20180430Steward Supplemental Rebuttal.pdf

RECEIVED
BEFORE THE IDAHO PUBLlC UTILITIES COMMISSION ISSION
IN THE MATTER OF THE APPLICATION )CASE NO.PAC-E-17-07
OF ROCKY MOUNTAIN POMTR FOR A )
CERTIFICATE OF PUBLIC )SUPPLEMENTAL REBUTTAL
CONVENIENCE AND NECESSITY rUND )TESTIMONY OF JOELLE R.STEWARD
BINDING RATEMAKING TREATMENT )
FOR NEW WlND AND TRANSMISSION )
FACILITIES )
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ROCKY MOUNTAIN POWER
CASE NO.PAC-E-17-07
APRIL 2018
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l Q.Are you the same Joelle R.Steward who previouslyprovided testimonyin this case
2 on behalf of Rocky Mountain Power ("Company"),a division of PacifiCorp?
3 A.Yes.
4 PURPOSE AND SUMMARY OF SUPPLEMENTAL REBUTTAL TESTIMONY
5 Q.What is the purpose of your supplementalrebuttal testimony?
6 A.In support of the Company's application asking the Idaho Public Utilities Commission
/("Commission")to approve the request for certificates of public convenience and
8 necessity ("CPCNs")and binding ratemaking treatment for wind and transmission
9 projects ("Combined Projects"),I respond to regulatory and ratemaking policy issues
10 raised in the supplemental direct testimonies of Monsanto witness Mr.Nicholas L.
11 Phillips,PacifiCorp Idaho Industrial Customers ("PIIC")witness Mr.Bradley G.
12 Mullins,and Commission Staff witness Mr.Michael Louis.
13 Q.Please summarize your testimony.
14 A.The conditions proposed by Messrs.Mullins,Phillips,and Louis to require a hard cap on
15 cost recovery are unprecedented,unwarranted,and,in the case of Monsanto's witness
16 Mr.Phillips,unnecessarily punitive.As the Company explained in rebuttal testimony
17 filed in December 2017,the Company accepts the risks that are within the Company's
18 control related to qualification for the production tax credits ("PTCs"),thereby
19 mitigating potential harm to customers.Additionally,the Company has agreed to a soft
20 cost cap in the Resource Tracking Mechanism ("RTM")based on the estimated costs of
21 the CombinedProjects.This means that the Company must establish the prudence of any
22 costs in excess of the estimate in the next rate case.In light of the customer benefits from
23 the Combined Projects,the Company requests that the Commission grant the requested
24 CPCNs,and approve the RTM.
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1 RESPONSE TO PROPOSED CONDITIONS
2 Q.Messrs.Phillips,Mullins,and Louis all propose that the Commission impose a hard
3 cap on cost recovery.(Phillips Supp.Direct,page 3,lines 16-20;Mullins Supp.
4 Testimony,page 4,lines 4-9;Louis Supp.Testimony,page 4,lines 21-24.)How do
5 you respond?
6 A.Imposing a hard cap on potential cost recovery would be unprecedented,unnecessary
7 and unjustified.As I discussed in my rebuttal testimony (Steward Rebuttal,page 7,lines
8 6-15),Mr.Phillips's proposed cost cap is an automatic disallowanceof 21 percent ofthe
9 capital costs.His recommendationwould effectivelyprovide customers a double-count
10 of benefits,through both the reduction in capital cost recoveryand lower net power costs
11 and pass-through of production tax credits.Adoption of this cost cap is unbalanced and
12 not in the public interest because it would create a disincentive for the Company to
13 pursue cost-effective resource opportunities to serve customers.
14 Both Mr.Mullins and Mr.Louis recomrnend hard caps at the cost estimates
15 included in the Company's second supplemental filingi.Although this proposal is less
16 egregious than Mr.Phillips's,it is still inappropriateto pre-deterrninethat costs may not
17 be recovered in rates,irrespectiveof whether they were prudently incurred.Staff witness
18 Michael Eldred even calculates a breakeven analysis,presented on Table 4 of his
19 supplemental testimony,which shows the Combined Projects would still be economic for
20 customers if costs exceed the estimates undermost of the price-policy scenarios.Setting
21 a hard cap now,without the opportunity for the Company to provide evidence to explain
22 and justify its actual costs would be unprecedented and unfair,particularlyin light ofthe
23 near-and long-term customer benefits from these resources.
24 Q.Has the Company proposed a soft cap to protect customers?
25 A.Yes.Under the soft cap,the Company agrees that the total project capital costs included
O 'However,the $1,370,237,000 for the Wind Projects included in Mr.Munins's testirnony is not the cost
included in the Company's second supplemental filing.The amount included in the Company's filing is
$1,455,495,230 for the Wind Projects.
Page 2 -Supplemental Rebuttal Testimony of Joelle R.Steward
l in the RTM will not exceed the total estimated project cost in the Cornpany's most recent
2 filing.The Company will still be able to seek recoveryof and show the prudence of any
3 increase in the total project capital cost in a future rate case,but will not seek recovery of
4 the amount in excess of the current estimate before a prudence finding by the
5 Comrnission.Customers are protected from any potential cost over-runs in the interim
6 cost recoverymechanism---the RTM------following this pre-approval,and stakeholders will
7 be able to review and challenge any cost over-runs in a general rate case before those
8 costs are included in rates.
9 Q.Does the soft cap make a hard cap on cost recovery unnecessary?
10 A.Yes.Under the soft cap,the Cornpany accepts the burden of proof on costs incurred
11 above the current estirnates.Cost recovery through the RTM would be limited to actual
12 costs (and benefits),up to a rnaximum of the estimated costs in this proceeding.This is
i 3 consistent with binding ratemakingtreatment allowed under idaho Code §61-541(b)(iii),
14 which recognizes the utility having the burden of moving forward with additional
15 evidence of prudence and reasonableness of costs over the estimates.It also recognizes
16 that the Commission may set the method of handling variances between cost estimates
17 (See IC §61-541(b)(iv)).Because the Company bears the burden of demonstrating the
18 reasonableness of costs and prudent management for resource development,the
19 Company continues to have the motivation and incentive to keep costs low,without the
20 need for a hard cost cap.
21 Q.Mr.Phillipsrecommends that if the Companyceases construction of the Combined
22 Projects,for whatever reason,any cost incurred should not be recoverable from
23 customers.(PhillipsSupp.Direct,page 4,lines 10-11.)How do you respond?
24 A.The Company does not agree the Commission should foreclose the opportunityto seek
25 recovery of costs,Recommending the Commission pre-determine and disallow cost
26 recoveryunder all circumstances is inconsistent with Commission practice.As addressed
2 /in Ms.Crane's rebuttal testimony,the Company will prudentlynegotiateprecautionary
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1 off-ramps in the contracts to allow it to exit the Transmission Projects if they become
2 uneconomic.The timing and terms of the execution of the contracts necessary to procure
3 or construct the Wind Projects will also provide flexibilityto allow the Company to
4 reassess project economics,if necessary,before executing the contracts.If an adverse
5 change of circumstances materially affects the Combined Projects'economics,the
6 Companywill seek Commission review of whether to proceed with implementation.This
7 is the prudent approach to mitigate customer risk for items beyond the Company's
8 control.
9 Q.What has the Company testified in this proceeding about the risks it is willing to
10 assume?
11 A.The Company has consistently testified that it assumes the risk associated with factors
12 within its control that the Wind Projects will qualify for PTC benefits.For example,if
13 any turbines fail to qualify because of the Company's actions or inactions,shareholders
14 accept the consequences of that result.(Crane Rebuttal,page 7,line 17 to page 8 line 2.)
15 Q.Does this conclude your supplementalrebuttal testimony?
16 A.Yes.
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