231Larsen Direct.pdf

BEFORE THf,', IDAIIO PT]BLIC UTILITIES COMN{ISSION
Cd-=
=f>I I ifQ1;
C):.o-:'
5-;1?;:-
frrnt-)ilIZ
i'11::
(\,@
GJIortt(?
3
:ED
=
oIN THE MATTER OF THE
APPLICATION OF PACIFICORP dba
ROCKY MOT]NTAIN POWER FOR
APPROVAL OF THE 2017 PROTOCOL
ALLOCATION METHODOLOGY
ROCKY MOTJNTAIN POWER
an
CASE No. PAC-E-ls-&
DIRECT TESTIMOII-Y OF
JEFFREY K. LARSEN
CASE NO. PAC.E.15.16
DECEMBER 2015
1 Q. Please state your name, business address and present position with
2 PacifiCorp, dba Rocky Mountain Power (the "Company").
3 A. My name is Jeffrey K. Larsen, and my business address is 1407 West North
4 Temple, Suite 310, Salt Lake City, Utah 84116. I am currently employed as Vice
5 President of Regulation for Rocky Mountain Power.
6 Qualifications
7 Q. Please summarize your education and business experience.
8 A. I received a Master of Business Administration degree from Utah State University
g in l994,and a Bachelor of Science degree in Accounting from Brigham Young
10 University in 1985. I have also participated in the Company's Business
11 Leadership Program through the Wharton School, and an Advanced Education
12 Program through the J.L. Kellogg School of Management at Northwestern
13 University. In addition to formal education, I have also attended various
1,4 educational, professional and electric industry-related seminars and training
15 programs during my career at the Company.
16 I joined the Company in 1985, and I have held various accounting,
17 compliance, regulatory and management-related positions prior to my cu:rent
18 position.
19 O. Have you appeared as a witness in previous regulatory proceedings?
20 A. Yes. I have testified on various matters in the states of Utah, Idaho, Wyoming,
2l Califomia, Washington, Oregon, and Nevada.
Larsen, Di - 1
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
10
11
l2
t3
t4
15
r6
t7
18
t9
20
2T
22
23
Purpose and Overview of Testimony
a. What is the purpose of your testimony?
A. My testimony describes the process and approaches leading up to this filing of the
2017 PacifiCorp Inter-Jurisdictional Allocation Protocol (*2017 Protocol").
Specifically, my testimony provides:
a brief history of the Multi-State Process ("MSP") leading to the 2017
Protocol;
a summary of the work conducted by the Broad Review Work Group
("BRWG") since November 2072 that has culminated in this filing;
an overview of the 2017 Protocol;
a discussion of the Company's view of the timing for commission
proceedings necessary to process this application;
a discussion of the annual commissioner's forum;
. an explanation of the purpose of the Equalization Adjustment;
. a discussion of the term of the 2017 Protocol; and
. a discussion of the Reservation of Rights.
Additionally, Mr. Steven R. McDougal addresses the calculation and
implementation of the 2017 Protocol and discusses the revenue requirement
analyses undertaken at the request of the BRWG.
What is the purpose of your testimony in support of the 2017 Protocol?
My testimony describes and supports the 2017 Protocol agreed to among
PacifiCorp and the signatories to the 2017 Protocol (referred to individually as a
Party or collectively as the Parties). The 2017 Protocol describes the multi-
Larsen, Di - 2
Rocky Mountain Power
a.
A.
1 jurisdictional allocation methodology that will be used by the Company in all rate
2 proceedings beginning January I,2Ol7.
3 Q. Are you also sponsoring an exhibit to your testimony?
4 A. Yes. Exhibit No. 1 presents the20l7 Protocol with all of its appendices. Although
5 I sponsor Appendix A, Mr. McDougal sponsors the remaining appendices.
6 Brief History of MSP and the Development of the 2017 Protocol
7 Q. Please provide a brief history of the events that gave rise to the 2017
8 Protocol.
9 A. The MSP began n 2002, with PacifiCorp filing applications in each of its six
10 jurisdictions to create a process to consider issues related to its status as a multi-
I 1 jurisdictional utility. Following years of discussions and negotiations, the Revised
12 Protocol was agreed to by the Parties and approved by the commissions in Idaho,
13 Oregon, Utah and Wyoming. The Revised Protocol allocated costs among
14 PacifiCorp's jurisdictions and ensured that the Company operated its generation
15 and transmission system on an integrated basis to achieve a least cost-least risk
16 resource portfolio, while allowing each state to independently establish its
17 ratemaking policies.
18 Thereafter, subsequent and substantial discussions occurred to address
19 various concerns raised by stakeholders in different states that resulted in the
20 development of the 2010 Protocol. The 2010 Protocol was agreed to by the Parties
2I on September 15, 2010, and was designed to allocate PacifiCorp's costs among its
22 jurisdictions in an equitable manner, ensure PacifiCorp plans and operate its
23 generation and transmission system on a six-state integrated basis that achieved a
Larsen, Di - 3
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
10
11
t2
l3
t4
l5
t6
t7
18
t9
20
2t
22
23
a.
A.
least cost-least risk resource portfolio for customers, allow each state to
independently establish its ratemaking policies, and provide PacifiCorp with the
opportunity to recover its prudently-incurred costs. The 2010 Protocol was
approved by the commissions in Idaho, Oregon, Utah and Wyoming.
One of the terms of 2010 Protocol was a specified termination date. The
Parties to the 2010 Protocol agreed that it would only be used for regulatory
filings made before January 1,2017. Knowing that it would take some time to
develop a new allocation methodology, the MSP standing committee (a committee
consisting of one member or delegate from each commission) and BRWG started
collaborating in November 2012 to come up with potential solutions acceptable to
all Parties in the context of an allocation methodology, including the performance
of various studies by the Company at the request of the Standing Committee.
Who participated in the MSP collaborative meetings?
The MSP meetings were typically attended by in excess of 50 individuals in
person or by teleconference, representing 18 entities from the states of Idaho,
Oregon, Utah, Washington and Wyoming. These included representatives of state
commission policy staffs, advocacy staffs, industrial customers and consumer
groups.
Did stakeholders from California and Washington participate in the MSP?
Not for the entire process. Representatives from the California Public Utilities
Commission participated in the May 1, 2015, commissioner forum, but did not
participate in the negotiations. PacifiCorp's inter-jurisdiction allocation
methodologies are considered in the course of the Company's general rate case
Larsen, Di - 4
Rocky Mountain Power
a.
A.
I
2
J
4
5
6
7
8
9
l0
1l
I2
l3
t4
15
t6
t7
18
t9
20
2l
22
23
a.
A.
cycle in Califomia, and prior approval is generally not required. Representatives
from Washington participated in early discussions, but they are not signatories to
the 2017 Protocol since the Washington Utilities and Transportation Commission
has adopted a different allocation methodology for PacifiCorp's Washington rate
proceedings.
Who are the signatories to the2017 Protocol?
The Parties signing the 2017 Protocol include: the Company, Public Utility
Commission of Oregon Staff, the Citizens' Utility Board of Oregon, the Idaho
Public Utilities Commission Staff, Utah Division of Public Utilities, Utah Offrce
of Consumer Services, Wyoming Offrce of Consumer Advocate, Wyoming
Industrial Energy Consumers, ffid the Wyoming Public Service Commission
Staff. The Utah Association of Energy Users was party to the negotiations and,
although not available at the time of filing, the Company anticipates receiving a
signature page and filing it with the Commission in the near future.
Did the BRWG establish principles to guide their review of inter-
jurisdictional cost allocation alternatives?
A. Yes, the BRWG developed principles and criteria to guide their review of
allocation alternatives. The four key criteria that the allocation method should
incorporate were to:
1. Maintain state sovereignty by not impeding states from pursuing policy
directives or flexibility in establishing class allocation or rate design;
2. Provide an equitable solution for the Company and all states based on
principles of cost causation;
Larsen, Di - 5
Rocky Mountain Power
a.
1
2
J
4
5
6
7
8
9
10
11
t2
l3
t4
l5
l6
l7
18
t9
20
2l
22
23
a.
A.
3. Be sustainable by promoting rate stability and avoiding umeasonable or
inappropriate cost shifts; and
4. Promote administrative ease.
Do you believe the20l7 Protocol meets these requirements?
Yes. The 2017 Protocol generally accomplishes these requirements. During
negotiations, however, some Parties requested that the 2017 Protocol be designed
as a short-term methodology until impacts of the United States Environmental
Protection Agency ("EPA") rules governing carbon pollution from existing power
plants under section 1 I 1(d) of the Clean Air Act ("Rule I I I (d)") and other issues
could be better understood. Based on this feedback, the initial term of the 2017
Protocol is for two years with the option of a one year extension.
How did Parties address the equity issue with the2017 Protocol?
Through extensive negotiations with the Parties, an Equalization Adjustrnent was
added to the 2017 Protocol to account for inconsistent implementation of the 2010
Protocol, and to allow the Company a better opportunity to recover its costs.
Does the 2017 Protocol allow the Company an opportunity to collect all of its
prudently incurred costs?
Not entirely. The Equalization Adjustment mitigates the issues caused by
inconsistent implementation of the 2010 Protocol but it does not fully provide the
Company the ability to recover all its costs.
Why was the Company willing to agree to a method that didn't allow it to
recover all ofits cost?
The Company agreed to the 2017 Protocol for two primary reasons: first because
Larsen, Di - 6
Rocky Mountain Power
a.
A.
o.
A.
a.
A.
I
2
3
4a.
5
6A.
7
8
I
this was a short-term solution; and second, the Company appreciated the BRWG
good faith approach to implement an Equalization Adjustnent which reduces the
allocation short-fall the Company was experiencing with the 2010 Protocol.
Does the 2017 Protocol contain provisions for continued dialogue among the
states?
Yes. The Parties have committed to hold an annual public meeting to which all
seated commissioners from each jurisdiction where the Company provides retail
service will be invited to discuss the 2017 Protocol and other inter-jurisdictional
allocation issues ("Commissioner Forums"), beginning in January 2017. All
seated commissioners from each jurisdiction will be invited to participate in all
Commissioner Forums. At the first Commissioner Forum, commissioners will be
invited to discuss and make recommendations regarding extension of the 2017
Protocol and other inter-jurisdictional allocation issues that may arise.
In addition, before each annual Commissioner Forum, the Company will
convene an MSP BRWG meeting for the purpose of discussing and monitoring
emerging inter-jurisdictional allocation issues facing the Company and its
customers, the status and implications of Rule 111(d), or the development of a
regional independent system operator, in order to inform discussions at the
Commissioner Forum.
l0
11
t2
13
t4
l5
t6
t7
l8
T9
20
2t
22
23
Overview of 2017 Protocol
a. Please provide an overview of the 2017 Protocol.
A. The 2017 Protocol was negotiated as an integrated, interdependent agreement. All
sections were discussed, resulting in a negotiated agreement based on the entirety
Larsen, Di - 7
Rocky Mountain Power
1 of the language. Any material alteration of any terms or conditions contained in
2 the 2017 Protocol would require additional discussions and may affect any Party's
3 continued support for the agreement.
4 a. How was the2017 Protocol developed?
5 A. The 2017 Protocol was largely developed using the 2010 Protocol as the starting
6 point and further refining areas within that methodology to arrive at the new
7 agreement and allocation methodology. A major focus was on arriving at a single
8 allocation methodology that all of the Parties could support that made progress
9 towards reducing the allocation shortfall resulting from differences in application
10 of the 2010 Protocol. This resulted ultimately in the development of an
11 Equalization Adjustment, that when combined with the Embedded Cost
12 Differential ("ECD"), produces the 2017 Protocol Adjustrnent. The 2017 Protocol
13 Adjustment is added to each state's annual revenue requirement. This
14 modification to the 2010 Protocol is intended to reduce unintended ECD
15 variations due to nonuniform implementation of the 2010 Protocol. Other changes
16 were made to address direct access treatment, the duration of the 2017 Protocol,
17 and process issues.
18 Detailed Discussions of Sections I to XIV
19 a. Please describe each section of the 2017 Protocol Agreement.
20 A. The 2017 Protocol has 14 sections that contain the terms and conditions agreed to
2l by the Parties through the negotiations. Section I provides an introduction to the
22 2017 Protocol. Section I makes it clear that the 2017 Protocol is not intended to
23 prejudge the prudence of any costs or abrogate a State Commission's right and./or
Larsen, Di - 8
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
10
1l
T2
l3
L4
15
T6
t7
l8
t9
20
2t
22
23
obligation to determine fair, just, and reasonable rates based upon the law of that
State and the record established in rate proceedings conducted by that
Commission. The Parties and State Commissions are also not prohibited from
considering any changes in laws, regulations or circumstances on inter-
jurisdictional allocation policies and procedures when determining fair, just, and
reasonable rates. The 2017 Protocol also does not prohibit the establishment of
different allocation policies and procedures for pu{poses of allocation of costs and
revenues within a State to different customers or customer classes.
Section II discusses the effective period and expiration of the 2017
Protocol.
Section III identifies the classification of resources between Demand-
Related, meaning capital and fixed costs incurred or revenues received in order to
be prepared to meet the maximum demand imposed upon the Company's system,
or Energy-Related, costs and revenues that vary based on the amount of energy
delivered to customers.
Section IV discusses the allocation of resource costs and wholesale
revenues. Resources are assigned to one of two categories of inter-jurisdictional
allocation: State Resources or System Resources. State Resources refer to those
resources that accommodate jurisdiction-specific policy. Costs for these resources
are assigned to a specific jurisdiction. There are four types of State Resources:
demand-side management programs; portfolio standards; qualiffing facility
contracts; and jurisdiction-specific initiatives. System Resources are all other
resources and are allocated across all jurisdictions. This allocation methodology
Larsen, Di - 9
Rocky Mountain Power
I
2
aJ
4
5
6
7
8
9
10
l1
t2
13
T4
l5
l6
t7
18
19
20
2t
22
23
includes an Equalization Adjustment to be applied to each State's revenue
requirement, as specifically identified in Section XIV of the 2017 Protocol.
Section V includes a commitment by the Company to submit filings
seeking authorization from the State Commissions prior to filing for approval
from the Federal Energy Regulatory Commission of the re-functionalization of
facilities as transmission or distribution. This section also identifies the allocation
for transmission costs and revenues as 75 percent Demand-Related artd25 percent
Energy-Related.
Section VI states that distribution-related expenses and investrnents are
directly assigned to the State in which the related facilities are located where
possible. Costs that cannot be directly assigned are allocated based on the factors
inAppendix B to the2017 Protocol.
Section VII addressed the allocation of administrative and general costs.
Such costs are allocated based on the factors in Appendix B to the 2017 Protocol.
Section VIII provides that any Special Contracts - contracts between the
Company and one of its retail customers based on specific circumstances of the
customer - will be included in load-based dynamic allocation factors identified in
Appendix D to the 2017 Protocol.
Section IX states that any loss or gain from the sale of a Company-owned
resource or transmission asset would be allocated among the States based on the
allocation factor used to allocate the fixed costs of the resource or asset at the time
of the sale. The 2017 Protocol reserves to each State Commission the authority to
determine the appropriate allocation between the Company's customers and
Larsen, Di - 10
Rocky Mountain Power
1
2
aJ
4
5
6
7
8
9
10
11
t2
13
I4
15
t6
t7
18
r9
20
2t
22
23
shareholders.
Section X addresses the treatment of loads lost to alternative energy
suppliers through State direct access or other programs.
Section XI identifies the treatrnent of changes in retail load.
Section XII includes a commitrnent that the Company will plan and
acquire resources on a system-wide least cost, least-risk basis, with prudently
incurred investments reflected in rates consistent with the laws and regulations in
each State.
Section XIII outlines the parameters for interpretation and governance.
Section XIII also provides for a Commissioner Forum to be held annually and an
MSP Workgroup, similar to the BRWG, open to any interested stakeholders.
Proposals for new inter-jurisdictional allocation procedures, including any
modifications proposed to the 2017 Protocol, can be submitted by any Party or
Commission using the 2017 Protocol.
Section XIV contains additional, State-specific terms. These additional
terms include the State-specific Equalization Adjustment negotiated by the
Parties. This section also identifies specific commitrnents by the Company
regarding general rate case timing during the effective period of the 2017
Protocol.
The 20L7 Protocol also includes a set of appendices providing defined
terms and specific details regarding allocation factors and their derivations. The
appendices to the 2017 Protocol are more thoroughly discussed in the testimony
of Mr. McDougal.
Larsen, Di - 1l
Rocky Mountain Power
I Term of20l7 Protocol
2 Q. Did the Parties agree to a specific effective period for the 2017 Protocol?
3 A. Yes. The Parties agreed to support Commission adoption or use of the 2017
4 Protocol in all PacifiCorp rate proceedings filed after December 31, 2016, through
5 December 3I,2018.The2017 Protocol will expire December 3L,2018, unless all
6 state Commissions that approved the 2017 Protocol determine, by no later than
7 March 31, 2017, that the term of the 2017 Protocol will be extended by an
8 optional one-year extension through December 31, 2019.In determining whether
9 the 2017 Protocol should or should not be extended, each state Commission can
10 take such steps or provide such processes for public input as that Commission
11 determines to be necessary or appropriate under applicable state laws.
12 a. Why did the Parties agree to a two-year inter-jurisdictional allocation
13 methodology?
14 A. The 2017 Protocol is intended to be a transitional allocation mechanism while the
15 impacts of Rule 11 1(d) and other multi-jurisdictional issues are better understood
16 and analyzed. The 2017 Protocol also provides an opportunity for PacifiCorp to
17 arralyze,among other things, altemative allocation methods that may include the
18 formation for a regional independent system operator, corporate structure
19 alternatives, or divisional allocation methodologies, in light of the changing
20 electric industry in the Western United States.
Larsen, Di - 12
Rocky Mountain Power
I Q. Assuming that the four state Commissions acknowledge the 2017 Protocol,
2 what ongoing processes does the Company envision related to the 2017
3 Protocol?
4 A. As reflected in the 2017 Protocol, the Company committed to perform studies and
5 analysis and to continue to report the results of this ongoing work to the BRWG.
6 Although the elements of the 2017 Protocol are designed to minimize controversy
7 arrd provide predictability through calendar year 2018, and perhaps 2019, there
8 are always emerging issues on which it is valuable for the BRWG to continue to
9 engage in discussions.
10 Resource Classification and Cost and RevenueAllocation
11 a. How does the2017 Protocol allocate costs and revenues?
12 A. Resources fixed costs, wholesale contracts, and short-term firm pwchases and
13 sales are classified as 75 percent Demand-Related and25 percent Energy-Related.
14 Non-firm purchases and sales are classified as 100 percent Energy-Related. This
15 allocation balances the impact of demand and load on system costs.
16 a. What is the difference between State Resources and System Resources?
17 A. State Resources include four defined types of resources that are dependent on
l8 specific state policy. Accordingly, it is appropriate to allocate the benefits and
19 costs associated with these resources to a particular jurisdiction on a situs basis.
20 System Resources include the substantial majority of the Company's resources,
2l and contribute to retail service across the Company's entire multi-jurisdictional
22 service territory.
Larsen, Di - 13
Rocky Mountain Power
1Q.
2A.
What types of resources are included in State Resources?
There are four types of State Resources. The first type of State Resource is
demand-side management programs. These programs may include incentives for
energy efficiency and demand response to reduce load. Costs associated with
these progftIms are assigned on a situs basis to the jurisdiction in which the
investment is made. Benefits from demand-side management programs are
reflected in the load-based dynamic allocation factors.
The second type of State Resource includes resources acquired to comply
with a jurisdiction's mandated resource portfolio standard, adopted through
legislative enactment or by a regulatory commission. The portion of costs
associated with portfolio standards that exceed the costs the Company would have
otherwise incurred acquiring comparable resources (resources with similar
capacity factors, start-up costs, and other output and operating characteristics) are
assigned on a situs basis to the jurisdiction adopting the portfolio standard.
The third type of State Resource includes qualiffing facility contacts
executed under the requirements of the Public Utility Regulatory Policies Act
("PURPA"). PURPA requires that a public utility agree to purchase energy from
certain cogeneration and small renewable energy generating facilities that meet
the definition of a qualiffing facility under PURPA. State commissions set the
prices for each public utility under its jurisdiction for power purchase agreements
under PURPA. The 2017 Protocol assigns the costs associated with qualiffing
facility contracts on a system basis unless a portion of the cost exceeds the costs
the Company would have other.wise incurred acquiring comparable resources
Larsen, Di - 14
Rocky Mountain Power
J
4
5
6
7
8
9
10
11
t2
13
I4
l5
16
t7
18
t9
20
2t
22
23
I (resources with similar capacity factors, start-up costs, and other output and
2 operating characteristics) which would then be assigned on a situs basis to the
3 jurisdiction that approved the contract.
4 The final type of State Resource includes any resources acquired in
5 accordance with an initiative adopted by a specific jurisdiction. Any such resource
6 is assigned on a situs basis to the jurisdiction adopting the initiative. Examples of
7 these jurisdiction-specific initiatives include certain incentive programs, net-
8 metering tariffs, capacity standard programs, solar subscription programs, electric
9 vehicle programs, and the acquisition of renewable energy certificates.
10 a. Does the 2017 Protocol alter the Company's resource planning responsibility
I I or a Commission's authority?
12 A. No. Section XII provides that the Company will continue to plan and acquire new
13 resources on a system-wide least-cost least-risk basis. Prudently incurred
14 investments in resources will be reflected in rates consistent with the laws and
15 regulations in each State, and approved by that State's Commissions consistent
16 with such laws and regulations.
17 Embedded Cost Differential
18 a. Explain the continued use of the Embedded Cost Differential ("ECD") in the
19 2017 Protocol.
20 A. As a result of negotiations, the Parties agreed that the ECD would continue as a
2I component of the 2017 Protocol as modified and incorporated into an overall
22 2017 Protocol Adjustment that will be included in each State's revenue
23 requirement. The ECD is fixed for Wyoming, Idaho and California; for Utah it is
Larsen, Di - 15
Rocky Mountain Power
1
2
zero; and for Oregon, it is dynamic with upper and lower limits, for the duration
of the 2017 Protocol. This treatrnent of the ECD during the term of the 2017
Protocol eliminates or mitigates unintended allocation consequences that occurred
under the 2010 Protocol.
The ECD in the 2017 Protocol is referred to as the Baseline ECD. For
California and Wyoming, the Baseline ECD was established using the data, as
filed by the Company on March 3,2015, in the 2015 Wyoming general rate case
(Docket No. 20000-469-ER-15). Oregon's 2017 Protocol Baseline ECD is
dynamic and will change over time with the parameters described in the 2017
Protocol. Idaho's Baseline ECD is its 2010 Protocol Fixed ECD amount. Utah's
Baseline ECD is zero consistent with its 2010 Protocol agreement.
Please describe the20l7 Protocol Adjustment and how it is implemented.
For the period that the 201.7 Protocol remains in effect, a 2017 Protocol
Adjustment will be added to each state's annual revenue requirement. The 2017
Protocol Adjustrnent is the sum of the 2017 Protocol Baseline ECD andthe 2017
Protocol Equalization Adjustment.
Please explain the 2017 Protocol Equalization Adjustment.
The Equalization Adjustrnent is a fixed dollar adjustment to be applied to each
state's revenue requirement as specified in Section XIV of the 2017 Protocol.
Parties to the 20L7 Protocol negotiated an annual Equalization Adjustrnent of
99.074 million representing approximately two-tenths of one percent of each
state's annual revenue requirement. The Equalization Adjustrnent is intended to
recognize differences among the states' implementation of the 2010 Protocol
Larsen, Di - 16
Rocky Mountain Power
J
4
5
6
7
8
9
10
11
t2
13
t4
15
t6
t7
l8
19
20
21,
22
23
a.
A.
a.
A.
1
2
aJ
4
5
6
7
8
9
10
11
t2
l3
t4
l5
t6
t7
18
t9
20
2t
22
a.
A.
0.
A.
respective to the treafinent of the ECD adjustment i.e.; fixed ECD, dynamic ECD,
or no ECD. The result of the 2017 Protocol Equalization Adjustrnent is to
equitably share the allocation shortfall resulting from differences in the
implementation of the 2010 Protocol while analysis continues on the development
of a more permanent allocation method.
What is the amount of the 2017 Protocol Adjustment that will be added to
each state's annual revenue requirement?
California's 2017 Protocol Adjustment is zero because its Equalization
Adjustrnent exactly offsets its Baseline ECD, Idaho's is $0.986 million, Utah's is
$4.4 million and Wyoming's is a credit of $0.251 million. Because Oregon's
Baseline ECD is dynamic within specified ranges, its 2017 Protocol Adjustment
will be between a $5.6 million and a $7.9 million credit.
Describe the difference between the lixed Baseline ECD used by the other
states versus Oregon's Baseline ECD.
As mentioned above, with the exception of Oregon, the Baseline ECD is fixed for
the duration of the 2017 Protocol. Oregon will continue to use a dynamic ECD for
its Baseline ECD but the value is subject to lower and upper limits based on the
negotiations with Oregon parties. Oregon's lower limit (or floor) of the Baseline
ECD is $8.238 million and the upper limit (or cap) is $10.5 million for the first
general rate case filed under 2017 Protocol. If the Company files a second general
rate case using 2017 Protocol there's no change to the lower limit but the upper
limit of the cap is increased to $11.0 million.
Larsen, Di - 17
Rocky Mountain Power
1 Q. Why is Oregon's ECD dynamic?
2 A. The Company agreed to Oregon's continued use of a dynamic ECD calculation as
3 part of the negotiations. A dynamic ECD for Oregon is consistent with the 2010
4 Protocol. However, establishing parameters around the dynamic ECD, as agreed
5 to by Oregon Parties as part of a negotiated outcome, mitigates many of the issues
6 faced by the Company under the 2010 Protocol.
7 Cost Allocations
8 Q. How are transmission costs and revenues allocated under the2017 Protocol?
9 A. Costs associated with transmission assets and firm wheeling expenses are
l0 classified as 75 percent Demand-Related and 25 percent Energy-Related. These
1l costs are allocated based on a system generation factor. Non-firm wheeling
12 expenses and revenues are allocated on a system energy factor. The system
13 generation factor and system energy factors are described in the appendices to the
14 2017 Protocol.
15 a. How are distribution costs assigned under the2017 Protocol?
16 A. Distribution-related expenses and investments are directly assigned to the state
17 where they are located where possible. There are certain distribution expenses and
18 investments that cannot be directly assigned. For the costs that cannot be directly
19 assigned, they will be allocated consistent with the factors identified in Appendix
20 B to the 2017 Protocol.
2l a. Can the company reclassify its facilities between transmission and
22 distribution?
23 A. Yes. The classification of facilities as transmission or distribution depends on how
Larsen, Di - 18
Rocky Mountain Power
1
2
3
4
5
6
7
8
9
10
11
t2
13
T4
l5
16
1,7
18
t9
20
2l
22
23
a.
A.
a.
A.
the facility is used, and may change over time. Any such reclassification is
generally done following an analysis by the Company, using tests adopted by the
Federal Energy Regulatory Commission. The Company has committed in the
2017 Protocol to seek review and authorization of any such reclassification with
the State Commissions before filing any request to approve a reclassification of
facilities with the Federal Energy Regulatory Commission.
How does the2017 Protocol allocate administrative and general costs?
Appendix B provides for the specific allocation of administrative and general
costs, general plant costs and intangible plant costs are allocated consistent with
the factors in Appendix B to the 2017 Protocol.
How does the2017 Protocol address special contracts?
The 2017 Protocol provides that revenues associated with special contracts -
meaning contracts between the Company and a particular customer based on the
specific circumstances of that customer and approved by the state commission -
will be included in each State's revenues (situs assigned). Load under the special
contract is included in the load-based dynamic allocation factors, for jurisdictional
allocation purposes, as defined in Appendix D, as more thoroughly discussed in
the direct testimony of Mr. McDougal.
Will the Company allocate any gain or loss from a sale of a resource or
transmission asset based on the factors used to allocate the cost associated
with that resource or transmission asset for ratemaking purposes?
Yes. The allocation of any loss or gain from the sale of a Company-owned
resource or transmission asset will be allocated based on the allocation factor used
Larsen, Di - 19
Rocky Mountain Power
0.
A.
1 to allocate fixed costs at the time of its sale. Each state commission will determine
2 the allocation of any loss or gain between the Company's customers and
3 shareholders in accordance with its jurisdictional authority.
4 State Programs Providing Access to Alternative Electricity Suppliers
5 Q. Does the 2017 Protocol Address the treatment of alternative Electricity
6 Suppliers or State.specific DirectAccess Programs?
7 A. Yes. The 2017 Protocol specifically addresses the Oregon direct access program.
8 The 2017 Protocol also addresses the potential transfer of electricity service to an
9 alternative electricity supplier in Utah under Utah Code Annotated
10 Section 54-3-32, along with a requirement that the Company inform the State
1l Commissions and Parties if any State adopts laws or regulations governing
12 customer access to alternative electricity suppliers.
13 a. How does the 2017 Protocol treat loads lost to the Oregon direct access
14 programs during the term of the 2017 Protocol?
15 A. The 2017 Protocol provides that load associated with customers electing the one-
16 or three-year Oregon direct access programs will be included in the load-based
17 dynamic allocation factors for all resources. Transition adjustment payments from
18 these customers will be situs assigned to Oregon.
19 The treatment of customers electing the five-year opt-out program under
20 the Oregon direct access programs will be treated consistent with Public Utility
2l Commission of Oregon Order No. 15-060, as clarified through Order No. 15-067,
22 and Oregon Schedule 296, which allows customers to permanently opt-out of
23 cost-of-service rates after payment of ten years of transition costs in Oregon.
Larsen, Di - 20
Rocky Mountain Power
1
2
aJ
4
5
6
7
8
9
10
l1
t2
13
I4
15
I6
I7
18
t9
20
2I
22
23
a.
A.
During the ten-year period when Oregon direct access customers are paying
transition costs, the Oregon direct access customers' loads will be included in
load-based dynamic allocation factors, and the transition cost payments from
these customers will be situs-assigned to Oregon. At the end of the ten-year
period covered by the transition cost payments, the loads of the Oregon direct
access customers will be excluded from load-based dynamic allocation factors.
Thereafter, if an Oregon direct access customer elects to refurn to Oregon cost-of-
service rates by providing four-years notice under Schedule 296, its load will be
included in load-based dynamic allocation factors at the time the customer returns
to Oregon cost of service rates.
Does the 2017 Protocol allow for potential modifications to the Oregon direct
access program?
Yes. Section X of the 2017 Protocol includes a provision to clariff that if Oregon
adopts new laws or regulations regarding direct access, the treatment of loads lost
to those progftrms may be re-determined. The Company commits to inform all the
State Commissions if this occurs. This is similar to the process that would apply if
any State adopts laws or regulations governing customer access to alternative
electricity suppliers.
Does the Utah Public Service Commission have a direct access program?
No. However, Utah Code Annotated Section 54-3-32 allows certain eligible
customers in Utah to kansfer electricity service to a non-utility energy supplier. If
an eligible customer elects to transfer electricity service to a non-utility energy
supplier, the customer must provide its public utility 18 months' notice.
Larsen, Di - 2l
Rocky Mountain Power
a.
A.
1 Additionally, the Utah Division of Public Utilities must file a petition with the
2 Utah Public Service Commission no later than eight months before the intended
3 date of transfer seeking a determination by the commission regarding: (1) costs or
4 credits allocated to Utah under any inter-jurisdictional cost allocation
5 methodology the commission reasonably expects to be in effect; (2) costs of
6 facilities used to serve the eligible that will not be used by other customers as a
7 direct result of the eligible customer transferring service, and any credits
8 offsetting the costs; and (3) any other costs to the public utility or to other
9 customers of the public utility.
10 a. Has the Company committed to notify the State commissions and Parties if
11 the Utah Public Service Commission makes such a determination?
12 A. Yes.
13 Changes to Company Load
14 a. Does the 2017 Protocol include a provision to address changes in load due to
15 changes in the Company's retail service territory?
16 A. Yes. Section XI addresses the treatment of changes to load as a result of:
17 condemnation or municipalization; the sale or acquisition of new service territory
18 that involves less than five percent of system load; realignment of service
19 territories; changes in economic conditions; or the gain or loss of large customers.
20 These changes would be reflected in changes to the load-based dynamic
2l allocation factors. The load-based dynamic allocation factors are calculated using
22 the States' monthly energy usage and/or contribution to monthly system
23 coincident peak. The allocation of costs and benefits arising from a merger, sale,
Larsen, Di - 22
Rocky Mountain Power
1 or acquisition involving more than five percent of system load would be
2 considered on a case-by-case basis in the course of any approval proceedings in
3 each State.
4 Governance
5 Q. What is the purpose of the annual Commissioner Forums?
6 A. During the term of the 2017 Protocol, PacifiCorp agreed to analyze alternative
7 allocation methods including corporate structure alternatives, divisional allocation
8 methodologies, alternative system allocation methodologies, potential
9 implications of Rule lll(d), and possible formation of a regional independent
10 system operator. As part of the 2017 Protocol, the Company committed to present
11 its analyses of these issues to the MSP BRWG and discuss them at Commissioner
12 Forums.
13 The Company believes that annual Commissioner Forums are an
14 appropriate way to keep the Commissioners and Parties informed, and that they
15 will be an opportunity for all Parties to discuss whether to extend the 2017
16 Protocol for an additional year beyond the initial term. The Company anticipates
17 that all Parties will remain engaged in the process of analyzing the results of these
18 studies, and the Company believes that continuing to engage in this type of
19 collaboration is in the best interests of the Parties and PacifiCorp's customers.
20 a. Is there an opportunity for interested stakeholders to raise issues with the
21 2017 Protocol?
22 A. Yes. Any Party or Commission using the 2017 Protocol for inter-jurisdictional
23 allocation purposes may submit proposals for a new inter-jurisdictional allocation
Larsen, Di - 23
Rocky Mountain Power
1
2
procedure or change to the 2017 Protocol. Any such proposal must be provided to
the Company so that Company can distribute the proposal to the other Parties and
State Commissions and initiate discussions. The Party or Commission proposing
the modification or new inter-jurisdictional allocation procedure must, consistent
with its legal obligations, attempt to present the proposal to the Commissioner
Forum or MSP Workgroup and negotiate a resolution in good faith.
Reservations of Rights
a. What have the Parties agreed to with respect to reservations of rights?
A. Any Party may request that the Commission rescind, alter, or amend its order
entered in connection with the 2017 Protocol if the Party concludes that the 2017
Protocol no longer produces results that are just, fair, reasonable, or in the public
interest, due to unforeseen or changed circumstances. In addition, the 2017
Protocol will not bind or be used against any Party if unforeseen or changed
circumstances, including new developments such as direct access programs
implemented in a state, cause that Parly to conclude that the 2017 Protocol no
longer produces just and reasonable results, reasonable cost recovery for the
Company, or is not in the public interest.
State-Specific Terms
a. In addition to the Equalization Adjust discussed above, were there other state
specific implementation terms?
A. Yes. Idaho's $0.986 million annual 2017 Protocol Adjustment will be included in
base rates through a general rate case beginning no earlier than January 1,2018,
or to the extent that a case is filed so the rate effective date is later than that date,
Larsen, Di - 24
Rocky Mountain Power
J
4
5
6
7
8
9
10
11
t2
13
t4
15
16
t7
18
t9
20
2l
22
23
I
2
J
4
5
6
7
8
9
l0
11
t2
13
t4
15
t6
t7
18
t9
20
2t
22
23
its $0.150 million annual Equalization Adjustment will be deferred on a monthly
basis ($12,500 per month) from January 1, 2018, forward as a regulatory asset
until the rate effective date of the Company's next Idaho general rate case at
which time (1) the deferred costs and (2) the ongoing impact of Idaho's 2017
Protocol Adjustrnent will be included in rates.
In Oregon the Company agreed to a stay-out period so it wouldn't have
any pending general rate case that requests rates effective before January 1,2018.
In return, the Oregon Parties agreed that Oregon's Equalization Adjustment of
$2.6 million annually (or $216,667 monthly) would be deferred from January l,
2017, until the 2017 Protocol Equalization Adjustrnent is reflected in base rates
through the Company's next general rate case. This deferral will be reflected as a
debit or reduction to the existing credit balance to be returned to customers in the
Open Access Transmission Tariff revenue deferral account originally established
through docket U8 246. For the first rate case filed using 2017 Protocol, Oregon's
Baseline ECD is capped between $8.238 million and $10.5 million. If the
Company files a second rate case the top end of the range increases to $11.0
million. The Company committed to file a new tariff to return to Oregon
customers the balance of the OATT revenue deferral, net of the 2017 Protocol
Equalization Adjustrnent deferral, within 60 days of an Oregon Commission order
approving of the 2017 Protocol. The Company also committed to continued
evaluation of the analysis I mentioned earlier and to distribute or present the
results of its analysis to the BRWG, based on information available, no later than
March 31,2017.
Larsen, Di - 25
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
10
11
t2
13
t4
15
t6
t7
18
T9
20
2t
22
In Utah, the Company agreed to an annual Utah EqualizationAdjustnent
of $4.4 million and a 2017 Protocol Adjusfrnent of the same amount. The
Company also agreed that it will not file a Utah general rate case or major plant
addition case prior to May I, 2016, and new rates will not be effective prior to
January 1,2017 . Utah's 2017 Protocol Adjustment shall be included in base rates
through a general rate case with rates effective beginning on or after January 1,
2017. To the extent that a Utah general rate case or major plant addition case is
filed with a rate effective date later than that date, Utah's Equalization Adjustment
will be deferred on a monthly basis, ($366,667 per month), from January 1,2017,
forward as a regulatory asset until the rate effective date of PacifiCorp's next Utah
general rate case at which time (1) the deferred costs and (2) the ongoing impact
of Utah's 2017 Protocol Adjustment shall be included in rates. The deferred cost
amortization period will be determined in the first case that the deferral of the
Utah EqualizationAdjustrnent is proposed for inclusion in rates.
Wyoming's 2017 Protocol Adjustment of a negative $0.251 million will be
netted against Wyoming's 2017 Protocol revenue requirement. If the Company
does not file a generalrate case prior to January 1,2017, Wyoming's Equalization
Adjustment of $1.6 million annually will be deferred, as a regulatory asset, on a
monthly basis, ($133,333 per month), beginning July l, 2017, until the rate
effective date of PacifiCorp's next Wyoming general rate case, at which time (1)
the deferred costs and (2) Wyoming's ongoing impact of the 2017 Protocol
Adjustrnent shall be included in rates.
Larsen, Di - 26
Rocky Mountain Power
I Process for Commission Review of Application
2 a. What process does the Company propose for the Commission review of this
3 Application?
4 A. The Company is hopeful that the Commission will be able to complete its review
5 of this Application by July I, 2016. Significant analysis has been undertaken and
6 reviewed by many parties since November 2012 as the BRWG considered many
7 options. This analysis enabled the Parties to confidently negotiate the 2017
8 Protocol. The Company anticipates that each of the Parties will file testimony in
9 support of the 2017 Protocol, and the Company believes that the Commission
10 review can be accomplished, with input from the Parties, in this time frame.
l1 Conclusion
12 a. What action do you recommend the Commission take with respect to the
13 Agreement?
14 A. The Company recommends that the Commission find that the 2017 Protocol is in
15 the public interest and requests that the Commission approve this Application
16 including all the terms and conditions of the 2017 Protocol in its order in this
17 proceeding.
18 a. Does this conclude your direct testimony?
19 A. Yes.
Larsen, Di - 27
Rocky Mountain Power