20101014Reading Di.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN TH MATTR OF THE APPLICATION
OF ROCKY MOUNTAIN POWER FOR
APPROVAL OF CHAGES TO ITS
ELECTRC SERVICE SCHEDULES
CASE NO. PAC-E-I6-07
IDAHO CONSERVATION LEAGUE. .
"'1i.:J
eei \ 4 PM 4~ 31
DIRCT TESTIMONY OF DON C. READING
October 14,2010
1 Q. Please state your name, address, and affiliation.
2 A.My name is Don Reading. I am Vice President and Consulting Ecnomist for
3 Ben Johnson Associates, 6070 Hil Road, Boise Idaho. My resume is attched as
4 Exhibit No. 501.
5
6
7 Q. On whose behalf are you testifying in this Direct Testimony?
8
9 A.The Idaho Conservation League (lCL) has asked me to examine Rocky MounûiIn
10 Power's (RM, the Company) proposed residential rate strctue, the potential of the cost
11 of the Company's Irrgation Peak Rewards progr out of the DSM taff and into
12 ratebase, and the prudence of the Company's coal plant pollution control.
13
14
15 Q. Do you have any Exhibits?
,. \
16
17 A.Yes. Exhibit No. 501 is my resume.
18
19
20 Q. . Please summarize your testimony?
21
.1.
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Idaho Conseration League
1 A.I wil addr the primar topics. Firt, we ar proposing a differet residential
2 rate design from that proposed by the Company. For Schedule 1, we propose a
3 thee-tiered invered block rate with equal prices for each season, but with larger blocks
4 in the winter than in the summer. For Schedule 36 time-of-use customers, we propose
5 to remove the senal differntial in reognition of the small contrbution to summer
6 peak loads attbutable to the reidential class. For both Schedule 1 and Schedule 36 we
7 propose a smaller fixed customer charge in order to send a stong price signal though the
8 energy charge.
9 Second, we pr~pose the Commission, Company, and other paries should purue
10 allocating the irgation load contrl progr, Schedules 72 and 72 A, as a system wide
1 1 resource. While this proposal likely reuirs a change to the Revised Prtocol for
12 interjursdictional cost allocations, we believe it is a reasonable and prudent proposaL.
13 Third, we raise some concerns with the Company's proposed spending on
14 pollution control equipment. While reducing pollution is an importt goal, we ar
15 concerned the Company is undertg the specific investments in this case before
16 receiving fial approval they will comply with existing federl requirements. Moreover,
17 we are concerned that the Company continues to invest hundreds of milions of dollars in
18 their coal plants in the face of incrasingly strgent, and costly, pollution requirements.
19 To address these concerns we request the Commission order the Company to provide a
20 more robust anlysis of futue compliance costs before makng fuer pollution control
21 investments in their coal generation fleet.
22
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Idaho Conservation League
I RESIDENTIA RATE DESIGN
2
3 Q. Let's turn to the first section of your testimony. Could you please explain
4 Rocky Mountain Power's current residential rate design and their proposed
5 changes?
6
7 A.
i
RMP curently offers two residential rates, Schedule 1 and Schedule 36.
8 Schedule 1 is the default rate and consists of a monthly minimum charge of' $10.64 for
9 single-phase permanent residents. This monthly minimum increases for the phase and
10 seasonal homes. The primary featue of the curnt Schedule 1 is a seasonal flat rate per
11 kWh in the summer, from May to October, of 1O.4093jé and in the winter, from
12 November though April, of 8.0 150jé.
13 RM proposes to change Schedule 1 to a seasonal invered tiered energy rate with
14 a fixed monthly service charge of$12.00. They propose a first block up to 800 kWh
15 biled at a rate Qf 8.9526jé per kWh in the sumer and 6.5519jé in the winter. The
i
16 second block inc1ldes all consumption above 800 kWh and is biled at 12.0860jé in the
17 summer and 8.8451 jé in the winter.
18 Schedule 36 is a volunta time-of-use rate consisting of a fixed monthly seice
19 charge of $13 .63.. and seasonal energy rates for on peak and off peak consumption. In
20 summer, May though October, on peak prices are l1.3497jé and offpea ar 3.8730jé per
21 kWh. In winter, November though April, on peak prices are 9.6950jé and off peak ar
22 3.5447jé per kWh. The summer peak time extends from 8:00 A.M to 11 :00 ~.M. on
"
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Idaho Conservation Legue
1 weekdays only. Winter peak time extends frm 7:00 A.M. to 10:00 P.M. weekdays.
2 The seasonal off pe rate applies to nights, weekends, and holidays.
3 RM proposes to incre the fied monthly serice chare to $16.00. They
4 propose to incr the kWh rate in the suier to 13.0940jé and 4.4682jé and in the
5 winter to 1 1. 1850jé and 4.0894jé.
6
7
8 Q. It sounds lie RM is proposing and entirely new rate design for Schedule 1.
9 Could you briefly explain the impact of this change?
10
11 A.First, let me explain the source of this new proposaL. This inverted tier rate
12 proposed by the Company grew out of the Stipulation signed by the paries, and approved
13 by the Commission, in RM's last general rate case, PAC-E-08-07. In that case, the
14 paries explained:
15 Rocky Mountain Power agrees that it wil include an inver tier rate
16 design proposal or option for residential customers in its next fied
17 general rate case for the Commission's consideration. Tiered rates were
18 recently approved by the Commission for Idao Power residential
19 customer. It doe not follow, however, Staff contends, that tiered rates
20 should automatically be requid ofRM. There are some significant
21 differeces between Idao Power and RM, Staff notes, that make fuher
22 evaluation of a tierd rate design necessar.
23
24 For instance, RM alady has a residential time-of-use rate and Idaho
25 repreents only 6% ofPacifiCorp s cusomer bas. A tiered rate design
26 wil not have the impact on a system basis for RM that it will have for
27 Idao Power, given that Idao Power's customer reresent about 95% of
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Idaho Conservation League
1
2
Idao Power's customer base. i
3
1 r..
;~, \-
RMP's proposal is likely to impact residential energy coIiption. Curtly
4 Schedule 1, because it charges for energy at a seasonal flat rate, only signals to residential
5 customers that energy is more expensive in the sumer than in the winter. Flat rates do
6 not provide signals to encourge energy conservation among seasons. By changing to
7 an inverted tiered rate, consumers will receive entirely new price signals. This new
8 signal wil encourge energy conservation by increasing rates based on overall
9 consumption.
10 As I wil explain in fuer detail below, we believe that a tiered rate design is
11 more reasonable and effective than the curent flat rate. However, to beter reflect
12 residential use patterns and their impact on RM's Idaho serice tertory, and in order to
13 achieve our goals through this rate design, we propose changes to RM's proposa.
14
15
16 Q. What rate design goals are you trng to promote in this case?
17
18 A.For the puroses of this case, I want to emphasize aspects of rate design that
19 provide residential customers with incentives to conserve energy. I believe this is a
20 proper goal for RM's residential rate design for two reasons. First, electrcity rates
21 continue to rise as marginal energy prices increase and utilties invest in re~:uilding and
1 Order No. 30783,P AC-E-08-07, at 7-8 (Augut 16, 2009) (internal citations omitted).
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Idao Conseration League
1 upgrding infrtrctue. One method to help mitigate these rising rates is to provide
2 customers with the incentives and tools to reduce their energ consumption an thereby
3 reduce their overall bils. Second, rising consumption in all classes is drving rising
4 costs for RM. Incentivizg energ conservatin can temper this drve and prolong the
5 need for costly investents in baseload and peakg resources. I am also cognizant of
6 the general goals of rate design equity, stabilty, and an opportity to recover approved
7 expenses. To an economist, price signls ar an effective way to achieve these goals.
8
9
10 Q. Before we dive into the weeds, could you describe the electrc power load
11 patterns of RlP both in Idaho and system wide?
I,
12
13 A.Based on RM's fiing in this case, RM's residential customers, both Schedule 1
14 and Schedule 36, show manifestly different load pattern than either the Company's load
15 pattemin Idao or the system as a whole. On a system wide basis, the Company is
16 close to a dual peng system but with a slightly higher use in the summer. The Idaho
17 service terrtory also displays a dual peak but a more pronounced summer peak.
18 Char 1 below displays the aspects ofRM's load profile: system wide, the
¡19 Idao jursdiction, and tle Idaho residential class. As you can see, Idaho's residential
20 class consumes the larest shar of its power durng the winter months. Based on RM
21 witness Paice's Cost of Service results, in Idao the residentil clas constitutes between
22 33% and 37% ofwinteIme peak loads, but only 12% - 20% of summertime peak loads;i
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Idao Conservation League
1 Meanwhile, irrgation loads drve the summertime pea, contrbuting 43% in June, 36.2
2 % in July, and 33.3% in Augut?
3 Chart 1 /l
System and Idaho MWH 209
6,000,000
5,000,000=
I 4,000,000
e 3,000,000II
i 2,000,000'"
1,000,000
500,000
400,000 =
300,000 I0200,000 ...':
100,000
c.. 16 ii::c:¡ tlQ.1j ~ U10.. 1o:i..:i..OO.... ~ ~ ~ .~.. ~ ~ z 0
_Idaho Residential __System ..Idaho Total
4
5
6
7 Q. Does this residential usage pattern that is divergent from the Company's
8 overall load shape present a unique challenge in designing residential rates?
9
10 A.Yes. Let me begin with rate design theory. Usually a given custòmer class
11 follows the system load patterns to a fair degree. Higher consumption levels often
12 correlate with greater costs to the utilty incured during the high use seaon. This
13 support a rate design consisting of higher customer rates that ar in line with the utilty's
14 higher costs. Aligning customer rates and utilty costs satisfies the cost causer pays
2 Direct Testimony a/Company Witness Craig C. Paice, Exhibit 49, Tab 5, page 6,
(May, 2010) (showing monthly coincident peas at generation level).
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Idao Conseration Leage
1 principle and seds the correct price signL. Charging higher rates durng higher utilty
2 cost period tends to lower cusomer consumption, which in tu reduces costs to the
3 utilty. Reducd costs to the utilty cycles back into benefits for all customers on the
4 system.
5 Ther ar th primar factors to consider when designing an effective and
6 reasonable reidential rate deign for RM's Idao tertory. Fir residential use does
7 not align with the high cost sumer months. Ch i above shows tht residential use
8 peak durng the winter, while Idao and RM's system peak durg the summer. To be
9 precise, 59% of residential anual consumption occurs durng the winter season.
10 Comparng the month peak in each season for Idao reveals that reidential load in
11 Janua is 205% higher than in June. Meanwhile, on a jursdictional bais, Janua load
12 is only 73.5% of June load.3 l" .ii\. ~.
13 Second, Idao's residential class, relative to RM's system, is tiny. For example
14 in July the state's residential class kWh consumption is only 0.84% of the Company's
15 total system, andjust 10.6% ofRM's Idaho terrtory. This means tht focusing on
16 residential us in the summer by chaing higher rates will not impact the Company's
17 system costs to any meaurble degr.
18 Third, most reidential customers have only a modest abilty to reduce summer
19 demand. Because their summer consumption is relatively low, Idao residential
20 customers have less "head room" though which to reduce their usage. On the other
3 See Direct Testimony of Company Witness Craig C. Paice, Exhibit 49 Tab 5, page 6
(May 2010)(showing coincident peak at generation level).Reading. Di 8
Idao Conservation League
1 hand, during the winter, residential consumption is higher and the potential for reuced
2 usage is greater.
3 These thee factors work together to reveal that a reasonable and effective
4 residential rate design should focus on wintertime conservation, instead of focusing on
5 reducing summertime system peaks. Residential use is already low in the summer, they
6 are a tiny class compared to overall demand, and they appear to have little discretionar
7 usage to reduce. Because of this, focusing on residential summer time consumption will
8 not significantly impact other utilty customers by reducing overall system costs."
9 Focusing on wintertime conseration is more likely to impact residential ~i~ter time
10 peak thereby reducing utilty fuel costs, result in lasting energy conseration, and is
11 more equitable because it recognizes the time and ty of use which folk are able to
12 conserve.
13
14
15 Q.Dr. Reading, things can get prett cold in the Upper Valley in RM's servce
16 territory where natural gas is not an available alternative. Don't these households
17 need to co~sume higher levels of electrc power just to stay warm?
18
19 A.That is tre, up to a point. When one examines the data, you can fmd a subset of
20 customers with high levels of consumption durng the winter months. The average
21 residential monthly use in the winter is 975 kWh. But, in the winter of2009, 250
22 customers used more than 5,000 kWh per month, which amounts to 5% of reidential
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Idao Conservation League
'";,i.
i \
i
1 consumption. And just 3.6%, or 1,481 customers, used more than 3,00 kWh per
2 month, which is 16% of winter residential consumption. These extremely high use
~ custorrers ar drving up costs for the utilty and other ratepayers. Moreover, since this
4 consumption is vastly higher than the averge, these customers have some "head room"
5 or abilty to rend to price signls thugh conservation.
6 The rate design I propose below accounts for witeime heating up to a point,
7 while stil aiming a strng price signal at this high use, high cost subset. Also, though
8 weatherization asistace and similar DSM progrs, RM can provide consumers the
9 tools to conserve energy while reaining in a war, comfortble home.
10
11
12 Q. What about residential usage during the summer season, aren't home air
13 conditioners causing all these rate increases?
14
15 A.After exaining the data, I do not believe there is a high penetrtion of air
16 conditioning use for the residential class in RM's Idao service terrtory. As Char 1,
17 on page 7 above shows, RM's Idaho residential class peak in the winter and troughs in
18 the sumer. For RMP's Idao residential class the average monthly use in the summer
19 is 681 kWh. This number closely aligns with estimates of basic energy use, including
20 lighting, appliances, and water heating from the U.s. Deparent of Housing and Urban
i
¡
21 Development Housing Choice Voucher Program Guide Book of approximately 750
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Idao Conservation League
1 kWh.4
2 Like the winter season, the data reveals a subset of ver high user li the sumer.
3 Dung the summer of 2009, 3.6 %, or 1,490 customer, had monthly consumption
4 greater than 1,800 kWh, which equals 14% of the sumer kWh residential consumption.
5 Just ~ l explained above, this subset of high use customer is drving up costs for the
6 utilty and ratepayer. Since their consumption is vastly higher than the average, they
7 likely have the ability to respond to a strong price signal though conservation.
8
9
10 Scliedule 1
11
12 Q. Do you support the Company's proposal to shift to a tiered resideii~al rate
13 design with a fixed customer charge rather than a minimum bll?
14
15 A.I support the theory, but I disagre with how the Company proposes to apply it.
16
17
18Q. Could you explain the theory behind the Company's proposal and briefly state
19 your disagreement?
4 U.S. Deparent of Housing and Urban Development, Housing Choice Voucher
program Guide Book, at chapter 18 page 5. (April 2001) (aloilable at: ..
htt://ww.hud.gov/utilties/intercept.cfm ? /offceSladm/tldcIips/guideboks/7 420.1 OG/7
420g18GUlD.pdf)
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Idaho Conservation League
,"
1
2 A.First, let me tae one step back to discuss generl rate design theory. In theory,
3 the simplest rate deign would consist of two par. A fied charge set to recover costs
4 directly attbutable to customers that do not var with usge. This is then coupled with
5 an energy charge set to recover the cost to the utilty for providing each kilowatt-hour of
6 energy. By pricing each par at the utilities cost of serice, the consumers would pay
7 their share and the utilty would recoup its approved investments. Unfortately, the
8 world is not this simple -- as the Company's proposal recogniz.
9 RM proposes a fied chare of$12. The theory behind this, according to
10 Company witness Grffth, is this amount will "assur tht each customer pays its fair
11 share of the costs and wil allow the Company a better opportity to recover the fixed
12 costs of serving customers."s Without getting into the specifics of the cost components, I
13 disagree because this relatively high fixed charge wil constitute a higher portion of the
14 total bil for a low usge consumer compared to a high usge consumer. This sends a
i 5 signal that penalizes low usage customers and does nothing to incentivize individual
16 conservation. Mr. Griffth reognizs this when he explains the Company is only
17 requesting about one half of their calculation of fixed costs "in order to minimize the
18 impacts to small usge customers.',(
19 Moreover, RMP's theory to isolate fixed and volumetrc costs may hinder their
20 abilty to send price signals aimed at ener conservation. Because RM's overall rates
5 Direct Testimony of Company Witness Willam R. Grifth at 5, (May, 2010).
6 ¡d., at 6.
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Idao Conservation League
1 are low, a high fixed charge may not leave suffcient amounts to send strong price signals
2 though the energy component. To send a signal for energy conservation, rate design
3 should emphasize the energy component.
4 For the energy portion, the Company proposes a seaonal, two-tiered rate with a
5 higher charge for high use. The theory behind this is to reflect the higher cost to the
6 utilty of meeting energy demand durg certin times of the year and day. The seasonal
7 component signals that costs are higher in the sumer. The tiered rate signals that
8 higher levels of consumption cost more. While it is undoubtedly tre that energy cost
9 var, I disagree with how RM's proposal addresses the unique consumption patter of
10 Idaho residential consumers and with the effectiveness of the signal it sends because the
11 fixed rate is set so high.
12
13
14 Q.Given the unique relationship between the residential class in Idaho's RM
15 service territory and the Company's cost structure, what rate design a.i:e you
16 proposing?
17
18 A.We propose a thee tiered rate so that price signals can be sent to the larges use
~
19 customers. The Commission, in IPC-E-08-1 0, recently approved a the-tierd strctu
20 explaining:
21 We find that a tiered-rate scheme is an effective tool to (l) promote energy
22 effciency within Idaho Power's increasingly capacity-constrained system;
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Idao Conservation League
1 and (2) enable cost savings.7
2
3 We ar advocatig a th-tierd rate for Rocky Mountain's residential customers
i
4 for these same reans. Just like Idao Power, RM faces a dual peaking system witRi
5 capacity constrins an marginal energy costs far above embedded costs. We agre
6 with Staff witness Labur's tetimony in that case explaining tht tiered rates ar most
7 effective at reducing consumption when individuals fid themselves close to a break
8 point betwee blocks.8 The tier rates allow for more preise break points tht
9 accomplish the things: (1) provide a basic level of usge at a reasonable prce, (2) send
10 a moderate signal for a medium level of use, and (3) aims a stong signal at a small subset
11 of very high users. Finally, we agre with the Commission that in these tough economic
12 times, and due to the heightened frquency of rate issues in the press, the public is willng
13 and able to understad this rate strctu. I have been informed that ICL stads ready to
14 assist RM and the PUC in helping consumers understad this proposed rate design.
15
16
17 Q. The Commision recently approved a two-tier structre for A vita, why are
18 you proposing a three-tier structure for Rocky Mountain Power?
19
20 A.A th-tier stctue betters align with the load profies, generation portfolio, and
7 Order No. 30722, IPC-E-08-19, at 40, (Januar 30, 2009).
8 See IPC-E-08-10, Direct Testimony of Staff Witness Brian Lansbury at 12 (October 24,2008). i.
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Idao Conservation League
1 marginal costs ofRM. Avistahas employed a two-tier rate strctu in Idao for over
2 a decade. In 2008, A vista requested an increase in the rate of the second block. The
3 Staff opposed this increase explaining that since A vista has a high system load factor, and
4 does not rely on costly peaking resources, there is little cost based reason to sed a strong
5 price signal.9 RM faces a different scenaro with a relatively low system load factor ')
6 and a greater dependence on high cost peakg resources. Moreover, Avista's
7 residential rate design is not a closed case. As par of the Stipulation in the most recent
8 A vista rate case, the parties agreed to convene a workshop to fuer discuss residential
9 rate design issues.
10
10 As I described above, based on RM's system profile, residential profie, and
11 generation mix a thee-tier rate strctue is reasonable and wil be an effective way to
12 promote conseration and address ratepayer needs .
13
14
15 Q. Based on your analysis above of RM's seasonal load pattern and average
16 consumption for the residential class, do propose equal blocks for summer and
17 winter seasons?
~
18
19 A.No. Because the average use is roughly 300 kWh higher in winter than in
20 summer, a reasonable and effective winter block should be higher than the summer block.
9 See AVU-E-i9-01, Direct Testimony of Staff Witness Brian Lansbury at 5-6, (May 29,
2009).
10, Order No. 32070, A VU-E-IO-Ol at 6, (September 21,2010).
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Idao Conservation League
1 Ou goal is to provide a basic level of use that includes some amount of heatig and
2 cooling while seding a stng signal to those causing the highest costs to the system. I
3 would like to highlight tht these are the sae goals identified by the Commission when
4 they approved Ida Power's thee-tier rate strctu in 2008.11
5
6
7 Q. In Idaho Power's last general rate case, the Staff proposed, but the Commission
8 did not adopt, a higher break point between the second and third blocks in the
9 winter. Do you recall why that was?
10
11 A.Unforttely Order No. 37022 does not explain why the Commission did not
12 adopt the higher winter block. My understading of the Staffs proposal was tht a
13 larger second block would account for the fact that while residential consumption peaked
14 in the winter, the system did not. Staff witness Lansbur also explained the larger
15 second block would account for some amount of electrc space heating.
12 For purses
16 of the present cas, I want to emphasize that, like Idao Power, RM's residential use
17 peak in winter. Moreover, I propose a larger first block in the witer, which allows for
18 some level of space heating consumption at the lower rate.
19
20
11 Order No. 37022, IPC-E-08-1O, at 40 - 41, (Janua 30, 2009).
12 IPC-E-08-1O, Direct Testimony of Staff Witness Brian Lansbury at 14 - 15, (October
24,2008).
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Idao Conservation League
1 Q.What are block points you are recommending?
2
3 A.The first tier extends to slightly above the average use in the given seaon; i 00
4 kWh in the winter and 700 kWh in the summer. The higher first tier in the winter
5 allows for electrc space heating customers who have no other choice, unlike RM's
6 proposed block of 800 kWh. By setting the first block slightly above averge use in
7 each season, the signal for conseration is aimed at customers who are more likely to
8 have discretionar consumption. These break points would send a price signal to
9 roughly 33% of summer and 28% of winter customers who represent approximately 60%
10 of the residential load in each season.
i 1 The break point between the second and third tier is targeted at the highest 3.5%
12 users. For winter, this includes customer consuming more than 3,00 k\Y per month
13 who account for 16% of the winter consumption. In summer, the bre point is 1,800
14 kWh, which encompasses 14% of the summer consumption. Table 1, on page 22 below,
15 summarizes these blocks.
16
17
18 Q. Why did you choose to set the upper tier break point to capture the highest
19 3.5% of users?
20
21 A.This break point represents a compromise between the varous goals we ar trng
22 to achieve of equity, stabilty, providing an opportity to recoup approved "irvestments,
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Idao Conservation League
1 and incentivizig consation. Ou proposed thir tier is aimed squarely at a small
2 subset of very high users. Becaus this represents a relatively small numbe of
3 customer, it should limit impacts to other cusomer and limit RM's exposur to fied
4 costs recovery risk while having a measurble impact on overall system costs.
5
6
7 Q.What rates are you proposing for each tier?
8
9 A.Let me begin by saying that without knowig the exact revenue requirement we
10 are not able to provide preise moneta values for the rates. The specifc numbers
11 below are basd on RM's full revenue request. Obviously there wil be some changes
12 though the rate cas process. Becaus of this, I wil emphasize the differentials
13 between tiers, not the level of the rates.
14 We ar proposing the same rates in each tier for both summer and witer. Equal
15 seasonal rates stres a balance between the fact that residential load has little impact on
16 summer time peak, when costs ar highest, but a slightly higher contrbution to
17 wintertime pe, when marginl costs ar a bit lower. It also provides a level of
18 simplicity for consumers by only varing the block size by season.
19 The speific rates ar 8.Sjé per kWh in tier 1, 1O.Ojé cents in tier 2, and 12.5jé cents
20 in tier 3. This equates to a rate differential of 18% between tiers 1 and 2, and 25%
21 between tiers 2 and 3:' Between the fi and third tiers, the differential is 47%. This
22 sends a strong signl to the highest tier. Table 1, on page 22 below, summarzes these
; Reading. Di 18
Idao Conservation League
1 rates.
2 For comparative puroses, Avista's approved differntial between tier 1 and 2 is
3 11.8%. For Idaho Power the Commission recently approves differentials of 14%
4 between tiers 1 and 2, 24% between tiers 2 and 3, and 41.4% between tiers 1 and 3.
5 Table 1, on page 22 below, sumares the rate designs for Avista, Idaho Power, RM's
6 proposal, and ICL's proposaL.
7
8
9 Q. Idaho Power's three-tier rate design provides for equal size blocks but different
10 seasonal rates. Why do you propose the opposite for RM?
11
12 A.My proposal is based on the unique relationship between RM's Idaho residential
13 customer class and the jursdictional and system load shapes. Unlike Idao Power, wher
14 the residential class is a very large portion of the system load, in RM's Idao tertory
15 residential class constitutes only 10.6% of anual Idaho load and 0.84% ofthe system's
16 July peak. RM's residential use is strongly winter peakng. Because they contrbute
17 little to total system costs, there is little cost based justification for seasonal rates. The
18 cost based jusification to reduce total consumption remains. In order to allow for a
19 basic level of use that includes some electrc space heating, it is more fair and reasonable
20 to focus seasonal price signals for RM's residential class using consumption instead of
21 costs.
22
Reading. Di 19
Idaho Conseration League
1 Q.What is you recommendation for the customer charge?
2
3 A.The Compay prpose to relace the curt minimum bil rate, with a fixed
4 customer charge of$12.oo per month. RM says it could justify a monthly customer
5 charge of $29.86 based on the fied customer costs frm its cost of service study. These
6 costs include, Distrbution-Meter, Distrbution-Service, Distrbution-P&C,
7 Distrbution-Trasformer, and Retail cost.13 The Company goes on to descbe the
8 results of their surey of Idao electc utilities tht found the highest customer charge
9 was $36.00 for Fall River Electrc Coop, with Nortern Lights at $25.00, and Clearater
10 Electrc Coop at $18.00. They conclude, in order to justify their proposed $12.00 rate,
11 that it would be the four lowest in the state.
14 What they fail to mention is that their
12 examples are all public, not investor owned, utilties. A more reasonable comparison
13 would be to Idao's other two IOUs. This comparson reveals, RM's $12.00 proposal
14 would be more than double Avista's charge of$5.00 and thee times higher than Idaho
15 Power's charge of $4.00.
16 As discussed above the Company states they ar not aski for what they feel is
17 the fully justified amount, "in order to minimize impacts on small usge customers.,,15
18 We agree with this goal beus a $12.00 charge would constitute a relatively high
19 portion of the monthly bil for low usage customers compared to high use customers.
20 Fixed charges at this level do not send signals to customers that promote conservation.
13 Direct Testimony of Company Witness Willam R. Grifth, at 5.
14 Id, at 6.
15Id
Reading. Di 20
Idao Consrvation Legue
1 In fact, they send the opposite signal that bils do not decline along with consumption.
2 For Schedule 1 customers we propose a customer charge of $5.00 basd on the
3 Company's cost of meters and service. Using these two items yields a cutomer rate of
4 $4.54 that we rounded up to $5.00.16 This amount aligns with the other Idaho IOU's
5 and allows the overall rate design to focus on signaling energy conseration.
6
7
8 Q. Since the utity has a right to the opportunity to recover approved costs,
9 doesn't limitig the fixed costs mean some of this amount must be coll~ted through
10 variable energy rates?
11
12 A.It is tre that to some extent rate design is a zero sum game between fixed and
13 energy costs. However, the precise natue of what is a fixed cost and varable costs is a
14 subject of debate. Moreover, by including fixed costs in volumetrc sales, the utilty has
15 an incentive to keep these costs low. Iffixed costs are retued though a service
16 charge, this incentive is weaker. Ou proposed thee-tier rate design allows a reasonable
17 opportity to recover fixed costs. While the tail block is priced higher than marginal
18 rates, and therefore contains a higher portion of fixed costs, our proposed rate design
19 aims this block at a small portion of total customers. Also, since the residential class is
20 such a small portion ofRM'sjursdictional sales, any impact to fixed cost recover
21 caused by our proposed rates will be minor.
16 Id, at Exhibit 53 at 1.
Reading. Di 21
Idaho Conseration League
1 I believe it is more reasonable and fair to keep the serice charge relative low.
2 This sends the prpe signals to low usage consumer, and leaves suffcient amounts to
3 send strong price signals thug energy rates.4 TABLE 1
5
,
Avita Idaho Power RM ICL proposed
2010 2008*propose
839 kWh (anual)
Average 850 kWh 1065 kWh 839 kWh
951 kWh (winter)
use (anual)(anual)(anual)
681 kWh (summer)
Summer Winter
1 st 800 kWh
1 st 600 kWh 1 st 800 kWh 1 st 700 kWh 1000 kWh
Block size 2nd 200 kWh
2nd )0600 kWh 2nd )0800 kWh 2nd 1800 kWh 3000 kWh
3rd )02000 kWh
3rd )01800 kWh )03000 kWh
Differential . .Summer Winter
18%
between 11.78%14%11%35%
25%
blocks 24%15%
Differential 1 st 3.6%
between Equal 2nd 6.2%36.6%Equal
seasons 3rd 14.6%
Service
$5.00 $4.00 $12.00 $5.00
Charge
* Ratios from Idao Power's 2008 General Rate Case Order No. 30722, IPC-E-08- 10 (Janua 30, 2009).
Reading. Di 22
Idao Conservation League
1 Schedule 36 Time of Use Rates
2
3 Q. You mentioned in the beginning of your testimony that Rocky Móuntain otTers
4 two residential rate designs. Could you describe Schedule 36?
5
6 A.Yes. Schedule 36 is a volunta time-of-use rate consisting of a fixed service
7 charge and a seaonally differentiated on pea and off peak energy charge. Summer
8 rates are 9% higher on peak and 17% higher off peak than winter rates. The differetial
9 between on and off peak rates is 173% in the winter and 193% in the summer.
10
11
12 Q. What kind of price signal does this rate schedule send?
13
14 A.The theory behind time of use rates is to signal consumers that energy vares in
15 cost depending on the time of day and year. RM's Schedule 36 provides two signals in
16 one rate: (1) a weak signal that sumer months are more costly than winter months, and
17 (2) a very strong signal that daytime (on-peak) is more costly than nighttime (off-pe).
18 However, within each time perod, all consumption is biled at the same rate. Because
19 this rate design sends a signal based on the timing of consumption instead of the amount,
20 it tends to cause load shifting rather than energy conservation.
21
22
Reading. Di 23
Idaho Conseration League
1 Q. Could you explain a bit more about the difference between load shiftg and
2 energy conservation and how rate design can incent thes actions?
3
4 A.Time of us rates provide a strng signal for load shifting. A simple example of
5 load shifting is when a consumer decides to ru their dishwasher at night instead of
6 durg the day. Time ofus rates signal this action beaus ener is expensive durng
7 the daytime. To avoid this high cost, the consumer should shift their load to nighttime.
8 This signal only work if the consumer is awar of the higher price and can identify loads
9 they are able to shift in time, either to nighttime or to another season. The consumer
10 must also make a decision about shifting each load each time they want to use the energy.
11 Tiere rates séiid a strng signl for energy conservation. A simple example of
12 energy conservation is when the consumer decides to purchase a new, more effcient
13 dishwasher. Tiered rates send this signal because energy becomes more expensive
14 based on overall consumption, regardless of time. This signal works when consumers
15 are aware of their total energy load and their options for reducing their consumption.
16 By doing so, the consumer locks in a permanently lower level of consumption that does
17 not depend on time or require fuher decision-making.
18 These actions may both be desirable outcomes depending on one's policy goals
19 and the constrints in the electrcal system. Load shifting can reduce costs to the utilty
20 by reducing pe fuel needs and preventing the need for additional peak genertion plant.
21 Energy conservation also reduces costs to the utilty by reducing the need for additional
22 generation plant of all ty.
Reading. Di 24
Idao Conservation League
1 When choosing between time of use and tiered rates it is importt to consider the
2 characteristics of the ratepayer. Times of use rates are effective for ratepayers who have
3 many options for shifting load and who have a relatively large contrbution to system
4 peaks. Tiered rates are more effective when the ratepayer has many options for
5 reducing load and their contrbution to system peaks is relatively small.
6
7
8 Q. How does signaling for. load shiftig or energy conservation impact residential
9 customers?
10
11 A.Time of use and tiered rates each provide a signal but likely will cause somewhat
12 different results. Under time of use rates, because the consumer can shift their
13 consumption in time, they are less likely to purue changes in energy consumption.that
14 are more durable. One problem is that, while residential customers might have a varet
15 of options for shifting load on a daily basis, they have relatively few options on a
16 seasonal basis. Heating, lighting, and water heating consume the majority"ofreidential
17 energy. Heating is weather dependant making is very hard to voluntarily shift load from
18 cold weather to temperate. Likewise, lighting load depends on sunlight and is ver
19 diffcult to shift. Finally, water heating is tyically a year round desire. Unlike
20 commercial or industral users who can, depending on their production proce, shift
21 practices to respond to seasonal rate signals, many residential consuiers, depding on
22 their personal circumstaces, cannot.
Reading. Di 25
Idao Conservation League
1 Under tier rates, consumers avoid higher utilty bils by reducing thir overall
2 energy consption. This rate design incents consumers to find the least cost and least
3 effort way to save en and reduce their energy bils. More importtly, residential
4 consumers tyically have far more options for energ consrvation th they do for load
5 shifting. Paricularly with the incre in RM's DSM progrs, along with federal
6 and state ta incentives, residential consumers have the tools to inulate their homes,
7 purchase new appliances, and install more effcient water heaters. Consumption based
8 signals also allow individuals to purue the energy conseration options tht work for
9 their lifestyle. Instead of needing measurs that can shift in time, their only metrc is
10 overall energy savings.
11
12
13 Q. Bow do load shifting and energy conservation signals influence the utity?
14
15 A.From the utilty perstive, load shifting tends to avoid the need for peakng
16 plants, but has a small effect on the need for baseload generation. The utilty is stil
17 required to serve the load shifted onto off peak hour. Because energy conservation
18 reduces overall consumption, the utilty wil avoid both peaking and basload resources.
19 By reducing overall energy consumption the utilty is more likely to avoid building new
20 generation of all tys, thereby keeping costs low for all ratepayers.
21
22
Reading. Di 26
Idao Conservation League
1 Q. Sounds like you do not support time-of-use rates. Is that accurate?
2
3 A.We support time-of-use rates because they can provide importt and effective
4 price signals. As I said before, both time-of-use and tiered rates incent desirable
5 actions. The distinction is between the ty of policy outcome that is desired. ICL's
6 policy goal is to promote energy conservation in the residential class because they have a
7 relatively low contrbution to RM's system pea and more options to conserve energy
8 than to shift load.
9 In fact, we support having both tiered and time-of-use rate schedules. Schedule
10 36 is curently a volunta schedule. If the Commission approves the change to tiered
11 rates for Schedule 1, then consumers wil be able to choose which rate design fits with
12 their individual sitution. Going forward, once RM's residential customers become
13 comfortble with tiered rates it may be possible to combine the two schedules. A
14 combination of time-of-use rates, with tiered blocks within each time peod, ca send
15 very precise and effective price signals aimed at both shifting loads and reucing
16 consumption.
17
18
19 Q.What rates are you proposing for Schedule 36?
20
21 A.The same caveats regarding the precise level of the energ rate apply to these
22 recommended rates as for Schedule 1. Following the same logic discussed above for
Reading. Di 27
Idaho Conseration League
1 Schedule 1 customer we propose equal sumer and winter rates. Becus th
2 residential class contrbutes a small portion to sumer time pe ther is little cost based
3 justification for higher sumer time rates. The on-pe rates are set at 12.4jé per kWh,
4 approximately equal to the upper tier for Schedule 1 customers. The off-pe rate is set
5 to match the rate differential of 176% between winter off and on peak in RM's curent
6 tarff. This equates to an off peak rate of 4.5jé per kWh. Table 2, on page 29 below,
7 summarzes RM's curnt and proposed time-of-use rates and ICL's proposal.
8
9
10 Q. What is RM proposed service charge and what level do you propose?
11
12 A.The Company is proposing an increase in the cusomer chage from $13.63 per
13 month rate to $16.00 per month. We propose a customer charge of$8.40, which is
14 about half the Compaiy's proposed rate and about 40% of the curent rate. We are
15 propose a lower customer chare for the same rational described above - fixed rates do
16 not encourge conservation because when a customer reduces consumption their bil does
17 not reduce proportionally.
18 II
19 II
20 II
21 II
22 II
Reading. Di 28
Idao Consrvation League
1 Table 2
RMCurrent RM Proposal ICL Proposal
Servce Charge $13.63 $16.00 . .$8.40
On Peak 11.3497t 13.0940jé 12.4jé
Summer
193%193%173%
Off Peak 3.8730jé 4.4682jé 4.5jé
Summer
On Peak Winter 9.6950jé 1 1. 1850jé 12.4jé
173%173%173%
Off Peak Winter 3.5447jé 4.0894jé 4.5jé
2 Note: RMP's seasonal differential is 17% on peak and 9% off pea
3
4
5 Q.Dr. Reading could you please summarie ICL's residential rate design
6 proposal in this case?
7
8 A.ICL proposes to modify the tiered inverted block rate by using the tier instead
9 of two. Thee tiers allows for a more precise and strong price signal aimed at the 3.5%
10 of consumers who constitute 14% in the summer and 16% in the winter of the total clas
11 consumption. A two-tier strctu would not allow for this precise, focused signaL.
12 We propose equal rates between summer and winter because the residential clas
13 has a minimal contribution to summertime system peak. Instea.d, we propose
14 consumption based rate signals because RM's Idaho residential class has a small
Reading. Di 29
Idao Conseration Legue
1 contrbution to systm load, but a lare varation betwee average use in each season.
2 By varyng the block rates between seasons, 60% of the reidential load in each season
3 receives a consumption bas price signaL.
4 We propose a smaller fixed chàe for both Schedule 1 and Schedule 36 in order
5 to send the proper signals to low use cusomers. This smaller fied charged also allows
6 for stronger signals in the energy portion of the rate, fuer incentivizng energy
7 conservation.
8
9
10 Relationship between income and power consumption
11 ~,
12 Q. You propose a rate design that imposes greater costs on households that use
13 higher levels of electric power. Do you have any information about the
14 affordabilty of chargg higher users more for energy?
15
16 A.There is a lack of reliable studies on the relationship between income and electrc
17 consumption. Some studies ar focused on less developed countres and others focused
18 on the relationship between income and over all energy use. One recent study of
19 California consumers indicates higher income households' consumers use more electrc
20 power than lower income households.
21
22
Reading. Di 30
Idao Conservation League
1 Q. Could you be more specifc about what the study said about the relationship
2 between electric consumption and income?
3
4 A.The study's statistical model examined four different household income ranges,
5 along with a wide varety of other demographic data. The model's strctu was aimed
6 at the expectation that a higher income household would use more electrcity, while
7 recognizing that these higher income households would also sped more money on
8 energy-effcient appliances. The four income rages used in the study were; Low-income
9 $0 to less than $20,000; Low-mid-income $20,000 to $44,999; Mid-income $45,000 to
10 $79,000; and High-income greater than $80,000. The study concludes:
11
12
13
14
15
16
The interptations are a low-mid income household consumes 9.2 percent
more electrcity than a low-income household; a middle-income household
consumes 23.1 percent more electrcity per person than a low-income
household; a high-income household consumes 33.8 percent more
electrcity per person than a low-income household. 1
17 The caution here is, of coure, that the above results are based on averages and
18 that some lower income familes, due to a number of factors, may in fact consume more
19 power than some higher income familes. These results should not be intérreted as a
20 reason to abandon or lessen low-income energy assistace programs. They do, however,
21 indicate in general, households that use higher amounts of electrc power are better able
17 National Energy Technology Laboratory, An Investigation into California'8
Residential Electricity Consumption at 19, (July 29, 2009) DOEITL-2oo911371
(available online at:
http://www.netl.doe.gov/energy-analyses/pubs/CA_US_elec _consumption_FINAL _July-2
9-2009.pdj).
Reading. Di 31
Idao Conseration League
1 to afford to pay a higher price.
2
3
4 Q. Did the California study provide any information about power consumption
5 in Idaho?
6
7 A.Yes. The sty presented the data using two measurs that indicated the
8 intensity of power consumption within stas. The two measurs wer electrcity
9 consumption per persn (ECP), and electrcity intensity meaured by the power use per
10 real gross domesc product (GDP) within the state over the 1990 to 2006 time perod.
11 Among all states Idao raed fift highest in the countr for ECP (16,974 kWh per
12 person). Idao raed third highest in the countr in electrcity intensity (0.714 kWh
13 per real dollar of GDP). 18 While many factors could be found to explain Idao's high
14 intensity of electrc usge, these facts do indicate there is significant potential in Idaho to
15 reduce the state's electrc consumption though conservation progrms.
16
17
18 Q. In prior rate case for A vita, Idaho Power, and Rocky Mountain the
19 Commission has approved special funding for low-income weatherization and
20 education programs. Do you believe these are important programs?
21
18 ld, at 4 and 8.
Reading. Di 32
Idao Conservation League
1 A. Yes. We believe the low-income weatherization progrs ru by the CAPAI
2 agencies are an importt tool to assist people in responding to rising energy costs. This
3 is paricularly tre because these agencies perform pre and post weatherzation
4 evaluations. Also, because these progrs have income-based qualifications, we
5 believe they direct resources to those who need them. Because we propose a rate design
6 focused on reducing overall energy consumption, we believe ratepayers should be given
7 the tools to respond to these signals. Moreover, these progrs can reduce the amount
8 ofuncollectable customer bils, which can reduce overall system costs.
9
10
11 IRRGIATION LOAD CONTOL PROGRA
12
13 Q. Could you describe Schedules 72 and 72 A, RM's Irrigation Load Control
14 Program?
15
16 A.Under schedules 72 and 72A Irigation customers may elect to allow RM to
17 curil their electrc water pumps during peak sumer hour, thereby reducing overll
18 system load. Schedule 72 is a planed curilment option, while 72A allows RM to
19 remotely dispatch pumps durng high load hour. According to RM's 2009 Demand
20 Side Management Annual Report for Idaho, and Company witness Hedan's direct
Reading. Di 33
Idao Conservation Leae
1 testimony in this ca; this progr has 258.2 MW under contrct. 19 To incet
2 paricipation in this progr, parcipants receive a crdit pe each kilowatt durng
3 curilment period.
4 RM pays for this progr though a bifucated fuding scheme. The
5 administrtive expeses to implement and mange the progr ar paid out of the
6 Customer Effciency Serices Rate, Schedule 191. For simplicity sae, I will refer to
7 this schedule as the DSM taff. Dung 2009, RM incurd $3,816,417 in expenses.
8 The incentive payments ar rolled into general rates paid by all Idao ratepayers. In
9 2009, RM paid out $7,324,477 in credits, for a total progrm cost of$II,140,895.
10
11
12 Q. Do you believe the irrigation load control program is a cost etTective way t,
13 manage peak loads?
14
15 A.It appe tht it is. While RM spent over $11 millon, the Company's 2009
16 DSM Report calculates that the Company avoided $20,149,384 in energ costs.20 The
17 cost effectiveness ofDSM progrs can be evaluated using five tests originally
18 developed by the California Public Utilties Commission and explained in the California
19 Standard Practice Manual. Another useful document explaining the inputs to these
20 tests and how to interpret the results is Understanding Cost Effectiveness of Energ
19 RMP 2009 Deman Side Management Annual Report -Idaho at II" (March 15,
2010); Direct Testimony of Company Witness Brian K. Hedman, at 5, 11 (Augt 6, 2010)
20 Id., at Appendix 1 at page 22.
Reading. Di 34
Idao Conseration League
1 Effciency Programs: Best Practices, Technical Methods, and Emerging Issuesfor Policy
2 Makers, a product ofthe National Action Plan for Energy Effciency.1l The Staff noted
3 both of these documents in the Memorandum of Understading for Prudency
4 Determination ofDSM Expenditues it entered with the thre Idaho investor owned
5 utilties, including RM, on Janua 25,2009.
6 For puroses of the RM Irrgation Load Contrl Program, the of the tests
7 apply:
8 1. The Total Resource Cost Test ("TRC") weighs the total costs incured by the
9 utilty and the paricipants, against the benefits, in terms of avoided costs of energy, to
10 find the net benefit to the system as a whole.22 According to RM's 2009 DSM report
11 this program retued a cost benefit ratio of 5.208 and is by far the most cost effective
12 program in the Company's DSM portfolio.23
13 2. The Utilty Cost Test ("UTC") measures the administrtive an~.incentive
14 costs incured by the utilty against the benefits measured as the avoided cost of
15 delivering the energy. A ratio greater than one indicates the total costs of the program
16 are less than it would be for the utilty to deliver the same power.24 According to the
17 Company's 2009 DSM report, the progr retued a cost benefit ratio of 1.813.15
21 National Action Plan for Energy Efficiency, Understanding Cost Effectiveness of
Energy Effciency Programs: Best Practices, Technical Methods, and Emerging Issuesfor
Policy Makers. Energy And Environmental Economics, Inç and Regulatory Assistace
Project, (November 2008) (available at: htt://ww.epa.gov/eeactonplan).
22 Id., at 6-5 - 6-6.
23 2009 DSM Report at 11, Appendix 1 at 22 - 23.
24 Understanding Cost Effectiveness at 6-2 - 6-3.
25 2009 DSM Report at 11, Appedix 1 at 22 - 23.
Redig. Di 35
Idaho Conservation Legue
1 3. The Rate Payer Impact Measure ("RI") is the most strgent of the tets and
2 reveals whether the progrm resultsin.lower utilty rates for all ratepayer.26 The RIM
3 test is similar to the UTC but includes any lost revenue caused by reduced energy sales.
4 However, because this progr shift load rather than reducing consumption, it does not
5 necessarly reduce energy sales. According to the 200 DSM report, the progr was
6 the only one in RM's entir portolio to pass this test with a ratio of 1.813.27
7 Each of these tests looks at the cost and benefits from a different perspective,
¡
8 therefore it is importt to compare the results. The TRC exaines the progr from
9 the perspective ofRM's overall system and reveals it highly cost effective. This is
10 largely due to the $7.S .milion in incentive payments that ar not included as a cost
11 because this amount is colleced from ratepayers. Becaus this cost is trsferred from
12 one ratepayer to another, it does not impart costs to the system.28 To examine whether
13 the progr is cost effective for varous stakeholders, the RIM looks from the persective
14 of all ratepayers and includes the incentive payments as a cost. Meanwhile, the UTC
15 taes the utilties pepective and looks at the progr as a supply side resoure. Here
16 the total cost of the avoided energy, both administrtive and incentive payments, must be
17 lower than the cost to supply that energy. By including the incentive payments as a
18 cost, the RIM and UTC ensure the incentive levels ar suffcient to attct paricipants
19 while stil providing a benefit to other ratepayers.
26 Understanding Cost Effectiveness, at 6-4 - 6-5.
27 2009 DSM Report at 11, Appendix 1 at 22 - 23.
28 See Understanding Cost Effectieness, at 6-6 ("It does not include bil savings and
incentive payments, as they yield an intr-regional trsfer of zero (bnefits to customers
and costs to the utilty tht cancel each othr out on a regional level)").
Reading. Di 36
Idao Conservation League
1 In sum, the TRC shows the administrative cost of the load-shifting progr is far
2 below the cost to serve that load. The RIM shows that all ratepayers stad to gain
3 because the progr as a whole should reduce overall utilty rates. The UTC shows
4 that, as a resource, the program is the most cost effective way to serve irgation loads.
5
6
7 Q. You mentioned that the current funding scheme is bifurcated with the
8 administrative costs coming from the DSM tariff, Schedule 191, and the incentive
9 payments coming from general rates. Do you think this is a reasonable funding
10 scheme?
11
12 A. While I do think this scheme is reasonable, I also believe it is time for the
13 Commission, the Company, and other staeholders to consider changing it. Two primar
14 reasons lead me to this conclusion. First, the progr administrtive costs for 2009
15 were $3,816,416. This amounts to 76% of the total DSM taffrevenue.29 When RM
16 recently requested to increase this tariff, their forecast was for these expenses to grow to
. .
17 $4.3 milion in 2010.30 Because this program consumes the lion's share ofRM's DSM
18 program budget, it may leave insuffcient fuding for other cost effective energy
19 conservation measures. Also the DSM tariff does not retu suffcient money to cover
20 RM's entire portfolio ofDSM measures, resulting in a back balance the Company
29 2009 DSM Report at 31 (Table 22 showing the Schedule 191 balancing account
activity with a total rate recovery of$5,010,485.78 in 2009).
30 Order No. 32023, PAC-E-lO-03, at 2 (June 30, 2010).
Reading. Di 37
Idaho Conservation League
1 forecasted to be $3.5 millon by April of 2010.31 Moving the irrgation load control
2 progr adinistrtive expeses out of the DSM budget would allow for a faster
3 reduction of this back balance while fremg up money for other energy conservation
4 programs.kl
5 Secnd, this load contrl progr closely resembles a supply side resurce
6 because it is a quatifiable and dispatchable resour. In the pas the irgation
7 customers have ared this progrm shoûld be considered a system wide resource, and
8 the costs should be collected from ratepayers thoughout RM's system. The irrgation
9 load control progr more closely resembles Monsto's curilment credit than more
10 traditional DSM progrs. In addition, RM classifies irgation load control a Class 1
11 DSM progrm (along with their air conditioner and commercial curilment progrms).
12 Class 1 progrs are stacked together with trditional genertion resoures in the
13 Company's IR capacity load and resource balance analysis.32 By contrt, incentives
14 for home insulation and rate designs like those we propose in this case ar considered
15 load reduction progrs.33 At 258 MW of measurble, predictable, and dispatchable
16 load under contrct, this progr reresents almost half ofRM's total Class 1 DSM and
17 has far more in common with a generation resource than other DSM measures.34 Like
18 other generation reouces, the irrgation load control progr should be a system wide
19 resource for both planing purses as well as ratemakg purses.
31 Application, PAC-E-lO-03.. at 5 (Febru 2, 2010).
32 PacifCorp 2008 Update Integrated Reurce Plan at 29-30,33, Table 3.9 (March 15,
2010).
33 Id., at 28.
34 Id, at 33, Table 3.9 (showig 458 MW of Class 1 DSM in the 2010 reource stack)
Reaing. Di 38
Idao Conservation League
1 We undertad this position conflcts with the existing Revised Protocol for
2 inter-jursdictional allocations. Because of this, we encourage the paies to continue to
3 evaluate this option. We also recommend the Commission direct the Company to
4 pursue moving this progrms from an Idaho only resource to a system wide resource and
5 adjusting the Revised Protocol accordingly.
6
7
8 POLLUTION CONTROL EXPENDITURES FOR COAL PLANS
9
10 Q.According to Company witness McDougal's testimony regarding the
11 Revenue Requirement in this case, PacifCorp wil spend approximately $475
12 milion on pollution control equipment at their existing coal generating plants
13 during the test year. What reasons has the Company given to justify these
14 expenditures?
15
16 A.Durng the 2010 test year the Company has installed, or plans to install, pollution
i 7 control equipment at Dave Johnston Unit 3, Huntington Unit 1, and Jim Bridger Unit 1.35
18 RM decided to install this pollution control equipment due to increasingly strngent
19 federal pollution control laws. According to Company witness Teply:
20 These investments were identified as par of the Company's response to
35 Direct Testimony of Company Witness Steven R. McDougal, Exhibit 2, Tab 6, Page
6.2.1 (showing major plant additions for the test year); Direct Testimony C.ompany
Witness Chad A. Teply, PAC-E-1O-07, p. 5.
Reading. Di 39
Idaho Conservation Legue
1 environmentat relations that govern the plants' operations. Though the 1977
2 amendments to the Clea Air Act, Congs set a national goal for visibilty to
3 remedy impairent frm manade emissions in designated national parks and
4 wìldernes ars; this goal reulted in development of the Regional Haz Rules,
5 adopted in 2005 by th Environmental Prtection Agency. The fit phase of
6 these rules trgger Best Available Retrfit Technology ("BART") reviews for all
7 coal-fired generation facilties built betwee 1962 and 1977 tht emit at least 250
8 tons of visibilty-impairg pollution per year. The units provided with the
9 pollution control equipment investments discussed above ar subject to BART
10 reviews. BART reviews of th unts have been completed and submittd to the
11 respetive state depents of envionmental quality for fial disposition.
36
12
13 Because there is a rage of control equipment, the Company could intall to meet
14 their pollution contrl obligations Mr. Teply goes on to explain th factors RM
15 considers in choosing a speifc investment.
16 The Compay taes severl factors into consideration when making pollution
17 control equipment investments includg: evaluation of state and federl
18 envirnmental regulatory reuirements and associated compliance deadlines;
19 review of emerging environmental reguations and rulemaking; and anlyses of
20 alternate compliance options. . . . The BART analyses reviewed available retrofit
21 emission contrl technologies and thir asociated perfonnance and cost metrics.
22 Each of the technologies was reviewed against its abilty to meet a ~resumptive
23 BART emission limit basd on technology and fuel charcteristics. 7
24
25 In regar to the Company's decision to install this pollution control equipment
26 durg the test yea contemplated in this case Mr. Teply explains:
27 (TJhe Compay is instaling the pollution control equipment at this time primarly
28 to ensure compliance with Regionalllaze Rules, but also in response to a more
29 strngent Nationa Ambient Air Ql1âlity Stadards and a varety of existing and
30 emerging emission reduction requirements.38
31
32 In sum, the Company plans to spend over $457,00,00 during the 2010 test year
36 Direct Testimony Company Witness Chad A. Teply at 7.
37 ¡d., at 9.
38 ¡d., at 10.
Reading. Di 40
Idao Conservation League
1 to comply with, in their words, "a varety of existing and emerging emission reuction
2 requirements." However, one of my primar concerns is that the much of the speific
3 technology the company plans to instal is based on "a presumptive BART emission
4 limit." While I am no expert in specific pollution control equipment, I am concerned
5 that the Company seems to be makng these investments before they have a final decision
6 on whether the equipment is suffcient to meet federa pollution control standards.
7
8
9 Q. The Clean Air Act requires the Company to have a valid permit in hand pnor
10 to installng pollution control equipment. Does Mr. Teply discuss this in his
11 testimony?
12
13 A.Yes, but I have some concerns regarding his explanation. Mr. Teply explains
14 that for the Dave Johnson 3 and Jim Bridger 1 projects the Wyoming Dearent of
15 Environmental Quality issued permits approving the equipment chosen by the Company.
16 However, he goes on to explain these state issued permits "wil be incorprated into the
17 Wyoming State Implementation Plan for Regional Haze," which "is subject to U.S.
18 Environmental Protection Agency ("E.P.A.") review and approval.,,39 Likewise, the
19 Uta DEQ issued a state permit for the Huntington Unit 1 project, which is subject to the
20 same E.P.A review and approval process.40
21 While I am not a lawyer, I undertad this statement to mean that the Company
39 Id, at 8.
40 Id.
Reading. Di 41
Idao Conservation Legue
1 installed this contrl equipment before the fil decision on whether it is suffcient to
2 comply with federl laws. We are concerned that if the u.s. EPA does not approve the
3 State Implementation Plan, and requir more strgent contrls, the roughly
4 $475,000,00 invested in these inuffcient contrls will be insuffcient and RM wil
5 need more expensive equipment next yea. In short it does not seem like a prudent
6 investment to spnd over $475,00,000 before receiving regulatory approval that these
7 controls are suffcient to comply with federal laws.
8
9
10 Q.Due to concerns over climate change and envionmental and health concerns",
11 many observers are predicting more stringent regulations in the future on both the
12 state and federal leveL RM says their pollution control investments are made with
13 a "review of emergig envionmental regulations and rulemaking." Does RM go
14 on to discuss more about the impact on current pollution control projects an~
15 potential future strcter environmental regulations?
16
17 A.Yes, but again his responses raises some concerns. When asked whether the
18 Company's decision t~ install the pollution control equipment at issue in the case would
19 change if the U.S. adopted some form of carn dioxide regulations, Mr. Teply
20 responded:
21 No. The Company is curently engaged in assessing its existing generation
22 resources, its planed supply and demand-side resoures and its 10-year capital
23 budget regarding the impact of can dioxide emissions restrctions. While
Reading. Di 42
Idaho Consation Legue
1 planned investments in other units may change, the Company's plans regarding
2 these investments would not change due to carbon-emission restrctions. The units
3 have depreciation lives for ratemaking puroses that provide suffcient remaining
4 time to depreciate the investments in the pollution controls.41
5
6 I do not dispute that the Company's 2010 pollution control investments on the
7 existing plants may have depreciation lives - "for ratemakg puroses" -- that would fit
8 within the existing plant lives. My concern is that as futue strcter regulations become
9 law, the curent projects may not be suffcient to meet the new requirements. This
10 would mean another critical decision point for the Company. A decision would need to
11 be made, based on the costs and benefits of given plant at that point in time, whether the
12 most prudent path would be to make the required additional pollution control
13 expenditues or close the plant.
14 While not par of the testimony in this case, I also reviewed the Company's most
15 recent Securties and Exchange Commission Form 10-k. In this form, publicly trded
16 companies disclose, among other things, the business risks they face. Regarding
17 pollution controls the Company explains:
18 The impact of peding federal, regional, state and interational accords,
19 legislation or regulation related to climate change, including new laws,
20 regulations or rules limiting GHG (green house gas 1 emissions could have a
21 material advere impact on us. We have significat coal-fired generating
22 facilties that will be subject to more direct impacts and grater financial and
23 regulatory risks.42
24
25
41 ¡d., at 10.
42 PacifCorp Form IO-K at 20, (March 1,2010)
Readig. Di 43
Idaho Conseration League
1 Q.Closing an exitig functioning coal plant seems like a radical suggestion.
2 Why did you say it may be the most prudent path for a utity to take?
3
4 A.The decision would depend on numerous factors, in addition to the cost of
5 meeting the new envirnmental requirements, the age and output chacteristics of the
6 generating facilties, the cost of relacement power, expeed incres in coal and
7 trsporttion cost, etc. Basically it would boil down to a cost benefit analysis not only
8 of meeting the existing relatory reuirment but also some kid of probabilstic risk
9 assessment of potential futue chages.
10 Oter jursdictions ar curently evaluating whether to invest in control equipment
'11 or retire existing coal plants. In the Nortwest, we are familar with Portland General
12 Electrc's decision to close its Boardman facilty in Oregon. Also, Due and Progress
13 Energy ar closing existing coal plants in Nort Carolina, as is Xcel in Colorado. In
14 both Nort Carlina and Colorado the decision to close coal plants was drven by clean
15 air legislation in each state. Even if the closing of the facilty is not most cost effective
16 path, a more prudent path may be to invest in pollution control equipment that exceeds
17 existing regulations when a probabilstic risk assessment would indicate it would be less
18 expensive to spd now to go beyond the curent requirements.
19 II
20 II
21 Q.What are you asking this Commission do in relation to pollution control
22 expenditures on exiting coal facilties?
Reading. Di 44
Idao Conseration League
1 A.Due to the large expeditues RM is requesting for pollution control equipment,
2 and the potential impact this has on customer rates, both now and in the futu, we are
3 asking the Commission to order the Company to justify any futue pollution expenditus
4 in two ways. First RM should analyze not just the effectiveness of the contrl
5 equipment, but whether it wil comply with existing federal pollution control laws.
6 Here, RM holds state issued permits for the equipment, but the E.P.A has yet to decide
7 whether it is suffcient to meet federl requirements. Second RM should underte a
8 risk assessment of meeting realistic assumptions for futue strcter environmental
9 requirements. Here, despite investing hundreds of milions of dollar in these plants,
10 RM has not explained the probabilty of strcter requirements in the futu and whether
11 this control equipment has the potential to satisfy those requirements.
12 We are asking the Commission to inform the Company that they will not allow
13 these pollution control expenditues to be past on to ratepayers without a forwd-looking
14 analysis. Environmental.policy and regulation, for good or il, is a moving taget, and
15 anyting less than including that in an assessment of the effectiveness of any expenditu
16 to meet that moving taget is a disservice to both shareholders and ratepayers.
17
18
19 Q.Does this complete your direct testimony as of October 14, 2010 ..
20 A.Yes it does.
Reading. Di 45
Idaho Conseration League
Ca No PAC-E-IO-07
Exhibit No. 501
Page 1 of3
Witnes: Don C. Readig
lOon C. Reading
Present posi#on
~ice President and Consultig Economist
Bdiiçation lB.s., Economics C Uta State University
M.S., Economics C University of Oregon
Ph.D., Economics C Uta State University
Honors and Omicron Delta Epsilon, NSF Fellowship
awards
Professiona~
and biisiness
history
Ben Johnson Associates, Inc.:
1989 ---- Vice President
1986 ---- Consultig Economist
daho Public Utities Commission:
1981-86 Economist/Director of Policy and Admstrtion
Teachig:
1980-81 Associte Professor, University of Hawai-Hio
1970-80 Associate and Assistat Professor, Idaho State Uniersity
1968-70 Assistat Professor, Middle Tennessee State University
lFi,. ixperiençe Dr. Readig provides expert testiony concerng economic and regutory issues.
He has testified on more than 35 occasions before utity reguatory commsions in
Alaska, Calforna, Colorado, the Distrct of Columbia, Hawai, Idaho, Nevad
Nort Dakota, Texas, Utah, Wyomig, and Washigton.
lOr. Readig has more than 30 years experience in the field of economics. He has
lParcipated in the development of indices reflectig economic trnds, GNP grwt
Irates, foreig exchange markets, the money supply, stock maket levels, and
liflation. He has analyzed such public policy issues as the mium wag, federa
Ispendig and taxation, and import/ export balances. Dr. Readig is one of four
~conomists providig yearly forecasts of statewde personal income to the State of
~daho for puroses of establishig state personal income tax rat~~.
n the field of telecommuncations, Dr. Readig has provided exprt testiony on
Ite issues of maral cost, price elasticity, and measured serce. Dr. Readi
prepared a state-specific study of the price elasticity of demand for local telephone
Iservce in Idaho and recently conducted researh for, and dicted the prepartion
Iof, a report to the Idaho legislatue regadig the status of telecommuncations
Irompetition in that state.
Cas No PAC-E-1O-07
Exhibit No. 501
Page 2 of3
Witnes: Don C. Readig
r. Redi's ars of exprtse in the field of eletrc power include demand
oreåsti long-ra pla, price elaticity, ma and averae cost pricing,
rouction-simultion modelg, and econometrc modlig. Among lu recent
ase was an electrc rate desi analysis for the Industr Customers of Idaho
ower. Dr. Readig is cuntly a consultat to the Idaho Legilatu=s Commttee
n Electrc Retnctu.
ince 1999 Dr. Rea ha been affited with the Cliate Impact Group (CIG) at
e University of Washion. Hi work with the CIG has involved an analysis of
e imact of Globa War on the hydo facities on the Snake River. It also
eludes an investitin into water makets in the Nortwest and Florida. In
ddition he has analyzed the econoDUcs of snowmakg for ski area's impacted byloba War.
ong Dr. Redig's reent projects ar a PEC hydrpower relicensing study (for
e SkokoDUsh Indi Tribe) and an analysis of Norern States Power's Nort
ota rate des proposal affectig la industr customers (for J.R. Simplot
ompany). Dr. Readig has also performed analysis for the Idao Governor's
ffice of the impact on the Nortwest Power Grid of varous plas to increase
rus in the Columbia River Basin.
r. Reg has preard econometrc foreasts for the Southeast Idaho Counci of
ov.emmts and the Revenue Projection Commttee of the Idao State
. latu. He has also been a member of severa Nortwest Power Planng
unci Statitical Advry Commttees and was vice chaian of the Governor's
onoDUc Reseach Counci in Idao
. e at Idao State Universty, Dr. Readig performed demogphic studies using
cohort/ surval model and severa econoDUc impact studies using input/output
alysis. He has also provided expert testiony in cases concerng loss of income
sultig from wrngfu death, injur, or employment dicriation. He is
urently a adjunct professor of econoDUcs at Boise State Universty (Idaho
conoDUc history, ur/regional econoDUcs and labor econoDUc.)
t. Redig has recently completed a public interest water rihts trsfer case. He
s also just completed an econoDUc impact analysis of the 2001 salon season in
daho.
PNbliclitiOIl
Ca No PAC-E-1O-Q7
Exhibit No. 501
Page 3 of3
Witness: Don C. Readig
'Energing Idaho", Idaho Issues Onle, Boise State University, Fal 200.
.boisestate.edu/history /issuesonle/ faloo6jssues/index.htm
e &onomic Impact of the 2001 Salon Season In Idao, Idao Fish and Wddlfe
oundation, Apri 2003.
e &onomic Impact of a Restored Salon Fishery in Idao, Idaho Fish and
ildlfe Foundation, Apri, 1999. ' .
e &onomic Impact of Steelhead Fishig and the Retu of Salon Fishig in
daho, Idaho Fish and Wildlfe Foundation, September, 1997.
Cost Savigs frm Nuclear Resources Reform: An &onometrc Model~ (with E.
y Canterbery and Ben Johnson) Southern Economic Journl, Sprig 1996.
Visitor Analysis for a Birds of Prey Public Attaction, Peregre Fund, Inc.,
ovember, 1988.
nvestigation of a Capitaation Rate for Idaho Hydroelectrc Projects, Idaho State
ax Commssion, June, 1988.
Post-PURP A Views," In Proceedigs of the NARUC Biennal Regutory
onference, 1983.
n Input-Output Analysis of the Impact from Proposed Mig in the Chals Area
with R. Davies). Public Policy Research Center, Idaho State University, Febni
1980.
'hsphiite and Southeat: A Socio Economic Analysis (with J. Eyre, et al. Government
esearch Institute ofIdaho State University and the Southeast Idaho Counci of
overnments, August 1975.
stimating General Fund Revenues of the State of Idaho (with S. Ghazanfar and D. Holley).
enter for Business and Economic Research, Boise State University, June 1975.
fA Note on the Distrbution of Federal Expenditus: An Interstate Comparison,
1933-1939 and 1961-1965." In The Americ.an Economist,
01. XVII, No.2 (Fal 1974), pp. 125";1~8.
"New Deal Activity and the States, 1933-1939." In Journl of Economi History, Vol.
II, December 1973, pp. 792-810.
CERTIFICATE OF SERVICE
I hereby certify that on this 14th day of October 2010, I delivered tre and correct copies
of the foregoing DIRECT TESTIONY OF DON C. READING in CASE NO. PAC-E-I0-07 to
the following via the method of service noted:
Hand delivery
Jean Jewell
Commission Secretary (Original provided)
Idaho Public Utilties Commission
427 W. Washington St.
Boise) ID 83702-5983
Electronic Mail:
A&fm
Tim Buller
Jason Hars
Agriumlnc.
3010 Conda Road
Soda Spnngs, ID 83276
Fax: [phone]
tbull er(gagrum.com
jahars(gagrium.com
~~. ~ 1tiß~ ~~~ .; ~ô:(o s; ,¿::.~~~-:~
i:~Staff
Scott Woodbury
Deputy Attorney General
Idaho Public Utilties Commission
472 W. Washington
P.O. Box 83702
Boise Idaho 83702
Scott. woodbury(opuc.daho.gov
IIPA
PacifiCorp
Daniel E. Solander
Mark Moench
Ted Weston
Rocky Mountain Power
201 S. Main Strt, Suite 2300
Salt Lake City, UT 84111
daniel.solanderßYacificorp.com
mark.moench~pacificorp.com
ted. westonCipacificorp.com
dataequest~pacifièorp.com
Eric L. Olsen
Racine) Olson, Nye, Budge & Bailey)
Chartered
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204~ 1391
Fax: [phone]
elo(oracinelaw.net
Paul J. Hickey
Hiskey & Eva,ns LLP
1800 Cary Ave., Suite 700
P.O. Box 467
Cheyenne Wy 82003
phickey (g hickeyevans .com
Anthony Yankel
29814 Lae Road
Bay Vilage, Ohio 44140
Fax: [phone]
tonytankel.net
Monsanto
Randall C. Budge
October 14, 2010
Racine) Olson, Nye) Budge & Bailey)
Chartered
P.O. Box 1391; 201 E. Center
Pocatello) Idaho 83204-1391
Fax: [phone]
rcb(ãracinelaw.net
CAPAI
Katie Iverson
Brubaker & Assoiates
17244 W. Cordova Court
Sunrise, Arizona 85387
Fax: [phone] ..
kiverson(ãconsultbai.com
Brad M. Purdy
Attorney At Law
2019 N. 17th st
Boise, Id 83702
bmpurdyØhotmail.com
PUC
James R. Smith
Monsanto Company
P.O. Box 816
Soda Springs, Idaho 83276
Fax: [phone]
jim.r.smith~onsato.com
Melida Davison
Davison Van Cleve, P.C.
333 SW Taylor Suite 400
Portd, Or 97204
mjd(!dvclaw.com
Ronald Wilams
Wiliams Bradbury) P.e.
1015 W Hayes St.
Boise) Id 83702
ron(!willamsbradbury.com
ti~
Benjamin J. Otto
October 14,2010