20180911McDougal Direct.pdf

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CASE NO. PAC-E-18.08
DIRECT TESTIMONY
OF STEVEN R. MCDOUGAL
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ROCKY MOUNTAIN POWER
CASE NO. PAC-E-18-08
SEPTEMBER 11,2018
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Please state your name, business address, and present position with PacifiCorp
d/bla Rocky Mountain Power (the "Company'o).
My name is Steven R. McDougal. My business address is 1407 W North Temple, Suite
330, Salt Lake City, Utah 84116. My current position is the Director of Revenue
Requirements.
QUALIFICATIONS
Please describe your education and professional background.
I received a Master ofAccountancy from Brigham Young University with an emphasis
in Management Advisory Services and a Bachelor of Science degree in Accounting
from Brigham Young University. In addition to my formal education, I have also
attended various educational, professional, and electric industry-related seminars. I
have been employed with PacifiCorp and its predecessor, Utah Power and Light
Company, since 1983. My experience includes various positions with regulation,
finance, resource planning, and internal audit.
What are your current responsibilities with the Company?
My primary responsibilities include overseeing the calculation and reporting of the
Company's regulated earnings and revenue requirement, assuring that the
interjurisdictional cost allocation methodology is correctly applied, and explaining
those calculations to regulators in the jurisdictions in which the Company operates.
Have you testified in previous proceedings?
Yes. I have provided testimony in many cases before the Idaho Public Utilities
Commission ("Commission"). I have also provided testimony before the California,
Wyoming, Oregon, Washington, and Utah public utility commissions.
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PURPOSE OF TESTIMONY
What is the purpose of your direct testimony?
My testimony:
. Discusses the impact on the annual depreciation expense allocated to Idaho and
provides support for the allocation of the new depreciation rates and effective
date;
. Identifies and discusses state-specific items considered during the preparation
of the Depreciation Study;
. Provides information related to certain reporting requirements from the
Commission-approved stipulation from the 2013 depreciation study.
ALLOCATION OF THE DEPRECIATION STUDY
What is the Idaho-allocated effect on annual depreciation expense if the
depreciation rates recommended by Mr. John J. Spanos are adopted?
The Company allocated the annual depreciation expense using the inter-jurisdictional
allocation methodology that was approved in Case No PAC-E-15-16 (the "2017
Protocol"). The adoption of the depreciation rates proposed in the Depreciation Study
would increase customers' rates by approximately $14.1 million on an Idaho-allocated
basis. In addition, the Company proposes to end the excess reserve amortizations
implemented as part of the 2013 depreciation study, which increases customers' rates
by $3.2 million on an Idaho-allocated basis. The Company also proposes to include in
base rates the incremental impact of the 2013 depreciation study which increases
customers' rates approximately $2.0 million. The calculation of the Idaho-allocated
depreciation expense increase associated with adoption of the depreciation rates
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proposed in the Depreciation Study, the rate impact of ending the excess reserve
amortization, and the 2013 depreciation study incremental rate impact is provided as
Exhibit No. 3.
What does the Company propose as the effective date for implementing the new
depreciation rates?
The Company's accounting system maintains depreciation rates on a calendar year
basis. Therefore, the Company proposes the new depreciation rates be made effective
January 1,2021.
Does the 2017 Protocol allocation methodology lapse prior to the proposed
implementation for the new depreciation rates?
Yes. The 2017 Protocol is currently approved through December 31,2019.
Why is the Company proposing an effective date of January 1, 202L, after the 2017
Protocol allocation methodology has lapsed?
The Company is actively working with parties in its service territories to develop and
adopt a new allocation methodology commonly referred to as the Coal Life Evaluation
and Realignment Plan ("CLEAR"). Although the timing of a formal approval is
unknown, the Company believes an implementation date of January 1,2021would
allow adequate time to resolve and gain approval of the new allocation methodology.
Aligning the Depreciation Study with the anticipated approval of CLEAR would help
maintain customer rate stability.
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1 STATE-SPECIFIC ITEMS
Please summarize the state-specific items you considered when preparing your
Depreciation Study testimony.
In preparing my testimony, I considered the implementation of the 2013 depreciation
study rates; the expedited excess depreciation reserve amortizations; and the regulatory
treatment of hydroelectric facilities on the Klamath River.
Have the rates from the 2013 depreciation study been included in Idaho
customers' base rates?
No. As part of the resolution to Case No. PAC-E-13-04, in Order 32910, the
Commission approved parties' request for the Company to create a regulatory asset to
defer, on a monthly basis, any aggregate net increase or decrease in Idaho's allocated
depreciation expense for the period beginning on the later to occur of January 1,20L4,
or the effective date in the Commission order approving new depreciation rates, until
the date that new depreciation rates are reflected in customer rates.
What is Idaho's incremental rate impact from the 2013 depreciation study?
Idaho's incremental annual rate impact from the 2013 depreciation study is
approximately $2.0 million. This amount fluctuates based on depreciable plant
balances. The depreciation rates from the 2013 depreciation study were effective
January 1,2014, with the monthly incremental depreciation expense deferred into a
regulatory asset until the date that the depreciation rates are reflected in customer rates
consistent with Order No. 32910.
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The stipulation related to the 2013 depreciation study included expedited excess
reserve amortizations. Please summarize why those amortizations were
established.
They were established because of the retirement of assets occurring outside of projected
expectations and the changes in lives and net salvage rates that had occurred. Due to
this, there were excess reserves for the Colstrip, Hunter, Gadsby Units 1-3, and Blundell
steam production units. There were additional excess reserves for Idaho, Utah, and
Wyoming distribution plant. Historically, any excess reserves are returned over the
remaining life of the assets; however, as part of the 2013 depreciation study stipulation,
parties agreed to expedite the return ofthese excess reserves over a shorter period.
Over what period were the excess reserves to be returned to customers?
The excess reserve amortizations were to occur over the period between the effective
date of the 2013 depreciation study and this filing.
What is the Company proposing on excess reserve amortizations?
The Company proposes to end the excess reserve amortizations for Colstrip, Hunter,
Gadsby Units 1-3, and Blundell steam production units. The Company also proposes
to end the excess reserve amortizations in Idaho, Utah, and Wyoming for distribution
plant. The $0.7 million allocated impact from the elimination of the steam excess
reserve amortizations and the $2.5 million impact from the elimination of the Idaho
distribution excess reserve amortizations is provided in Exhibit No. 3.
Please explain why hydroelectric plants on the Klamath River are not included in
the Depreciation Study.
In the 2013 depreciation study, the Klamath River hydro facilities were calculated to
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I be fully depreciated December 31, 2019, before the proposed effective date of this
Depreciation Study.
Does Idaho assume different regulatory treatment from the calculation in the 2013
depreciation study?
Yes, in the Company's 2013 depreciation study stipulating parties agreed that the
Company would depreciate the Klamath fuver hydro facilities through December 31,
2022. The Company makes a regulatory adjustment to correct the remaining
depreciable life of the hydro plant from December 31, 2019 to December 3 1, 2022 in
Idaho results of operations and other appropriate filings. A similar adjustment is made
on the relicensing process costs assuming the same December 3 l, 2022 asset life.
Will the Company continue to make this adjustment for regulatory filings made
in ldaho?
Yes, the Company will continue to recognize the stipulated life of Klamath through a
regulatory adjustment made in any relevant regulatory filings made in Idaho.
2013 DEPRECIATION STUDY REPORTING REQUIREMENTS
Are there any additional exhibits you will be sponsoring as part of your direct
testimony?
Yes, the 2013 depreciation study stipulation stated:
"the Comparty will provide a sectiort in the next depreciation study, for
informatiorml purposes only, listing the specific mining assets, resert)e
balances, and respective lives owned by its Wyoruing mining subsidiary. "
This information has been provided as Exhibit No. 4.
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SUMMARY OF RECOMMENDATIONS
Please summarize your recommendations to the Commission.
I recommend that the Commission find that the depreciation rates sponsored by Mr.
Spanos in the Depreciation Study based on projected December 31, 2020, plant
balances are fair, just and reasonable depreciation rates for the Company. I further
recommend that the Commission order the Company to implement these depreciation
rates in its accounts and records effective January 7, 2027 .
Does this conclude your direct testimony?
Yes.
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