20090727Yankel Direct.pdf

LAW OFFICES OF
W. MARCUS W. NYE
RANDALL C. BUDGE
JOHN A. BAILEY, JR.
JOHN R. GOODELL
JOHN B. INGELSTROM
DANIEL C. GREEN
BRENT O. ROCHE
KIRK B. HADLEY
FRED J. LEWIS
ERIC L. OLSEN
CONRAD J. AIKEN
RICHARD A. HEARN, M.D.
LANE V. ERICKSON
FREDERICK J. HAHN, III
DAVID E. ALEXANDER
PATRICK N. GEORGE
SCOTT J. SMITH
JOSHUA D. JOHNSON
STEPHEN J. MUHONEN
BRENT L. WHITING
JONATHON S. BYINGTON
DAVE BAGLEY
CAROL TIPPI VOLYN
THOMAS J. BUDGE
CANDICE M. MCHUGH
JONATHAN M. VOLYN
MARK A. SHAFFER
JASON E. FLAIG
RACINE OLSON NYE BUDGE Be BAILEY
CHARTERED
201 EAST CENTER STREET
POST OFFICE BOX 1391
POCATELLO, IDAHO 83204-1391
TELEPHONE [phone]
FACSIMILE [phone]
ww.racinelaw.net
SENDER'S E-MAIL ADDRESS:elo!1racinelaw.net
July 23, 2009
Jean Jewell
IPUC Commission Secreta
PO Box 83720
Boise, Idaho 83720-0084
Re: PAC-E-08-08 / Peak Rewards Program Petition
Dear Mrs. Jewell:
BOISE OFFICE
10 i SOUTH CAPITOL
BOULEVARD, SUITE 208
BOISE, IDAHO 83702
TELEPHONE: [phone]
FACSIMILE: (208)433~O'67
IDAHO FALLS OFFICE
477 SHOUP AVENUE
SUITE 203
POST OFFICE BOX 50698
IDAHO FALLS, ID 83405
TELEPHONE: [phone]
FACSIMILE: [phone]
COEUR D'ALENE OFFICE
250 NORTHWEST
BOULEVARD, SUITE IOBA
COEUR D'ALENE, ID 83814
TELEPHONE: [phone]
LOUIS F. RACINE (1917-2005)WILLIAM D. OLSON, OF COUNSEL
ALL OFFICES TOLL FREE
[phone]
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Enclosed for fiing you wil find the original and nine copies of the Direct Testimony of
Anthony Yanel, along with a Certificate of Service. We are also submitting a searchable CD with
the testimony.
ELO:nj
Enclosures
c: Service List
Eric L. Olsen, ISB #48 i 1
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204- 1 391
Telephone: [phone]
Fax: [phone]
Attorneys for Intervenor
Idaho Irrigation Pumpers Association, Inc.
RECEIVED
2009 JUL 27 AM 8= 25
IDAHO PUßL C
UTILITIES COMM SSION
BEFORE THE IDAHO PUBLIC UTILITS COMMSSION
IN THE MATTER OF THE APPLICATION
OF ROCKY MOUNTAIN POWER FOR
APPROVAL OF AN ENERGY COST
ADJUSTMENT MECHANISM
)
)
)
)
)
CASE NO. PAC-E-08-08
CERTIFICATE OF
SERVICE
I HEREBY CERTIFY that on ths 23Td day of July, 2009, I served a true and
correct copy of IDAHO IRRGATION PUMPERS ASSOCIATION, INC.'S DIRECT
TESTIMONY OF ANTHONY J. Y ANKEL upon the following named pares by the
method indicated below, and addressed to the following:
Jean D. Jewell, Secretar
Idaho Public Utilities Commission
472 W. Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
jjewell(ipuc.state.id. us
Ted Weston
PacifiCorp/dba Rocky Mountain Power
201 S. Main Street, Suite 2300
Salt Lake City, Uta 84111
ted. weston(ßacificorp.com
Daniel Solander
PacifiCorp/dba Rocky Mountan Power
201 S. Main Street, Suite 2300
Salt Lake City, Utah 84111
daniel.solander(ipacificorp.com
IDAHO IRRGATION PUMPERS ASSOCIATION, INC.'S
CERTIFICATE OF SERVICE - 1
~U.S. Mail/Postage Prepaid
V'E-mail
Facsimile
Overnight Mail
Hand Delivered
v U.S. Mail/ostage Prepaid~-mail
Facsimile
Overnght Mail
Hand Delivered
V",U.S. Mail/Postage Prepaid
17 E-mail
Facsimile
Overnight Mail
Hand Delivered
l,'j ·
Scott Woodbur
Deputy Attorney General
Idaho Public Utilties Commission
472 W. Washington
P.O. Box 83720
Boise, Idaho 83720-0074
scott. woodbur(ßuc.idaho.gov
Randall C. Budge
Racine Olson Nye Budge & Bailey, Chd
201 E. Center
P.O. Box 1391
Pocatello, Idaho 83204-1391
rcb~racinelaw.net
Katie Iverson
Brubaker & Associates
17244 W. Cordova Cour
Surrise, AZ 85387
kiverson~consultbai.com
James R. Smith
Monsanto Company
P.O. Box 816
Soda Springs, Idaho 83276
jim.r .smith~monsanto.com
v- U.S. Mail/Postage Prepaid
V"E-mail
Facsimile
Overnight Mail
Hand Delivered
I U.S. Mail/Postage Prepaid
E-mail
Facsimile
Overnght Mail
X Hand Delivered7
V J,S. Mail/Postage Prepaid
V E-mail
Facsimile
Overnght Mail
Hand Delivered
Electonic Copies Only
IDAHO IRRGATION PUMPERS ASSOCIATION, INC.'S
CERTIFICATE OF SERVICE - 2
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION REeE! D
2009 JUL 27 lUi 8: 24
IN THE MATTER OF THE APPLICATION )
OF ROCKY MOUNTAIN POWER FOR )
APPROVAL OF AN ENERGY COST )
ADJUSTMENT MECHANISM )
)
CASE NO. PAC-E-08-08
IDAHO IRRGATION PUMPERS ASSOCIATION, INC.
DIRECT TESTIMONY
OF
ANTHONY J. YANKEL
July 23, 2009
1 Q.PLEASE STATE YOUR NAME, ADDRESS, AND EMPLOYMENT.
2
3 A.I am Anthony J. Yanel. I am President of Yanel and Associates, Inc. My
4 address is 29814 Lake Road, Bay Vilage, Ohio, 44140.
5
6 Q.WOULD YOU BRIEFL Y DESCRIBE YOUR EDUCATIONAL
7 BACKGROUND AND PROFESSIONAL EXPERIENCE?
8
9 A.I received a Bachelor of Science Degree in Electrical Engineering from Caregie
10 Institute of Technology in 1969 and a Master of Science Degree in Chemical Engineering from
lIthe University of Idaho in 1972. From 1969 through 1972, I was employed by the Air
12 Correction Division of Universal Oil Products as a product design engineer. My chief
13 responsibilities were in the areas of design, star-up, and repair of new and existing product lines
14 for coal-fired power plants. From 1973 through 1977, I was employed by the Bureau of Air
15 Quality for the Idaho Deparment of Health & Welfare, Division of Environment. As Chief
16 Engineer of the Bureau, my responsibilities covered a wide range of investigative fuctions.
17 From 1978 through June 1979, I was employed as the Director of the Idaho Electrical Consumers
18 Office. In that capacity, I was responsible for all organizational and technical aspects of
19 advocating a varety of positions before varous governental bodies that represented the
20 interests of the consumers in the State ofIdaho. Since 1979, I have been in business for myself.
21 I am a registered Professional Engineer. I have presented testimony before the Federal Energy
22 Regulatory Commission (FERC), as well as the State Public Utilty Commissions of Idaho,
23 Montana, Ohio, Pennsylvania, Utah, and West Virginia.
Case No. P AC-08-08
7/23/2009
1 Yanel, DI
Irrgators
1
2 Q.ON WHOSE BEHALF ARE YOU TESTIFYING?
3
4 A.I am testifying on behalf of the Idaho Irrgation Pumpers Association, Inc.
5
6 Q.WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?
7
8 A.The purose of my testimony is to support the Stipulation in this case regarding
9 the application by Rocky Mountain Power (a division ofPacifiCorp) for approval of an Energy
10 Cost Adjustment Mechanism (ECAM). This Stipulation has been entered into by Rocky
1 1 Mountain Power (''the Company"), Staff of the Idaho Public Utilities Commission ("Sta'), the
12 Idaho Irrigation Pumpers Association ("Irrgators"), and Monsanto Company. Collectively, I
13 will refer to this group that has signed the Stipulation as "the Paries". I will provide from the
14 Irrgator's perspective an overview of why the Irrigators believe that the Stipulation is fair, just,
15 and reasonable and in the best interest of the ratepayers. As such, I recommend that the Idaho
16 Public Utilities Commission ("Commission") approve the Stipulation and all of its terms and
17 conditions.
18
Case No. PAC-08-08
7/23/2009
1 Yanel, DI
Irrgators
1 Background
2
3 Q.DOES THE COMPANY HAVE AN ENERGY COST ADJUSTMENT
4 MECHANISM IN THE OTHER STATE JURISDICTIONS IN WHICH IT OPERATES?
5
6 A.At this time, the Company has an energy cost adjustment mechanism in four out
7 of the six state jurisdictions in which it operates. If this Stipulation is approved, then Idaho will
8 be the fift state, leaving Utah as the sole state in which the Company does not have such a
9 mechanism.
10 Approximately 20 years ago and operating under the name of Utah Power & Light, the
1 1 Company did have such an adjustment mechansm in Utah. After several years, the mechanism
12 that existed at that time was found to be faulty by the Utah Commission and was abandoned.
13
14 Q.is THE ENERGY COST ADJUSTMENT MECHANISM THAT THE
15 COMPANY HAS IN OTHER STATES THE SAME AS THAT PROPOSED HERE IN THIS
16 STIPULATION?
17
18 A.No. The mechanisms are all different in each of the states in which the Company
19 operates. Although it is somewhat of an administrative burden for the Company to have four or
20 five different power cost adjustment clauses, each Commission is thus able to have a power cost
21 adjustment mechanism that fits its own unique circumstances and requirements.
22
Case No. PAC-08-08
7/23/2009
2 Yanel, DI
Irrgators
1 Q.DO THE OTHER INVESTOR OWNED ELECTRIC UTILITIES THAT
2 OPERATE IN IDAHO HAVE A POWER COST ADJUSTMENT MECHANISM?
3
4 A.Yes. Both A vista and Idaho Power have such mechanisms. I have worked with
5 the Idaho Power mechanism (Power Cost Adjustment or PCA) since its inception in 1992. The
6 Company the only investor owned utility in Idaho that at this time does not have such a
7 mechanism.
8
9 Q.SHOULD EVERY INVESTOR OWNED UTILITY HAVE AN ENERGY COST
10 ADJUSTMENT MECHANISM AS PROPOSED IN THIS CASE?
11
12 A.Not necessarly. The fact that Avista and Idaho Power have similar mechanisms
13 is no basis to conclude that the Company should have a similar mechanism. Both A vista and
14 Idaho Power rely on a tremendous amount upon hydro power for puroses of their own
15 generation. While the "fuel" cost of hydro power is essentially zero, hydro power has some
16 drawbacks. By its very natue, it is dependent upon weather conditions; specifically, dry or wet
17 periods which can greatly impact the amount of generation that is available for Company use. If
18 drought conditions occur, other sources of power must be sought/utilized and the company's
19 "fuel" expense goes from near zero to something substantiaL. It is this volatility in the cost of
20 producing energy for a hydro based utility that makes the use of an energy cost adjustment
21 mechanism desirable for hydro utilities. Although the Company has some limited hydro
22 generation, its dependence upon this source of energy does not rise to the level of concern that
23 would be associated with a predominantly hydro based utility.
Case No. PAC-08-08
7/23/2009
3 Yanel, DI
Irrigators
1 Q.ARE THERE OTHER REASONS FOR HAVING AN ENERGY COST
2 ADJUSTMENT MECHANISM?
3
4 A.Yes. In a case where a utility sells and/or buys a great deal of energy in the
5 market, and where market prices can widely fluctuate, an energy cost adjustment mechanism
6 may be of value in adjusting the utility's rates on more of a real-time basis in order to follow
7 costs that are being incured on the system. This is generally the case with the Company where a
8 large percentage of its load is served by not only its own generation, but by purchased power as
9 well, while at the same time, the Company sells a great deal of power into the markets as well.
10
11 Q.HOW HAVE THE COMPANY'S NET POWER COSTS VARIED OVER THE
12 LAST FEW YEARS?
13
14 A.In the Company's 2007 general rate case, it fied for a test year net power cost of
15 approximately $862 milion. In the 2008 general rate case, it filed for a test year net power cost
16 that was $120 milion greater or $982 milion. Its actual net power costs for the twelve months
i 7 ended December 31, 2008 were $ 1 18 milion greater than the 2008 test year amount, or $ 1.1
18 bilion.
19
20 Q.IF THE COMMISSION ADOPTS AN ENERGY COST ADJUSTMENT
21 MECHANISM IN THIS CASE, WILL THE COMMISSION BE REQUIRED TO KEEP SUCH
22 A MECHANISM IN PLACE?
23
Case No. P AC-08-08
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4 Yanel, DI
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1 A.No. As with the case in Utah a couple of decades ago, if for some reason the
2 Commission decides to abandon the energy cost adjustment mechanism, it can do so. However,
3 an energy cost adjustment mechanism has been proposed by the Company a number of times.
4 Ths is the first time that such a proposal has made it to the Commission with a recommendation
5 for passage by all paries. I anticipate that this energy cost adjustment mechanism will prove
6 beneficial and have a long life.
7 Stipulation Terms
8
9 Q.is THERE ANYTHING UNIQUE ABOUT THE DESIGN, FORMAT, OR
10 ACCOUNTS THAT MAKE UP THE PROPOSED ENERGY COST ADJUSTMENT
11 MECHANISM?
12
13 A.Generally speaking, no. The general layout of the mechanism includes the FERC
14 Accounts that are typical of such a mechansm, including: Account 447 (sale for resale); Account
15 501 (fuel); Account 503 (steam); Account 547 (other fuel); Account 555 (purchased power); and
16 Account 565 (wheeling). These are the same accounts that generally make up the net power
17 costs that are calculated in each of the Company's general rate cases and modeled by the
18 Company's production dispatch model GRID.
19 These same net power costs will be calculated/modeled in a general rate case as has been
20 done in the past. Between general rate cases, the energy cost adjustment mechanism wil be used
21 to "tre-up" these modeled costs with actual costs incured by the Company for these same
22 categories.
23
Case No. PAC-08-08
7/23/2009
5 Yanel, DI
Irrgators
1 Q.WILL THE ENERGY COST ADJUSTMENT MECHANISM BE EQUALL Y
2 BENEFICIAL TO BOTH THE COMPANY AND TO THE CUSTOMERS?
3 A.Yes. The mechanism is designed to be symetrical. That is, the customers will
4 be accountable for 90% of the difference between the actual net power costs and the modeled net
5 power costs that were developed in the last general rate case. The Company wil be responsible
6 for the other 10%. What this means is that if power costs are greater than forecast in the last
7 general rate case, then customers will be responsible for 90% of this difference. By the same
8 token, if the costs are lower than forecast, the customers wil be given 90% of this difference as
9 well.
10
11 Q.IDAHO POWER'S PCA HAS A SIMILAR SYMMETRICAL SHAG
12 BAND, BUT THE PERCENTAGE WAS RECENTLY RAISED FROM 90% UP TO 95%.
13 WHY IS THE SHARIG BAND IN THIS STIPULATION SET AT ONLY 90%?
14
15 A.The simplest reason would be that Idaho Power and Rocky Mountain Power are
16 not the same. Idaho Power has had a PCA for almost 20 years and the Irrigators and Staff are
17 very familiar with it-there is no such familiarity regarding the Company. Idaho Power has to
18 fuction in the same volatile energy market as does the Company, but Idaho Power has the
19 additional volatilty of being a hydro system. For now, a 90% sharing mechansm is more
20 appropriate for the Company than a 95% sharng mechanism.
21
22 Q.HOW OFTEN WILL THE RATES BE ADJUSTED TO REFLECT THE
23 WORKGS OF THE ENERGY COST ADJUSTMENT MECHAISM?
Case No. P AC-08-08
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6 Yanel, DI
Irrigators
I
2 A.The adjustments will be made anually. New rates (adjustments either up or
3 down) wil be made each April 1st. These new rates wil go into effect based upon a filing that
4 the Company will make with the Commission two months before (Febru 1st), so that Staff
5 and other paries have time to review the data and raise any concerns before the rates go into
6 effect. The actual timeframe over which the data wil be collected and analyzed would be
7 December 1st through November 30th of the following year.
8
9 Q.HAS A LOAD GROWTH ADJUSTMENT RATE (LGAR) BEEN INCLUDED
10 IN THE STIPULATION?
11
12 A.Yes. In the past, the LGAR has been somewhat controversial in the Idaho Power
13 cases. The Stipulation in this case establishes the LGAR at $ 1 7.48 per MWH for all incremental
14 load that occurs compared to the last base rate case where the base load wil be established. The
15 same LGAR wil apply if the incremental load is positive or negative.
16
17 Q.WHY is THERE A "STAY-OUT" PROVISION UNTIL MAY 1,2010 IN THE
18 STIPULATION?
19
20 A.The Company has been proposing an ECAM for several years. The Company has
21 seen the ECAM as being very beneficial to it, or it would not have been so persistent in its
22 attempt to establish such a mechanism. Although the Irrgators (and presumably other paries)
Case No. PAC-08-08
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7 Yanel, DI
Irrgators
1 saw some benefit to an ECAM, the benefits were not a compellng or as concrete as those that
2 motivated the Company. Therefore, the Irrgators resisted adoption of such a mechansm.
3 Simply put, in order to entice the Irrgators and others to the negotiation table, the
4 Company had to offer some concrete benefits to its proposal from the beginning. The Company
5 had already fied its notice of a proposed general rate case with the Commission. The Company
6 is going through a major building phase, causing anual or near anual general rate cases to be
7 initiated. We had a general rate case in 2007 and in 2008. It was believed that the Company's
8 notice of a new general rate case this year was legitimate. In order to bring the Irrgators and
9 others to the table, the Company's opening offer with respect to its ECAM proposal was to
i 0 postpone any general rate case for at least a year. The postponement of such a case has a
i 1 concrete and positive benefit to the Irrgators and other customersl. The "stay-out" provision
12 that prevents the Company from filing a general rate case prior to May 1,2010 is not just an
13 importt element of the Stipulation-without this provision, any offer by the Company would
14 have been a "no-starer".
15
16 Q.PLEASE EXPLAIN WHAT THE "RENEWABLE GENERA nON
17 INVESTMENT OFFSET ADJUSTMENT" IS AND HOW IT CAME ABOUT.
18
19 A.As indicated above, early in the Settlement discussions, it was made clear to the
20 Company that there would not be a settlement if there was not a "stay-out" provision. Although
21 the Company understood the need for stay-out provision and so made that offer, it also made the
22 case that it was bringing on-line a large amount of renewable wind generation that it wanted in
i There is no benefit at this time to Monsanto and Agrum because both have a special contract under which
there rates are frozen/prescribed as provided in the Stipulation approved in Case No. PAC-07-05.
Case No. P AC-08-08
7/23/2009
8 Yanel, DI
Irrgators
1 rate base with associated rate making treatment. From the Company's perspective, this new
2 generation would provide energy at essentially zero varable costs. If the Company did not put
3 these investments into rate base (because of the stay-out provision), customers would not only
4 benefit by the stay-out provision, but they would also be getting a reduction in their overall
5 power costs because of the additional energy being provided at zero varable cost. From the
6 Irrgators perspective, the inclusion of these generation resources in rate base and thus rates,
7 would have essentially negated the stay-out provision.
8 A compromise was reached between the position of the Company regarding these new
9 facilities and the Irrgator's and other Paries' concerns for a "true" stay-out provision. This
10 compromise is contained in Paragraph NO.8 of the Stipulation. Essentially, any output from
11 new, renewable resources wil be treated as a power cost at $55.00 per MWh. This compromise
12 gives the Company a significant payment for the output of these resources, while not burdening
13 the ratepayers with the full (fixed) cost of those resources.
14
15 Q.AR THERE ANY OTHER ISSUES IN THE STIPULATION THAT WERE OF
16 PARTICULAR INTEREST TO THE IRRGATORS?
17
18 A.Yes, there was one other major issue in which the Irrigators took paricular
19 interest. The Company's original proposal was to treat all sales the same on a per kWh basis by
20 adding any surcharge or refud to customers on an equal cents per kWh basis as a result of the
21 ECAM. The Irrgators (as well as Monsanto Company) took the position that such treatment is
22 in contrast to the way costs are incured, rates are designed, and costs are allocated. It is a well
23 accepted premise that a kWh for sale at the secondar distribution level is not equivalent to a
Case No. PAC-08-08
7/23/2009
9 Yanel, DI
Irrigators
1 kWh for sale at the primar distribution or transmission leveL. There are losses involved, with
2 more losses takng place at the secondary level than at the primar or transmission leveL. If the
3 Company incurs fewer losses to serve a primar or a transmission customer than it does to serve
4 a customer on the secondar distribution system, then those customers should not pay the same
5 rate for the ECAM adjustment. Losses are built into the cost of fuel, purchased power, etc.,
6 found in base rates, and they should also be incorporated into the ECAM adjustment.
7 Although the Stipulation does not specifically calculate the impact of losses on the
8 ECAM adjustment, it does provide in paragraph 1 1 for the paries to work together to develop
9 such a rate/procedure. If an appropriate procedure canot be developed, we will bring the matter
10 to the Commission's attention.
11
12 Q.FROM THE IRRGATORS' STANDPOINT, ARE THERE ANY OTHER
13 MAJOR ISSUES CONTAINED IN THE STIPULATION?
14
15 A. No. These are the major issues that the Irrgators pursued either independently or in
16 conjunction with others. There are other issues that are addressed in the Settlement that were
17 pursued more by Staff than by the Irrigators. I wil leave it to the Staff to address those issues.
18
19 Q.DO THE IRRGATORS BELIEVE THAT THE STIPULATION PRESENTS A
20 FAIR, JUST AND REASONABLE COMPROMISE OF THE ISSUES AND IS IN THE
21 PUBLIC INTEREST?
22
23 A. Yes
Case No. PAC-08-08
7/23/2009
10 Yanel, DI
Irrgators