20210527Steward Direct-Redacted.pdf

BEFORE TIIE IDAHO PTJBLIC UTILITMS COMMISSION
IN THE MATTER OF TIIE
APPLICATION OF ROCKY
MOTJNTAIN POWER FOR
AUTIIORITY TO INCREASE ITS
RATES AIID CIIARGES IN IDAIIO
AI\ID APPROVAL OF PROPOSEI)
ELECTRIC SERYICE SCIIEDTILES
AND REGULATIONS
CASE NO. PAC.E.?I.O1
Direct Testimony of Joelle R Steward
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ROCI(Y MOT'NTAIN POWER
CASE NO. PAC.E.2I.O1
M;ay 2021
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IABLE OF CONTENTS
TNTRODUCTION OF WTTNES S AND QUALIFICATIONS.........
PURPOSE OF TESTIMONY
PREVIOUS RAIE CASE HISTORY.
OVERVIEW OF RATE CASE
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PROPOSAL FOR DEFERRED TCJA BENEFITS t7
INTERRUPTIBLE PRODUCTS PROYIDED BY P4 PRODUCTIONS ... ............... 23
VII. RECOMMENDAf,ION.25
ATIACITTTD EXHIBIT
Confidential Exhibit No. 2-Energy Vision 2020 Cost Comparison
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I. INTRODUCTION OF WITNESS AND QUALIFICATIONS
Please state your name, business address, and present position with PacifiCo"p,
d/b/a Rocky Mountain Power (5'Rocky Mountain Power" or the "Company").
My name is Joelle R. Steward. My business address is 1407 West Noflh Temple, Salt
Lake City, Utah 84116. My present position is Vice President, Regulation for Rocky
Mountain Power.
Please summarize your education and business experience.
I have a B.A. degree in Political Science from the University of Oregon and an M.A.
in Public Affairs from the Hubert Humphrey Institute of Fublic Policy at the University
of Minnesota. Between 1999 and March 2007 ,I was employed as a Regulatory Analyst
with the Washington Utilities and Transportation Commission. I joined the Company
in March 2007 as a Regulatory Manager, responsible for all regulatory filings and
proceedings in Oregon. On February 14,2012,I assumed responsibilities overseeing
cost of service and pricing for PacifiCorp. In May 2015, I assumed broader oversight
over Rocky Mountain Power's regulatory affairs in addition to the cost of service and
pricing responsibilities; and in 2017 I assumed my current role as Vice President,
Regulation for Rocky Mountain Power.
Have you appeared as a witness in previous regulatory proceedings?
Yes. I have testified on various matters in the states of Idaho, Oregon, Utah,
Washington, and Wyoming.
II. PTTRPOSE OF TESTIMONY
What is the purpose of your direct testimony?
I provide an overview of Rocky Mountain Power's general rate case filing and support
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the Company's policy positions throughout this filing. As explained in the testimony of
Mr. Gary W. Hoogeveen, the Company has made a concerted effort to manage its
controllable costs since the Company's last filed general rate case in 2011 ("2011 Rate
Case")r and the stipulated agreement approved in lieu of a rate case in 2013 (*2013
Stipulation Agreement").2 This rate case filing reflects the Company's prudent and
efficient management of its costs that has allowed it to not request an increase in base
rates for eight years while continuing to invest in the system and adhering to the core
principle of providing safe, reliable, and affordable service for customers. This filing
brings to customers a significant increase in benefits from low-cost new and repowered
wind resources that lower net power costs ("NPC"), along with the production tax
credits ("PTCs"), incorporation of the tax savings associated with federal Tax Cut and
Jobs Act ("TCJA"),3 new transmission invesffnents to support and strengthen the bulk
power system, and a modernization of rate designs to provide better price siguals.
The requested revenue requirement increase in this general rate case filing is
$19.0 million, or approximately 7.0percent. The Company has reflected a rate
mitigation measure to use approximately $3.3 million of the TCJA tax deferred balance
to buy down certain regulatory asset balances, which reduced the requested increase by
$ 1.1 million. With respect to the remaining $8.5 million of TCJA deferred tax balance,
the Company has not reflected a refund of this balance in the initial filing given the
I In the Mqtter of the Application of PacifiCorp, DBA Rocky Mountain Poweri for Approval of Changes to Its
Electric Service Schedules, Case No. PAC-E-ll-12, Order No.32432, approving the Settlement Stipulation with
one condition (Jan. 10,2012).
2 In the Malter of the Application of PacifiCorp, DBA Rocky Mounlain Poweri to Initiate Discussions with
Interested Parties on Alternative Rate Plan Proposals, Case No. PAC-E-13-04, Order No. 32910 (Oct.24,
2013).
3 I ret'er to the tax savings associated with the reduction of the t'ederal corporate tax rate as the "TCJA deferred
tax benefrts."
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potential of an increase in the federal corporate income tax rate. However, if an increase
in the corporate tax rate is not enacted this year, which would offset some of the
defened TCJA savings, then the Company proposes to refund the remaining balance
over two years.
I also want to acknowledge the willingness and support of the Idaho Public
Utilities Commission ("Commission"), its staff and the Idaho stakeholders to consider
and adopt innovative and non-traditional ratemaking treatment through the years that
have enabled the Company to stay out of a general rate case for 10 years. I describe
many of these efforts through the background provided in my testimony for various
cost elements. The Company appreciates this open engagement by Idaho parties to
continually find ways to balance the interests of all parties in creative ways.
How is your direct testimony structured?
Section III ofmy testimony provides an overview of the Company's last rate case filing.
Section IV provides an overview of this rate case filing, including a discussion of
primary drivers. Section V discusses the Company's proposed treatrnent of the
remaining TCJA tax deferred balance. Section VI discusses the Company's proposals
regarding the intemrptible products provided by P4 Productions, also known by the
name of its parent company, Bayer, (formerly, Monsanto) to the Company.
Please summarize the recommendations you make in your direct testimony.
I recommend that the Commission:
o Authorize rates to recover an overall Idaho revenue requirement of $290.5 million,
which is an increase of $19.0 million, or 7.0 percent, to current base rates. The
support for the overall increase is set forth in my testimony and the testimony of
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1 the other Company witnesses.
Approve using approximately $3.3 million of TCJA deferred tax benefits to buy
down the decommissioning and closure costs for Cholla Unit 4 and other regulatory
asset balances, described in my testimony, to remove those costs from rates and
mitigate the rate increase.
Approve as prudent the Company's request to include the incremental additions to
the Company's rate base, including the full costs for the new wind, hansmission
and wind repowering projects that were part of the Company's Energy Vision 2020
filings, the repowering of Foote Creek I, the Pryor Mountain Wind Project, the
installation of selective catalytic reduction retrofits on certain generating units, the
conversion of Naughton Unit 3 to natural gas, numerous bulk transmission system
projects, and the Lake Side 2 natural gas generating plant for a total 2021ldaho rate
base of approximately $1.0 billion, as discussed in the testimony of various
witnesses in this rate case.
Approve an overall cost of capital of 7.63 percent, which is comprised of a capital
structure of 52.83 percent equity, 47.16 percent long-term debt, and 0.01 percent
preferred stock as supported by Ms. Nikki L. Kobliha; and a return on equity
("ROE") of 10.2 percent as supported by Ms. Ann E. Bulkley.
Approve the update to certain customer service charges on Schedule 300, and a 50-
cent bill credit for customers who opt out of receiving paper bills as set forth in the
testimony of Ms. Melissa S. Nottingham.
Approve, subject to any alternative agreement on value negotiated between the
Company and Bayer during the pendency of this case, the Company's proposal
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I regarding the valuation of the intemrptible products provided by P Productions
and the related credit as described in the testimony of Mr. Craig M. Eller.
. Approve the innovative and equitable cost of service, rate spread and rate design
proposals, set forth in the testimony of Mr. Robert M. Meredith.
UI. PREVIOUS RATE CASE HISTORY
Please discuss the Company's most recent rate changes.
The Company's efficient management of costs and the Commission's approval of
alternative ratemaking treatment has allowed the Company to avoid filing a general
rate case for 10 years. On May 27,2011, the Company filed its 2011 Rate Case
requesting an increase in revenues from Idaho operations for an overall price change
of 15.0 percent or $32.7 million. The Commission approved a comprehensive, multi-
year, settlement stipulation, authorizing a two-step rate increase of $17.0 million
effective January 10,2012, and a rate increase of $17.0 million effective January l,
2013.4 As part of the 201I Rate Case Settlement, the Company agreed to not file a rate
case before May 31, 2013. On March 1,2013, the Company filed an application to
initiate discussions with interested parties on alternative rate plan proposals and a
notice of intent to file a rate case.5 Following meetings among the parties, the Company
filed the 2013 Stipulation Settlement Agreement, which the Commission approved on
October 24,2013. The 2013 Stipulation Settlement Agreement provided for the base
a In the Matter of the Application of PacifiCorp, DBA Roclcy Mountain Powe4 for Approval of Changes to lts
Electric Service Schedules, Case No. PAC-E-ll-12, OrderNo. 32432 (Jan. 10,2012), approving Settlement
Stipulation with one condition.
5 In the Matter of the Application of PacifiCorp, DBA Roclcy Mounlain Powet to Initiate Discussions with
Interested Parties on Alternative Rate Plan Proposals, Case No. PAC-E- l3-04, Order No. 32910 (Oct.24,
2013).
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revenue requirement for all customer schedules to increase by a uniform percentage of
0.77 percent in the energy rate of each schedule. That increase was effective January 1,
20t4.
Over the course of the last eight years, rates were decreased as a result of two
proceedings which allowed the Company to avoid filing a rate case. First, in 2016, the
Commission granted the Company's requested rate decrease, which included a base rate
reduction and updated NPC for base rates and the energy cost adjustment mechanism
("ECAM").6 Second, in 2018, the Commission approved a settlement stipulation,
which provided decreases to retail revenues and the ECAM rate to reflect the TCJA
deferred tax benefits.7
TV. OVERVIEW OF RATE CASE
What is the purpose of this Section of your direct testimony?
In this section of my testimony, I explain the various components of the Company's
rate case filing. I also explain the primary drivers of the requested increase in the
Company's rates.
What test period is the Company using in this rate proceeding?
The Company is proposing a test period based on calendar year 2020 with known and
measurable changes through the 12 months ending December 31,2021. The use of this
test period is necessary to incorporate the updated depreciation study, which went into
effect January l, 2021, and other capital additions that go into service through 2021.
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6 In lhe Matter of the Application of PacifiCorp dba Roclcy Mountain Power to Update Base Net Power Costs
and Implement a Rate Stability Plan, Case No. PAC-E-|6-12, Order No. 33668 (Dec. 14, 2016).
7 In the Matter of the Investigation into the Impact of Federal Tax Code Revisions on Utility Costs and
Ratemaking, Case No. GNR-U-18-01, Order No. 34072 (June l, 2018) and Order No. 34331 (May 3, 2019).
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The costs for the new investments are partially offset by PTCs and the significant
increase in zero-fuel-cost energy. The testimony of Mr. Steven R. McDougal discusses
the development of the test period.
What rate of return is the Company requesting in this case?
The Company is requesting approval of an overall rate of return of 7.63 percent.
The overall rate of return reflects a lO.2 percent ROE as supported by Ms. Bulkley. As
explained by Ms. Kobliha, PacifiCorp is requesting approval of a capital structure that
is comprised of 52.83 percent equity, 47.16 percent long-term debt, and 0.01 percent of
preferred stock. Mr. McDougal applies the overall rate of return in the calculation of
the Company's Idaho-allocated revenue requirement.
Is the Company using a new inter-jurisdictional allocation methodology in this
rate case?
Yes. On December 3,2}l9,the Company filed with the Commission an application for
approval of the 2020 PacifrCorp Inter-Jurisdictional Allocation Protocol (*2020
Protocol").8 The Commission approved the Company's application on Apil22,2O2O,
finding that the methodology fairly and reasonably allocates the Company's system
costs and, as such, is within the public interest.e As explained by Mr. McDougal, the
Company used the 2020 Protocol to develop the revenue requirement in this
proceeding, which for allocating costs in this case, is similar to the 2017 Protocol.
Please describe the primary drivers of Rocky Mountain Power's rate request.
The primary drivers of the Company's general rate request are capital additions and
8 In the Matter of Roclqt Mountain Power's Application for Approval of the 2020 PacifiCorp InterJurisdictional
Allocation Protocol, Case No. PAC-E-19-20.
e Id. Order No. 34649 (Apr.22,2020).
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updated depreciation rates. I discuss each of these drivers in more detail below.
Please describe the capital additions drivers in this rate request.
The filing reflects a number of capital investments made since the last rate case and
through the calendar year 2021test period. The most significant investments in this
proceeding are: (l) the Energy Vision 2020 projects; (2) the Foote Creek I repowering
project; and (3) the new Pryor Mountain Wind Project. Other capital additions include
selective catalytic reduction retrofit projects at Jim Bridger Units 3 and 4 and our
partner-operated plants Craig Untt 2 and Hayden Unit 2, the conversion of Naughton
Unit 3 to natural gas, the Lake Side 2 natural gas generating plant, and various
transmission projects. These capital investments are more fully discussed in the
testimonies of Mr. Rick T. Link, Mr. Robert Van Engelenhoven, Mr. Timothy J.
Hemsffeet, Mr. James C. Owen, and Mr. RichardA. Vail.
What are the major components of Enerry Vision 2020?
Energy Vision 2020 consists of two major components, both of which are included in
this case: (l) wind repowering ("Repowering Projects")'o; ard (2) investments in new
wind and transmission ("New Wind and Transmission Projects").
Please describe the Repowering Projects.
As explained in the testimony of Mr. Hemstreet, the Repowering Projects involve
upgrading the Company's existing wind facilities to increase the amount of zero-fuel-
cost energy they produce. By complying with federal tax requirements for wind
repowering and completing the work by the end of 2021, the Company is able to renew
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r0 "Repowering Projects" refers to the repowering of the following wind tacilities: Gleruock I, Glenrock III,
Rolling Hills, Seven Mile Hill I, Seven Mile Hill II, High Plains, McFadden Ridge, Dunlap, Marengo I,
Marengo II, Goodnoe Hills, and Leaning Juniper.
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the federal PTCs on all repowered wind facilities for another 10 years. The Commission
approved the Company's Repowering Projects in Case No. PAC-E-17-06 as prudent
and in the public interest and allowed the Company to ffack the annual investment and
operating costs and benefits of the Repowering Projects using the Resource Tracking
Mechanism ("RTM"), which is included as a component of the Company's ECAM.ll I
discuss the Company's proposal regarding the RTM later in my testimony. For further
details regarding the Repowering Projects, see Mr. Hemstreet's testimony.
a. Is the Company requesting recovery of the costs to repower an additional wind
facility in this proceeding?
A. Yes. The Company is seeking approval for the costs to repower the Company-owned
wind facility-Foote Creek [. As described in the testimony of Mr. Hemstreet and
Mr. Link, the Foote Creek I project produces net customer benefits across a range of
price-policy scenarios. The upgrade to repower Foote Creek I is prudent and reasonable
and in the public interest. With respect to repowering the Foote Creek I wind facility,
Mr. Hemstreet provides project details in his testimony and Mr. Link provides the
economic analysis of the project in his testimony.
a. What is the status of the construction of the Enerry Vision 2020 Repowering
Projects and the Foote Creek I project?
A. With respect to the Energy Vision 2020 Repowering Projects, all facilities are in
service. The repowered Foote Creek I facility was placed in-service on March 24,2021.
tt In the Matter ol the Application of Roclqt Mountain Power for Binding Ratemaking Treatment for Wind
Repowering, Case No. PAC-E-17-06, Order No. 33954 at 7 (Dec. 28.2017). As part of the Stipulation, despite
the Commission's finding in Order No. 33954, a party to the Stipulation may challenge the prudence of actual
costs and benefits incurred in implementing the wind repowering project when the Company seeks recovery of
those costs in a later proceeding.
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I Mr. Hemstreet provides the status of each project in his testimony.
Please describe the New Wind and Tiansmission Projects.
The Company is adding 1,150 megawatts ("MW") of new wind resources in Wyoming,
with 854 MW online by the end of 2020. These resources include three facilities
acquired or built by the Company, the 500 MW TB Flats I and II facilities, the 250 MW
Ekola Flats project, and one facility that is a combined build-transfer and power
purchase agreement, the 400 MW Cedar Springs facility. The Company has also built
a new, 140-mile Gateway West transmission segment-the 500 kV Aeolus-to-
Bridger/Anticline Transmission Project, plus generation interconnection network
upgrades in Wyoming to enable the new wind generation. In Case No. PAC-E-17-07,
the Company requested and received a Certificate of Public Convenience and Necessity
for the New Wind and Transmission Projects.l2 In its decision, the Commission
approved an overall hard cap of projected costs for the New Wind and Transmission
Projects. Similar to the Repowering Projects, the Company is tracking the annual
investment and operating costs and benefits of the New Wind and Transmission
Projects using the RTM. t will address the Company's proposal to terminate the RTM
once the new resources are reflected in base rates in this proceeding. Further, the
Company provides an update on the status of each project, including support for
prudent and reasonable project costs that exceed the approved amount. Mr. Vail and
Mr. Hemstreet provide updates regarding the New Wind and Transmission Projects.
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t2 In the Matter of the Application of Roclry Mountain Powerfor a Cerlificate of Public Convenience and
Necessity and Binding Ratemaking Treatmentfor New Wind and Transmission Faciltties, Case No. PAC-E-17-
07, Order No. 34104, approving a Stipulation Agreement with one condition (July 20, 2018); Order No. 34139,
orderon reconsideration (Sept. 6, 2018).
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What is the status of the construction of the New Wind and Transmission
Projects?
Ekola Flats and Cedar Springs facilities were placed in-service on December 31, 2020,
and December 8, 2020, respectively. To maximize customer benefits TB Flats is being
placed in-service in a phased approach. The first phase was completed on December
31,2020, and as additional sections are completed, they are being placed in-service.
TB Flats is expected to be completed by July 2021 ensuring that all the new wind
facilities quali$, for PTCs. Mr. Vail and Mr. Hemstreet provide an update regarding the
construction status of these projects.
Are the Company's forecasted costs for the New Wind and Transmission Projects
currently expected to exceed the overall cap set by the Commission in Case No.
PAC-E-L7-07?
Yes. The Commission's Order No. 34104 in Case No, PAC-E-17-07 set a cap of
il million for the New Wind and Transmission Projects. The current forecasted
costs for the New Wind and Transmission Projects are in Confidential Exhibit No. 2.
The Company's current estimate of the New Wind and Transmission Projects is
approximately f mi[ion or 2.Zpercent over the cap approved by the Commission.
This overall increase is attributable to increases in the 230 kV Net'work Upgrades,
Ekola Flats wind faciliry and TB Flats wind facility, which are offset, in part, by a
decrease in the Cedar Springs II wind facility. Mr. Vail and Mr. Hemstreet address the
drivers ofthe increases for these projects.
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O. How did the total cost of the Energy Vision 2020 project compare to the
Company's forecast?
A. The Company's total projected cost for the Repowering Project, New Wind, and
Transmission Projects *ur f million. The total cost of these projects included
in the case is il million or 0.83 percent less than projected.
a. Should the Commission approve the recovery on and of the total costs for the New
Wind and Transmission Projects, including the amounts that exceed the cost cap
set by the Commission in Case No. PAC-E-17-07?
A. Yes. Despite obstacles that were beyond the Company's conffol, a primary one being
increased costs due to the COVID-l9 pandemic, the Company was able to deliver the
Energy Vision 2020 project under budget increasing the overall benefits to customers.
In finding that a cap is warranted, the Commission stated that "the Company controlled
the cost estimates and contingencies that the Commission relied on to impose the
cap."l3 Howeveq the Company could not have predicted the circumstances that have
led to the increase in costs; as such, the cost increases were beyond the Company's
control but do not compromise the overall economic benefits to customers for the
projects. The increase related to the 230 kV Network Upgrades is attributable to market
conditions that changed after the original estimate was prepared in 2018 due to an
increase in projects in the industry. These market conditions caused upward pressure
on costs associated with linemen resources and materials, including steel. The increases
related to TB Flat I and II and Ekola Flats wind facilities are due to the Company's
vendor for the wind turbine generators being unable to hold pricing because of steel
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price rislq tariffon Chinese goods, and transportation costs. As discussed by Mr. Vail
and Mr. Hemstreet, the Company attempted to mitigate these increases but could not
eliminate them.
In Order No. 34139, the Commission stated that the Company's main rational
for building the New Wind and Transmission Projects was economic rather than an
immediate need for reliability or safety.ra I respectfully disagree. As explained further
by Mr. Link, beginning in 2017, the Company's IRP has demonstrated a need for new
wind resources. Additionally, even with these increases, the New Wind and
Transmission Projects are still an overall benefit to the Company's customers.
Furthermore, the Company should not be punished for seeking review and approval
before undertaking a significant investment on behalf of customers. As a result, the
Company requests recovery on and of the total cost of the New Wind and Transmission
Projects, including those costs that exceed the cost cap, as they were prudently incurred
and reasonable in amount.
What is the Company's proposal regarding the RTM that is currently tracking
the costs and benefits associated with the Repowering Projects and New Wind and
Transmission Projects?
The RTM is a nontaditional ratemaking approach that allowed the Company, in
between rate cases, to properly match the timing of the benefits and costs for the
Repowering Projects and New Wind and Transmission Projects. The RTM aligned the
costs and benefits so that customers received the full benefits from capital-intensive
projects while the Company received appropriate cost recovery of the prudent
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investment. With respect to the Repowering Projects and New Wind and Transmission
Projects, the respective RTMs served their purpose of matching the return of benefits
of the projects to customers and allowing appropriate cost recovery. Therefore, it is
appropriate to move these invesftnents into the Company's rate base and incorporate
them into the Company's rates in this rate case proceeding, consistent with the treatment
of all other capital investments. The Company proposed the RTM as a short-term
solution to avoid the need of back+o-back rate cases to incorporate these investments
in rates. Mr. McDougal addresses the addition of these investments in rate base in his
testimony.
Please describe the other major capital generation project, Pryor Mountain Wind
Project.
As explained by Mr. Van Engelenhoven, the Pryor Mountain Wind Project has a
nameplate capacity of 240 MW. The facility is located on a site in Carbon County,
Montana, approximately 60 miles south of Billings, Montana. Furtheq with respect to
this project, PacifiCorp and Vitesse, LLC (a wholly-owned subsidiary of Facebook,
Inc.) executed an agreement for the purchase of all renewable energy credits ("RECs")
generated by the Pryor Mountain Wind Project over a 25-year period under the
Company's Oregon Schedule 212 - Renewable Energy Rider Optional Bulk Purchase
Option.
Does the Pryor Mountain Wind Project provide quantifiable benefits to
customers?
Yes. As described in the testimony of Mr. Link, the Pryor Mountain Wind Project
produces net customer benefits across a range of price-policy scenarios.
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What is the status of the construction of the Pryor Mountain Wind Project?
The Pryor Mountain Wind Project was placed in-service on April 1,2021, before the
rate effective date in this case. Mr. Van Engelenhoven provides more information
regarding the construction of this project.
How will the Company treat the revenues received from the sales of RECs from
the Pryor Mountain Wind Project?
An estimate of ldaho's allocation of the revenue from the sale of RECs for this project
is included in Mr McDougal's revenue requirement calculation, reducing costs for
Idaho customers. Actual REC revenues are compared to the base amount established in
this case annually and the difference is tracked in the ECAM, consistent with treatment
for all REC revenues. Mr. McDougal describes this in his testimony.
Please describe the updated depreciation rates and decommissioning costs driver
in this rate request.
On September 11, 2018, the Company filed an application and supporting testimony
for an order autho rizing a change in depreciation rates effective as of January I , 2021 ,
which initiated Case No. PAC-E-18-08 ("2018 Depreciation Study").15 Around the
same time the Company filed similar applications for approval of the 2018
Depreciation Study in Wyoming, Oregon, Utah, and Washington. In January 2020,
pursuant to the 2020 Protocol, the Company completed an updated decommissioning
study for seven coal-fired resources: Jim Bridger, Dave Johnston, Hunter, Huntington,
Naughton, Wyodak, and Hayden. In March 2020, the Company completed an updated
t5 In the Matler of the Application of Rocky Mountain Powerfor Authorization to Change Deprecialion Rates
Applicable to Electric Property, Case No. PAC-E-18-08.
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decommissioning study for Colstrip.r6 The parties in the Company's depreciation
proceedings in Idaho, Utah, and Wyoming, due to the consistency of depreciation rates,
jointly engaged in numerous and significant good-faith, arms-length negotiations in an
effort to resolve the matter. On May 21,2020,the Company and Idaho parties finalized
an agreement in principle." On June 15,2020, the Company filed a Stipulation for
Phase I, new depreciation rates, and requested that the Commission establish Phase II
to facilitate additional discussion on the treatnent of the incremental costs identified in
the 2o2O decommissioning studies.ls On August 18,2020, the Commission approved
the depreciation rates as filed in the Stipulation and authorized Phase II.le
On October 8,2020,after negotiating with parties, the Company filed the Phase
II Stipulation that resolved treatment of the incremental decommissioning costs from
the2o20 decommissioning studies. On December 11, 2020, the Commission approved
the Phase II Stipulation as filed.
In this application, the Company has incorporated the depreciation rates and
incremental decommissioning costs approved by the Commission. Mr. McDougal's
testimony addresses the inclusion of the new depreciation rates and incremental
decommissioning costs into the revenue requirement calculation.
16 The March 2020 decommission study for Colstrip was filed in Case No. PAC-E-18-08, Conlidential Colstrip
Decommissioning Report (Mar. 16, 2020).
r7 ln Utah and Wyoming, the negotiations among the parties resulted in a stipulation agreement filed in Docket
No. l8-035-36 in Utah and a comparable stipulation agreement with parties in its Wyoming proceeding in
Docket No. 20000-539-EA-18 (Record No. 15095).
18 Case No. PAC-E-I8-08, Stipulation on Depreciation Rate Changes (June 15, 2020).
re Case No. PAC-E-18-08, OrderNo.34754 (Aug. 18, 2020).
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Please explain the Company's overall approach to designing customer rates in this
proceeding?
The Company continues the Commission's long-established practice of designing rates
to be aligned with the cost of service. The proposed allocation of the revenue
requirement and rates reflect the changing conditions since the Company's last filed
rate case l0 years ago. For rates, the Company makes several rate design updates and
various tariff changes to modernize and simplifu existing tariffs, including a new
monthly credit to customers who choose a paperless billing option and updates to the
valuation and credit for intemrptible products received from Bayer. The cost of service
study, rate spread, rate design, and tariffs are explained in greater detail in
Mr. Meredith's testimony. Ms. Nottingham discusses updates to customer service
charges and the proposed paperless bill credit. Mr. Eller explains the valuation and
related credit for the intemrptible products received from Bayer.
V. PROPOSAL FOR DEFERRED TCJA BENEFITS
What is the purpose of this section of your direct testimony?
This section of my testimony discusses the Company's proposals for using the
remaining TCJA deferred tax benefits balance. First, the Company proposes to buy
down regulatory asset balances, including the decommissioning and closure costs for
Cholla Unit 4, which reduces the Company's revenue requirement in this case by
approximately $ I .1 million by eliminating these costs from rates. Second, after the buy
down of the regulatory asset balances, approximately $8.5 million of the TCJAdeferred
tax balance remains. The Company has not reflected ffeatment in rates for the
remaining balance at this time given the potential of an increase in the corporate income
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tax rate that is being considered in the U.S. Congress during the pendency of this
proceeding. However, if an increase in the corporate income tax rate is not enacted this
year, the Company proposes to refi.md the remaining TCJA deferred tax balance over
two years, beginning January 1,2022. The Company will provide an update to the
treatnent of the remaining TCJA tax deferred balance in rebuttal testimony.
What is the TCJA?
After the TCJAwas enacted in December 2017 andlowered the federal income tax rate
from 35 percent to 2l percent, the Commission opened a multi-utility case to
investigate whether to adjust the rates of certain utilities as a result of the reduced tax
rate.zo The Commission directed utilities to account for the tax benefits as a regulatory
liability and report on how they were impacted and how benefits could be passed
through to customers.2l The Company filed its report on March 30, 2018, in Case No.
GNR-U-I8-01.
Have the Company's customers already received benelits of the TCJA?
Yes. The Company's Idaho customers have already experienced a sizable decrease in
rates through its pass-through of the change in the corporate income tax rate established
by the TCJA.22 Initially, the Commission approved a settlement stipulation dated
May 10, 2018, that provided (l) a decrease of Idaho retail revenues by $8.385 million
or approximately 3.0 percent, which consisted of $6.185 million in federal and state
income tax savings returned to customers through Electric Service Schedule No. 197,
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20 In the Matter of the Investigation into the Impact of Federal Tax Code Revisions on Utility Costs and
Ratemaking, Case No. GNR-U-I8-01, Order No. 33965 (Jan. 17, 2018).
2r Id.
22 Case No. GNR-U- I 8-01 , Order Nos. 34072 and 343 3 I .
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and $2.2 million reduction to Electric Service Schedule No. 94, Energy Cost
Adjustment rate; (2) an offset of $3.5 million of the ECAM 2013 regulatory asset
balance, which decreased the annual ECAM rate by $2.2 million; and (3) that any
under- or over-collection of the tax benefits would be recorded as a regulatory asset
and deferred until base rates are set through a general rate case.23 As part of this
settlement stipulation, the Company agreed to file a final report of the Company's net
savings due to the federal tax law change on June 15, 2018, which initiated a Phase II
of the proceeding that reviewed the remaining deferred balances and addressed
ratemaking treatment for them.
In Phase II, a second settlement stipulation dated March5,2019, was approved
by the Commission.2a The March 5 settlement stipulation provided for in part (1) an
increase to Schedule 197 rates of $1.4 million, thus refunding to Idaho retail customers
approximately $7.6 million annually; (2) amortize over two years the deferred current
tax savings balance of approximately $ 1.1 million through the ECAM; (3) as the Excess
Deferred Income Taxes ("EDIT") resulting from the tax law change amortize in rates,
the inclusion of a rate base carrying charge offset to account for the corresponding
increase in rate base associated with amortized EDIT until the Company's next general
rate case; (4) a reduction of the actual annual average rate assumption method
("ARAM") amortization of protected property-related EDIT, and the annual straight-
line amortization of non-protected property and non-property EDIT, by a rate base
23 Case No. GNR-U-I8-01, Order No. 34072. Also, per the TCJA Settlement, the frnal Schedule 94 ECAM rate
collected $1.8 million more than originally approved to continue offsetting the $1.8 million incremental
depreciation deferral.
2a Case No. GNR-U-18-01, Order No. 34331 (May 3, 2019).
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offset calculated at the pre-tax weighted average cost of capital on the after-tax EDIT
amounts until the EDIT rate base balances are updated and included in the next general
rate; and (5) until the next general rate case, refund through the ECAM the actual annual
ARAM amortization of protected property EDIT, less the associated rate base offset.
The non-protected property and non-property EDIT would be amortized over seven
years and be used in part to offset the 2013 incremental depreciation expense deferral
approved by Commission in Order No. 32910.25
Were there further changes to the TCJA settlements that modified treatment of
the TCJA benefits?
Yes. On March 26,2020, the Company filed a Notice of Intent to file a General Rate
Case with the Commission. However, as the time to file the case got closer, recognizing
the impact that the COVID-l9 pandemic was having on its customers and knowing a
rate increase at that time in particular would be challenging, the Company initiated
discussions with Commission Staffand other Idaho stakeholders to develop a rate plan
that would allow it to delay filing a general rate case.
The Company was able to reach an agreement with Commission Staff, Bayer,
the tdaho Conservation League, the Idaho Irrigation Pumper Association, and
PacifiCorp Idaho Industrial Customers to delay the general rate case so no change to
general rates would be effective prior to January 1,2022. With the delay in the rate
case, the parties agreed, among other things, to (1) support a one-year defenal of the
incremental annual depreciation expense approved to Case No. PAC-E-18-08, and (2)
that the Company could file an accounting application to seek approval for
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modifications to the Phase II tax settlement stipulation in Case No. GNR-U-I8-01, on
the ratemaking treafrnent for the TCJA. On July 2, 2020, the Company frled the
accounting application in Case No. PAC-E-20-03. The accounting application
requested approval to use the tax benefits to buy-down the net plant balance of Cholla
Unit 4, which was to be removed from service in December 2020, and to cease the
refund of the tax savings in the ECAM filing in 2O2l in order to use any remaining
savings to mitigate the rate impact inthe202l general rate case filing. The Commission
approved the accounting application on December 31, 2020.26 The modification
allowed the Company to use a portion of the remaining balance from excess deferred
income tax savings from the TCJA to buy-down the remaining plant balance from
Cholla Unit 4 and offset future rate increases.
How much of the TCJA deferred balance was used to buy down the Cholla Unit 4
plant balance?
As explained in Mr. McDougal's testimony, of the remaining $28.2 million of TCJA
savings available for refund, the Company applied approximately $ 16.4 million to buy-
down Idaho's allocation of investment in Cholla Unit 4, which reduced the revenue
requirement in this case by approximately $5.5 million.
After the buy down of the Cholla Unit 4 plant balance, what is the remaining
balance ofthe TCJA deferred regulatory account?
The remaining balance of the TCJA deferred regulatory liability is approximately
$11.8 million, details of which are discussed in the testimony of Mr. McDougal.
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26 In the Matter of the Application of Rocky Mountain Power for Authority to Increase its Rates and Charges in
Idaho and Approval of Proposed Electric Service Schedules and Regulations, Case No. PAC-E-20-03, Order
No.34384.
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How is the Company proposing to use the remaining TCJA deferred balance in
this proceeding?
To mitigate the impact on customers of the requested revenue requirement rate increase,
the Company is proposing to use approximately $3.3 million of the remaining TCJA
balance to buy down other regulatory asset balances. [n particular, the Company is
proposing to buy down the following regulatory asset balances: Powerdale Hydro
decommissioning costs; Electric Plant Acquisition Adjustment for Craig and Hayden
plants; 2017 Protocol equalization adjusftnent; Intervenor funding; and Cholla closure
and decommissioning costs. As discussed by Mr. McDougal, buying down of these
regulatory and asset balances reduces the revenue requirement increase by $1.1 million
per year.
What is the Company's proposal regarding the remaining $8.5 million of the
TCJA deferred tax balance?
The Company has not reflected ratemaking ffeatment to return the remaining TCJA
balance to customers in this initial filing because of a potential increase in the federal
corporate income tax rate that may occur during the pendency of this proceeding. In
April, the Treasury Department announced plans to seek an increase in the corporate
tax rate from 21 percent to 28 percent to help fund the White House's economic
agenda.z1 Accordingly, committing now to a proposed treatment for the remaining
TCJA balance may not be the best result for customers should there be an increase in
the federal corporate income tax rate. However, in the event an increase in the corporate
tax rate is not enacted this year, the Company proposes to refund the remaining
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27 See, e.g., President Iliden Unveils Plan to Raise Comorate Taxes - 'Ihe New York 'I'imes (nytimes.com).
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$8.5 million TCJA balance to customers through Schedule 197 over two years,
beginning January 1,2022. A refund over two years would help offset and effectively
phase-in the base rate increase in this case. The Company will continue to monitor the
potential for an increase to be passed by the Congress and provide an update in rebuttal.
YI. INTERRUPTIBLE PRODUCTS PROVIDED BY P4 PRODUCTIONS
a. What is the purpose of this section of your direct testimony?
A. The purpose of this section of my testimony is to provide an overview of the Company's
proposals for the economic valuation of the intemrptible products provided by P4
Productions (Bayer), which acquired the Monsanto Company in 2018, and to establish
the intemrptible credit amount for inclusion in a P4 Electric Service Agreement ("P4
Agreement").
a. Why is the Company proposing to change the valuation of the interruptible
product and establish a credit?
A. The Commission has previously directed the Company to address the economic
valuation of intemrptible products offered by Monsanto in a general rate case. In its
Order approving a 2005 agreement with Monsanto, the Commission directed the
Company to address intemrptible product valuation in the context of a general rate case
when Monsanto's cost of service is determined. 28 When the Company filed its next rate
case, it was in the process of negotiating a new contract with Monsanto and so it did
not address the economic evaluation of intemrptible products offered by Monsanto
28 In the Matter of the Application of PacifiCorp dba Rocky Mountain Power for Approval of an Electric
ServiceAgreement with Monsanto Company, Case No. PAC-E-06-09, OrderNo.30l97 (Dec. 18,2006).
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until later in the proceeding.2e The Commission found that the Company should have
filed the information earlier and directed the Company to continue the existing
intemrptible credit and terms of service until February 28,2011.30 In the Company's
20ll Rate Case, the Commission made findings concerning Monsanto's intemrptible
products and value. As a result, in its direct case in this filing, the Company is proposing
an economic valuation of the intemrptible products being discussed to be provided by
Bayer and to establish the intemrptible credit amount for inclusion in the P4
Agreement. While the Company and Bayer have met regularly and continue
discussions to negotiate the terms of a new agreement, at this point we have not reached
a full agreement with Bayer.
What is the Company proposing regarding the valuation of the interruptible
product provided by P4 Productions to the Company and interruptible credit?
If the Company and Bayer do not reach agreement on another value, the Company is
proposing an annual value for the intemrptible products based on current
circumstances. Mr. Eller discusses the specifics of the Company's updated calculation.
What is the status of the negotiations between the Company and Bayer regarding
a new energy service agreement?
As discussed further by Mr ElleE the Company and Bayer have been engaged in good
faith contract negotiations since August 2019 and hope to execute a contract prior to
the conclusion of this proceeding. The Company has also been working with Bayer to
facilitate its goal to be carbon-neutral by the year 2030 while ensuring that the
2e In the Application of PacitiCorp dba Rocky Mountain Power for Approval of Changes to its Electric Service
Schedules, Case No. PAC-E-10-07, Order No. 32098 (Oct. 22,2010).
30 Id.
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Company's custofrer rates are not negatively impacted.
YII. RECOMMEI\IDATION
Please summarize the Company's recommendation.
I recommend the Commission approve the Company's requested base rate increase of
approximately $ 19.0 million, along with the proposed updates and changes to customer
rate designs, and the other recommendations included within the Company's
Application and supporting witress testimony.
Does this conclude your direct testimony?
Yes.
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