20101014Meyer Di (redacted).pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMSSION
ioin OCT 14 Ar1 9: 54
°t:"'ci;¡ \ ,-
IN THE MATTER OF THE )APPLICATION OF ROCKY )
MOUNTAIN POWER FOR APPROVAL)
OF CHAGES TO ITS ELECTRIC )
SERVICE SCHEDULES AN A PRICE )
INCREASE OF $27.7 MILLION, OR )
APPROXIMATELY 13.7 PERCENT )
CASE NO. PAC.E.I0.07
Direct Testimony of Greg R. Meyer
DIRECT TESTIMONY OF GREG R. MEYER
ON BEHALF OF
THE PACIFICORP IDAHO INUSTRIAL COMSUMRS
REDACTED VERSION
October 14, 2010
1 Q.
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PLEASE STATE YOUR NAM AN BUSINESS ADDRESS.
Greg R. Meyer. My business address is 16690 Swingley Ridge Road, Suite 140,
Chesterfeld, MO 63017.
WHT IS YOUR OCCUPATION?
I am a Senior Consultant in the field of public utilty regulation with Brubaker &
Associates, Inc., energy, economic and regulatory consultants.
PLEASE DESCRIE YOUR EDUCATIONAL BACKGROUND AN
EXPERIENCE.
This inormation is included in Exhibit No. 610.
ON WHOSE BEHALF ARE YOU APPEARNG IN TilS PROCEEDING?
I am appearing on behalf of PacifiCorp Idaho Industrial Customers ("PIIC").
WHAT IS THE SUBJECT OF YOUR TESTIMONY?
I am addressing issues surounding Rocky Mountain Power Company's ("RMP"
or "Company") proposed revenue requirement.
PLEASE SUMMARIZE YOUR RECOMMNDATIONS.
1. Post-Test Year Rate Base Additions - RMP has failed to correctly reflect
known increases and decreases to RM's post-test year rate base including
its effect on anualized depreciation expense. I recommend that the post-
test year rate base be restated to reflect all changes to rate base and
anualized depreciation expense.
2. Cash Working Capital ("CWC") - The Company has included an allowance
for working capital using two methodologies. I recommend elimination of
one working capital. methodology on the basis of duplication. I also
recommend a zero CWC allowance.
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PacifiCorp Idaho Industrial Customers
1 3. Normalization of Revenues - RM's weather-normalized usage per
2 residential customer is too low. I recommend that the residential usage per
3 customer be based on a five-year average.
4 4. S02 Emission Allowance Sales Revenues - RMP proposes to amortize the
5 historical sale of S02 emission allowances prior to June 30, 2009 over
6 fifteen years. I recommend this historical balance of S02 emission
7 allowance sales revenue be amortized over five years.
8 5. Injures and Damages ("I&D") Expense - The Company has proposed to
9 increase I&D expense based on the accrued methodology. I recommend
10 that I&D expense should be based on actual expenses from claims paid.
11 6. Avian Settlement - RMP has proposed to increase the accrual level of I&D
12 expense as it relates to this settlement. I recommend disallowance of this
13 expense because I&D expense was anualized separately and this
14 adjustment may result in double-recovery of expenses.
15 7. Incentive Compensation - RM's incentive compensation plan . contains
16 goals which are not well defined, hard to quantify, relate to normal job
17 requirements, do not motivate employees to achieve above-average
18 performance, and may enhance shareholder value. I recommend that one-
19 half of the incentive payments be disallowed.
20 8. Management Fees - RMP has proposed to include $7.3 milion for
21 management fees. I recommend that $2.1 milion on a total company basis
22 be disallowed from this amount.
23 9. Outside Services - RM has included the test year level of outside services
24 expense in its cost of service. I recommend that outside services expense be
25 based on a four-year average of expenses from 2006-2009.
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10. Generation Overhaul Expense - RMP has proposed a four-year average of
generation overhaul expense for both existing and new generation. RMP
has escalated its historic costs. I recommend no escalation of historic costs
and a different level of generation overhaul expense for new generation.
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11. Uncollectibles - RM has included the test year level of uncollectibles. I
recommend a four-year average of uncollectibles.
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PacifiCorp Idaho Industrial Customers
1 Table 1 summarizes the Idaho allocated revenue requirement impact of the
2 adjustments I am proposing in this proceeding. I have not reviewed all aspects of
3 the Company's filing, and PIIC wil likely support or adopt other revenue
4 requirement proposals made by other paries.
TABLE 1
Revenue Requirement Value
of Issues Addressed in Testimony
Issue
Change to Company
Revenue Requirement
(Idaho Situs)
Post-Test Year Plant Additions
Rate Base Changes
Depreciation Expense
Cash Working Capital
Residential Revenue
S02 Emission Allowance Sales Amortization
Injuries and Damages Anualization
Avian Settlement
Incentive Compensation
Affiliate Management Fee
Outside Services Expense
Generation Overhaul Expense
Uncollectibles
Total
$(4,046,053 )
(361,744)
(364,248)
(1,205,179)
(256,767)
(75,456)
(26,961)
(653,785)
(111,601)
(327,080)
(134,918)
(68,807).
$(7,632,599)
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PacifiCorp Idaho Industrial Customers
1 Post-Test Year Rate Base Additions
2 Q.
3 A.
ARE YOU PROPOSING ANY ADJUSTMENT TO RM'S RATE BASE?
Yes. RM has significantly overstated the change to rate base that wil be caused
4 by post-test year plant additions. Specifically, RMP witness Steven McDougal
5 states that the Company has identified capital projects that wil be completed by
6 the end of the test period (December 31, 2010). Mr. McDougal states that the
7 capital projects identified wil have expenditures over $5 milion and those
8 projects wil be used and useful by December 31,2010.
9 Q.
10
11
12 A.
WH DO YOU BELIEVE THAT MR. MCDOUGAL HAS OVERSTATED
IDS RATE BASE ADJUSTMENT BASED ON THE POST-TEST YEAR
PLANT ADDITIONS?
Mr. McDougal has not properly reflected both known and measurable increases
13 and decreases to Idaho jursdictional rate base for factors that wil occur afer the
14 test year and extending though December 2010. Significantly, Mr. McDougal
15 reflected increases to post-test year gross plant in-service, but only parially
16 reflected known and measurable gross plant offsets caused by post-test year
17 increases to accumulated depreciation reserve. Therefore, he has substantially
18 overstated the impact on RM's test year rate base that wil be caused by post-test
19 year changes though December 2010.
20 Q.
21
22 A.
PLEASE DESCRIBE HOW RM'S TEST YEAR RATE BASE CAN
CHAGE BY THE INCLUSION OF POST-TEST YEAR ADJUSTMENTS.
A utilty's rate base can increase or decrease over time depending on the change
23 to "net" plant investment. Net plant investment represents the difference between
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Meyer, Di
PacifiCorp Idaho Industrial Customers
1 gross plant additions less the total change to accumulated depreciation reserve.
2 When utilties make plant additions they increase gross plant investment.
3 However, RM's net plant investment wil change by the amount of post-test year
4 plant additions (i.e., increases to gross plant investment) less the total increase to
5 accumulated depreciation reserve that wil occur during the same post-test year
6 time period as the plant additions. Hence, while RMP may be making plant
7 additions afer the test year, which wil increase its delivery service gross plant,
8 these plant additions wil not directly increase delivery service net plant
9 investment on a dollar-for-dollar basis because the gross plant additions wil be
10 offset by increases to accumulated depreciation reserve that wil occur during the
11 same post-test year time period.
12 Q.
13
14
CAN YOU PROVIDE AN EXAMLE THAT SHOWS THAT THE
CHAGES IN GROSS PLANT DO NOT CORRLATE EXACTLY WITH
CHAGES IN NET PLANT INVESTMENT?
15 A.Yes. This is ilustrated by an example provided in Table 2. In the table, I show
16 the impact on a hypothetical utility company with an initial gross plant amount of
17 $1 milion, that makes $100,000 per year capital additions to its gross plant, and
18 depreciates its plant investment at a rate of approximately 3% per year. As shown
19 under the column "Gross Plant," the company's gross plant would increase by
20 $100,000 a year reflecting plant additions. However, the impact on net plant (i.e.,
21 the primary rate base factor) shown under column 3 would not be a dollar-for-
22 dollar increase as it is in the gross plant colum. The impact on net plant caused
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PacifiCorp Idaho Industrial Customers
1 by gross plant additions is the difference between the gross plant investment less
2 the change in accumulated depreciation reserve, column 2.
3 Importantly, in order to properly track changes in net plant investment
4 over time, one must properly consider all increases in gross plant in post-test year
5 periods, along with all increases in accumulated depreciation reserve from gross
6 plant, and depreciation reserve, in the same time period. Without the proper
7 consideration of both increases, it is not possible to accurately estimate the impact
8 on net plant investment caused by post-test year capital additions.
TABLE 2
Hypothetica Net Plant InvestrentExarple
Accumulated
Gross Depreciation Net Capital Depreciation
Year Plant Reserve Plant Additions Expense
(1)(2)(3)(4)(5)
2006 $1,000,000 $1,000,000 $30,000
2007 $1,100,000 $30,000 $1,070,000 $100,000 $33,000
2008 $1,200,000 $63,000 $1,137,000 $100,000 $36,000
2009 $1,300,000 $99,000 $1,201,000 $100,000 $39,000
2010 $1,400,000 $138,000 $1,262,000 $100,000 $42,000
9 Q.
10
11
DID RM INCLUDE AN ACCUMATED DEPRECIATION RESERVE
OFFSET TO PLANT ADDITIONS FOR ITS POST-TEST YEAR PLANT
ADJUSTMENT TO RATE BASE?
12 A.No, not completely. RM reflected increased accumulated depreciation, but only
13 for the amount that corresponds with the post-test year plant additions. RM
14 ignored the known and measurable increase to post-test year accumulated
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PacifiCorp Idaho Industrial Customers
1 depreciation that wil be booked by the recovery of test year plant in-service
2 during the same post-test year time period that RM is projecting plant additions.
3 The recovery of depreciation expense associated with test year plant in-service
4 wil increase accumulated depreciation reserve in the post-test year time period
5 and mitigate the increase in delivery service rate base caused by the post -test year
6 plant additions.
7 Q.
8
9
HOW DID YOU DETERM THE ADJUSTMENT TO RM'S TEST
YEAR RATE BASE CAUSED BY THE PRO FORMA PLANT
ADDITIONS PROPOSED BY RM?
10 A.The pro forma plant additions wil be offset by known and measurable changes to
11 accumulated depreciation reserve durng the same time period that pro forma
12 plant additions are to be placed in-service. In addition, normalized plant
13 retirements must also be considered as these plant retirements wil lower the
14 depreciation expense and thus affect the accumulated depreciation reserve.
15 Matching plant additions with changes to accumulated depreciation wil more
16 accurately estimate the changes to RM's net plant investment.
17 Q.
18
WHAT IS THE IMPACT OF YOUR PROPOSED ADJUSTMENT TO
RM'S RATE BASE AN REVENU REQUIREMENT?
19 A.I adjusted RMP's projected plant additions by reflecting additional accumulated
20 depreciation for test year plant in-service that wil be booked durg the same
21 time period that the projected plant additions wil be placed in service. I also
22 estimated the impact on accumulated deferred income taxes related to that same
23 plant during the same post-test year time period. It should be noted, that the
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PacifiCorp Idaho Industrial Customers
1 estimate of changes to accumulated deferred taxes was based on test year data
2 which reflects depreciation expense for the plant recorded in the test year.
3 Depreciation expense for test year plant in the post-test year period may change. -
4 Therefore, it may be appropriate for the Commission to require RM to update
5 this estimated change in accumulated deferred income tax balance for the post-
6 test year net plant investment estimate.
7 The impact based on my recommendation to post-test year plant
8 adjustments to test year rate base results in a decrease of approximately $665.8
9 milion, which reduces RMP's claimed revenue requirement by approximately $4
10 millon.
11 Q.
12
is THERE ANOTHER IMPACT FROM TIDS PROPOSED
ADJUSTMNT?
13 A.Yes. The normalized retirements that wil occur from December 31, 2009,
14 though December 31, 2010, wil lower anualized depreciation expense and
15 should be adjusted. I have recalculated anualized depreciation expense based on
16 the normalized retirement of plant durg 2010 and have reduced anualized
17 depreciation by $361,744 (Idaho Situs).
18 Q.HOW DID YOU ESTIMATE THE RETIREMENTS FOR 2010?
19 A.I. calculated a five-year average plant retirement ratio from the Company's
20 Federal Energy Regulatory Commssion ("FERC") Form 1 report. This ratio is
21 the relationship between retirements in a year and plant (before retirements) at
22 year's end.
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PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
WHY DO YOU BELIEVE TH RETIRMENTS NEED TO BE
CAPURD?
If you do not recognize the retirement of plant, you wil overstate the anualized
4 depreciation expense for the cost of service. This would result in ratepayers
5 paying for depreciation expense on plant which is not in service.
6 Cash Working Capita
7 Q.
8
9 ¡\.
DID THE COMPAN INCLUDE AN ALLOWANCE FOR CWC IN ITS
DIRECT FILING?
Yes. RM witness Steven R. McDougal presented direct testimony which
10 includes an allowance for CWC of $2,134,510 in rate base. In addition, RMP is
11 requesting an additional $961,459 of Other Working CapitaL. In total, RM is
12 requesting $3,095,969 of working capital.
13 Q.
14
15 A.
DO YOU CONTEST THE INCLUSION OF TmS AMOUNT IN RM'S
RATE BASE?
Yes, I do. RM is requesting an allowance for working capital using two
16 different methodologies. I am recommending that the Other Working Capital
17 amount of $961,459 be disallowed because it is merely another method to
18 determine working capital and should not be included with a CWC analysis.
19 Based on the lead-lag study, the Company is attempting to double-recover an
20 allowance for working capital.
21 I am also recommending that the CWC allowance of $2.1 milion be
.22 disallowed from RMP's rate base.
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Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
WHY DO YOU PROPOSE TO NOT RECOGNIZE ANY ALLOWANCE
FOR CWC IN TmS PROCEEDING?
It has been my experience that electric utilties generally have a negative CWC
4 allowance when a properly calculated lead-lag study is performed. I both
5 performed and supervised several electric utilty lead-lag studies while employed
6 by the Missouri Public Service Commission which resulted in negative CWC
7 allowances. In fact, in Missouri, it is most often the case for electric utilties to
8 have negative CWC allowances for puroses of rate cases.
9 In this instance, RM is relyig on a lead-lag study fied in a previous rate
10 case. I have submitted a data request to obtain the lead-lag study but, to date, I
11 have not received a response to this request. I may update my testimony after I
12 review that data response.
13 Q.
14
PLEASE EXPLAIN WHY YOU PROPOSE TO DISALLOW THE $961,459
OF OTHER WORKIG CAPITAL.
15 A.The $961,459 of Other Working Capital is comprised of netting selective assets
16 and liabilties of RMP. Specifically, RM has requested working capital
17 recognition of accounts receivables and payables. These components are
18 considered in the lead-lag study and should not be included in PacifCorp's
19 proposed CWC allowance. RMP is requesting double-recovery of certain aspects
20 of the lead-lag study.
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PacifiCorp Idaho Industrial Customers
1 Q.
2 A.
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11 Q.
12
13 A.
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lI
WHY is AN ALLOWANCE FOR CWC NECESSARY?
The purpose of a CWC adjustment is to allow a utilty to earn a rate of return on
the amount of cash necessary for operations that is "supported by capital on which
investors are entitled to a return."l1 The lead-lag study determines who provides
the amount of cash that is necessary to fund operations on a day-to-day basis. If a
utilty spends cash for an expense before the ratepayer provides cash for utilty
service provided, the shareholder must supply that cash. However, if the utilty
receives cash from the ratepayer for utilty service provided before the utilty must
pay cash for expenses incurred to provide that service, then ratepayers have
provided the cash.
WHY is YOUR RECOMMENDATION TO NOT INCLUDE CWC IN THE
CALCULATION OF RATE BASE REASONABLE?
As I stated previously, my experience would suggest that a negative CWC
allowance is a reasonable conclusion based on a properly conducted lead-lag
study. I have requested that the Company provide a copy of its lead-lag study. I
wil review the response to this data request which provides the lead-lag study
from a previous RMP rate case to determine if the lead-lag study prepared by
RMP does produce a reasonable allowance for CWC. However, as I have stated
previously, it is my experience from the lead-lag studies I have been involved in
the preparation of, a negative CWC allowance is the normal outcome.
WUTC v. PacifiCorp, Docket No. UE-050684, Final Order ~ 189 (April 17,2006) (stating, "(w)e
agree with Staff that the objective is to quantify the amount of working capital and curent assets
supported by capital on which investors are entitled to a return.").
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PacifiCorp Idaho Industrial Customers
1 Q.
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5 A.
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16 Q.
17 A.
18
19
20
YOU TESTIFIED THAT IN YOUR EXPERINCE THAT ELECTRIC
UTILITIES OFTEN HAVE A NEGATIVE CWC ALLOWANCE. CAN
YOU CITE AN SPECIFC COMMSSION ORDERS WHCH
RESULTED IN NEGATIVE CWC ALLOWANCES?
Yes. In Case No. ER-2008-0318, the Missour Public Service Commission Order
reflected a negative CWC allowance of $94.672 milion including interest and tax
offsets.Y In Docket Nos. 09-0306 though 09-0311, Consolidated, the Ilinois
Commerce Commission Order reflected a negative CWC allowance of $1.598
millon for AmerenCILCO, a negative $3.040 milion for AmerenCIPS and a
negative $9.031 milion for AmerenI electric operations.l' I have attached the
rate base schedules which depict these amounts to this direct testimony as Exhibit
No. 611.
I have also attached as Exhibit No. 612 to this direct testimony the fiing
AmerenUE made in Case No. ER-201O-0036. As can be seen from this exhibit,
AmerenUE fied for a negative CWC allowance of $18,350,000.11
PLEASE SUMZE YOUR TESTIMONY REGARDING ewe.
I recommend the Commission recognize no CWC allowance for RM and
approve my adjustment of $364,248 (Idaho basis) to RM's cost of service. I
believe RM is utilzing two methods to request a working capital allowance. I
believe that RMP is requesting double-recovery of certain components of working
y Missouri Public Service Commission Case No. ER-2008-0318. Staffs Recommendation to
Approve Tariff Sheets (Feb. 10.2009); Exhibit No. 611 at 1.
Central llinois Light Company et aI., Docket Nos. 09-0306 et aI., Corrected Order (May 6, 2010);
Exhibit No. 611 at 2-4.
Exhibit No. 612 at 1, lines 6-10.
'J
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PacifiCorp Idaho Industrial Customers
1 capitaL. I also have not been able to check RM's lead-lag study as the study was
2 not provided to the paries in this case. Therefore, I recommend no CWC
3 allowance be allowed in RMP's cost of service.
4 Normalization of Revenues
5 Q.
6
DO YOU BELIEVE THE LEVEL OF ELECTRIC REVENUES IN RMP'S
COST OF SERVICE IS APPROPRIATE?
7 A.No. RMP's proposed level of residential revenue is understated. I recommend
8 that the level of residential revenues be increased by approximately $1.2 milion.
9 This amount is net of additional fuel cost.
10 Q.
11
WHAT IS THE BASIS FOR YOUR STATEMENT THAT THE LEVEL OF
RESIDENTIAL REVENUES IS TOO LOW?
12 A.I have reviewed the usage per customer for the calendar years 2005-2009 as
13 compared to the Company's weather-normalized usage for the test year. Table 3
14 lists the anual average usage per customer for the residential class for 2005-2009
15 and the test year weather normalized.
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PacifiCorp Idaho Industrial Customers
TABLE 3
Historic Analysis of
Residential Use per Customer
Year
Residential Use
Per Customer
(kWh)
2005
2006
2007
2008
2009
12,336
12,714
12,785
12,853
12,687
Company Test Year
(Weather Normalized)12,309
Five-Year Average
(2005-2009)12,675
Sources:
FERCForm 1
Testimony of Peter C. Eelkema, Table 1
Response to Monsanto Data Request No. 1.17
in Case No. PAC-E-lO-07
1 Table 3 shows that the average usage per customer used by RMP to anualize
2 residential revenues (12,309 kWh) is too low. The residential usage proposed by
3 RM has been exceeded for each year since 2005. The amount of normalized
4 residential usage I recommend be used (12,675 kWh), is stil lower than the actual
5 2009 usage during the current economic recession (12,687 kWh).
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PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
WH is IT IMPORTANT TO ANUALIZE REVENUES USING THE
CORRECT USAGE PER CUSTOMER?
It is important to anualize revenues using the correct usage per customer because
4 that level of anualized revenues determes the incremental revenue requirement
5 needed by the utilty to pay the expenses to operate the utilty and provide the
6 opportunity for a reasonable retur to shareholders. If the usage per customer is
7 set too low, the utilty wil collect more revenues than is necessary to pay its
8 expenses and provide the opportity for a reasonable return to shareholders. If
9 the usage per customer is set too high, the opposite wil occur.
10 Q.
11
12 A.
PLEASE DESCRIBE YOUR RECOMMNDED ADJUSTMENT TO
RM'S RESIDENTIAL CLASS.
I analyzed the residential usage per customer for the period 2005-2009 and
13 compared those usages to the level proposed by RMP. I calculated a five-year
14 average usage per customer for the residential class and multiplied that usage by
15 the normalized test year customers and the curent average residential margin
16 energy rate. Based on this analysis, I believe test year residential revenues should
17 be increased by $1.2 milion.
18 SO~ Emission Allowance Sales Revenues
19 Q.
20
21 A.
HAS RM INCLUDED REVENUES FROM THE SALE OF S02
EMISSION ALLOWANCES IN ITS COST OF SERVICE?
Yes. RM has included a 15-year amortization of S02 emission allowance sales
22 which occured prior to June 30, 2009 in its cost of service.
15
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
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3 A.
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7 Q.
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9 A.
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12 Q.
13 A.
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22
DO YOU AGREE WITH THE AMOUNT RM HAS INCLUDED IN THE
COST OF SERVICE?
No. I recommend that the sale of S02 allowances be amortized over five years. I
am proposing that the unamortized balance of S02 allowance revenues occuring
before June 30, 2009, he amortized over five years instead of the I5-year
amortization period proposed by RMP.
WHY AR YOU PROPOSING TO AMORTIZE THE S02 ALLOWANCE
SALES OVER FIVE YEARS?
I believe the curent 15-year amortization period is too long. The revenues
generated from the sale of S02 allowances should be flowed back to customers in
a more expedited maner.
WHY DID YOU CHOOSE A FIVE-YEAR AMORTIZATION PERIOD?
Generally, five-year amortizations are proposed when addressing extraordinary
events, or recuring events with impacts that canot be easily predicted. For
example, when a major storm strikes the service territory of a utilty, the utilty is
usually granted recovery of those external costs over five years. Five years, in my
experience, is. generally the most widely accepted amortization period for
extraordinary events or recuring events with volatilty uness a trend in the
activity can be observed. Obviously, shorter and longer amortizations have been
adopted by commissions, but five years is generally appropriate and reasonable.
In this instance, a five-year amortization period is more appropriate
because it credits customers' rates in a more timely maner from the sales of S02
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PacifiCorp Idaho Industrial Customers
1 allowances. A shorter amortization period is also appropriate in this case because
2 it reduces the impact ofRMP's nearly 14% overall proposed rate increase. This is
3 a very signifcant proposed rate increase, paricularly in this economic climate.
4 Q.
5
6 A.
WHAT is THE TOTAL VALUE OF YOUR SOz ALLOWANCE SALES
ADJUSTMENT?
Reducing the amortization period for S02 allowance sales from 15 years to
7 5 years reduces revenue requirement by $256,767 on an Idaho jurisdictional basis.
8 Injuries and Damages Expense
9 Q.
10
11 A.
DID THE COMPANY PROPOSE AN ADJUSTMET FOR I&D EXPENSE
IN THEIR COST OF SERVICE?
Yes. The Company proposed to increase test year I&D expense by $86,480 on an
12 Idaho basis (Adjustment 4.14.1).
13 Q.
14
15 A.
16 Q.
17 A.
DO YOU AGREE WITH THE ADJUSTMENT PROPOSED BY THE
COMPANY?
No. I recommend that the $86,480 adjustment be reduced by $75,456.
WHAT is THE BASIS FOR YOUR ADJUSTMENT?
My adjustment is based on actual claims paid averaged for the years 2007-2009,
18 less insurance reimbursements that have been received by the Company.
19 Q.
20 A.
HOW is YOUR ADJUSTMENT DIFRENT FROM THE COMPANY'S?
The Company's proposed adjustment is based on the average accral of expenses
21 for the three years from 2007-2009. I recommend that I&D expense for puroses
22 of this rate case be determined on the actual claims paid durg the period 2007-
23 2009, and not the amount accrued for possible claims.
17
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PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
WH DO YOU BELIEVE THE CASH BASIS APPROACH IS BETTER
THA THE ACCRUAL APPROACH?
By establishing rates based on the actual claims paid or cash approach, ratepayers
4 are only required to pay in rates the actual expenses associated with I&D claims.
5 Ratepayers are not being asked to fund future claims which may not materialize.
6 The cash approach also eliminates the possibilty of over-accring for I&D
7 claims, thus, requiring ratepayers to pay fictitious expenses. The estimation
8 process is eliminated from ratepayer rates and it does not allow for the
9 manipulation of the accrual process between rate cases.
10 Avian Settlement
11 Q.
12
PLEASE DESCRffE RM'S AVIAN SETTLEMENT (ADJUSTMENT
4.17).
13 A.RMP has increased operations and maintenance ("O&M") expense and capital
14 cost to protect the wildlife habitat in and around the Company's transmission and
15 distribution assets. Among the proposed increases, the Company is proposing to
16 increase the I&D expense to reverse an April 2009 accounting entry made to
17 Account 925. This accounting entr lowered RMP's expense leveL. This
18 Company adjustment is in addition to RMP's proposed anualization of I&D
19 expense.
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PacifiCorp Idaho Industrial Customers
1 Q.DO YOU AGREE WITH THE PROPOSED ADJUSTMENT?
2 A.No. I would recommend that the Company's Avian Settlement adjustment for
3 Account 925 - Injures and Damages - be disallowed ($26,961 - Idaho
4 jurisdictional basis).
5 Q.
6
WH ARE YOU PROPOSING TO DISALLOW TmS DOLLAR
AMOUNT?
7 A.My adjustment for I&D expense as discussed above is based on actual cash
8 expenditues for claims less than the amount received by insurance. To increase
9 the revenue requirement though a separate adjustment is improper. To the extent
10 that actual payments for this event have been made, I believe those payments
11 would have been included in the claim totals provided in response to PUC Data
12 Request No. 74.
13 My proposed adjustment is based on a thee-year average of actual claims
14 paid. Finally, this adjustment may represent a double-counting of expenses. If
15 the expenses are included in the claim totals, then by recognizing this expense, the
16 Commission would be allowing double-recovery of the expenses.
17 Q.
18
19
20 A.
AR YOU PROPOSING TO ELIMIATE ALL OF THE PROPOSED
AVIAN SETTLEMENT INCREASES TO THE COMPANY'S REVENU
REQUIREMENT?
No. I am proposing only the elimination of the Avian Settlement adjustment to
21 Account 925, I&D expense. My concern is that the Company's proposal
22 improperly infates revenue requirement by proposing a second adjustment to an
23 expense that the Company has already anualized.
19
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3
4 A.
IF TmS ADJUSTMENT is INTENDED TO INCREASE THE ACCRUAL
LEVEL OF EXPENSE, DO YOU BELIEVE THE ADJUSTMENT WAS
CORRECTLY INCLUDED BY RM IN THE RATE CASE?
No, I do not. If the adjustment is intended to increase the accral level of I&D
5 expense, then separating this adjustment from RM's I&D adjustment overstates
6 the cost of service. If the adjustment had been included as a component of RM's
7 I&D adjustment, only one-third of the adjustment would have been recognized
8 instead of the entire amount. This is due to the fact that RM proposed a thee-
9 year average on the accrual level of expenses for their cost of service.
10 Q.
11 A.
PLEASE SUMARIZE YOUR POSITION.
I believe the I&D expense adjustment for the Avian Settlement (Adjustment 4.17)
12 should be disallowed. The I&D adjustment for the Avian Settlement could allow
13 double-recovery of expenses or, in the alternative, could overstate the accrued
14 level of expense. Therefore, I recommend, consistent with my I&D adjustment,
15 that this portion be disallowed.
16 Incentive Compensation
17 Q.
18
19
20 A.
DID THE COMPANY INCLUDE IN ITS COST OF SERVICE EXPENSES
ASSOCIATED WITH THE PAYMENT OF INCENTIVE
COMPENSATION?
Yes. Company Exhibit NO.2 (Case No. PAC-E-1O-07, page 4.3.4) identifies that
21 RMP is proposing to include $32.2 milion (approximately $1.3 milion on an
22 Idaho jurisdictional basis) to cover incentive compensation payments.
20
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
4
5 Q.
6 A.
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
DO YOU CONTEST THE INCLUSION OF ANY PORTION OF TmS $1.3
MILLION?
Yes. I recommend that half or $653,785 of the incentive compensation expense
be removed from cost of service.
WHAT IS THE BASIS FOR YOUR PROPOSED DISALLOWANCE?
Based on my review of the goals (included as an attachment to PacifiCorp witness
Erich Wilson's direct testimony in Washington Utilties and Transportation
Commission ("WUC") Docket No. UE-100749 and attached as Exhibit 613 to
my testimony), I believe the goals for the achievement of incentive compensation
payments are not well defined.
On page 6 of his direct testimony in the referenced docket, PacifiCorp
witness Mr. Wilson states:
Individual employee goals star with the goals set for the Company
as a whole. Each year, the Company President, in conjunction
with MidAmerican Energy Holdings Company; sets the overall
goals for the Company.
In my opinion, many of these goals are more related to normal job
requirements/duties and do not motivate employees to achieve above-average
performance. Furtermore, many of the goals are not quantitative, thus, making it
hard for an employee to gauge performance at any paricular time frame. Based
on these observations, I am recommending that one-half of the incentive
payments be disallowed.
21
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2 A.
3
4
5
6
7
8
9
10
11
12
13 Q.
14
15 A.
16
17
18
19
20
21
PLEASE DESCRIE RM'S ANUAL INCENTIVE PLAN ("AlP").
RMP's AlP is based on the achievement of group employee goals and
achievement of individual goals. In addition to group goals and individual goals,
employees may be evaluated based on new issues or opportunties that affect
RM during the year.
Employees are evaluated by their performance against six group goals.
The group goals describe the characteristics the Company believes are important
to the success of RMP. RMP's employees establish their own individual goals
which are designed to advance the achievement of the group goals of the
Company. The individual goals are weighted 70% of the employees' overall
evaluation, while the group goals are weighted 30% towards the employees'
overall evaluation.
PLEASE DESCRIBE WHAT STANARS YOU BELIEVE SHOULD BE
INCLUDED IN A PROPERLY CONSTRUCTED INCENTIVE PLAN.
I believe an acceptable incentive plan should be developed that contains goals that
improve or maintain RM's existing operational performance. The payments
associated with the incentive plan should be directly related to the achievement of
those goals.
The goals for the incentive plan should be easily understood by the
affected employees. Employees should also easily be able to determine their
performance against those goals at any time during the year.
22
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
WHAT TYPES OF GOALS WOULD YOU RECOMMND BE INCLUDED
IN AN INCENTIVE PLAN?
Appropriate goals for an incentive plan could include safety, managing O&M
4 expenses, system reliabilty, and customer service.
5 Q.
6
7
8 A.
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
AR YOU AWAR OF COMMSSION ORDERS WHCH SUPPORT
YOUR IDEAS ABOUT A PROPERLY CONSTRUCTED INCENTIVE
PLAN?
Yes. In WUTC v. Washington Natural Gas Co., the Commssion stated:
The Commission does agree with Staf that some of the incentives
fall short in terms of sending employees the message that the
purose of the program is to encourage improved service. The
Commission believes however that the company can do a far better
job in the future of creating incentives and setting goals that
advantage ratepayers.... Such goals might include controllng
costs, promoting energy efficiency, providing good customer
service, and promoting safety. Plans which do not tie payments
directly to goals that clearly and directly benefit ratepayers wil
face disallowance in future proceedings. ~
Also, in Union Electric Case No. EC-87-114, the Missouri Public Service
Commission stated:
At a minimum, an acceptable management performance plan
should contain goals that improve existing performance, and the
benefits of the plan should be ascertainable and related to the
plan.QI
2!WiC v. Washington Natual Gas Co., Docket No. UG-920840, Four Suppl. Order at 19 (Sept.
27, 1993).
Staffv. Union Elec. Co., 29 Mo. P.S.C. (N.S.) 313,325 (1987).§J
23
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3
4 A.
DO YOU BELIEVE THE GROUP GOALS AS LISTED IN EXHffIT
NO.613 CONTAIN THE STANARS AN CRITERIA YOU
DESCRIBED ABOVE?
No. I have reviewed the group goals. I continue to believe that these goals do not
5 provide the employees with the quantitative goals to assess their performance. It
6 is also difficult to assess or ascertain how some of the goals improve or maitain
7 RMP's existing operational performance. Finally, I believe some of the goals are
8 more properly classified as stadard job requirements/duties and therefore should
9 not be considered performance goals tied to incentive compensation payments.
10 Q.
11
12
13
14 A.
CAN YOU PROVIDE SOME EXAMLES OF PERFORMCE
FACTORS CONTAID IN THE GROUP GOALS wmCH DO NOT
GIVE EMPLOYEES THE ABILITY TO ASSESS THEIR
PERFORMACE?
Yes. I have listed below certain performance factors which I believe would not
15 be easily quantifiable for use as a performance measure. These are examples
16 from RM's AlP group goals.
1 7 ~ Customer Focus:
18 . Proactively meets internal or external customer19 expectations by anticipating needs and effectively
20 addressing and resolving problems, issues and concerns. in21 a timely maner.
22 ~ Job Knowledge:
23 . Ensures that all compliance aspects of position are known
24 and followed; understands and complies with all policies,
25 codes and regulations applicable to position and company.
24
Meyer, Di
PacifiCorp Idaho Industrial Customers
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16 Q.
17
18
19 A.
20
21
22
23
~ Planing and Decision Makng:
. Demonstrates high levels of personal accountabilty.
~ Productivity:
. Holds self and others accountable to quality results.
~ Builds Relationships:
. Accepts personal differences and values diversity.
~ Leadership:
. Embraces change and motivates others to achieve goals.
The above list contains performance factors from each of the six group
goals. I believe these performance factors are not quantifable to different levels
of performance. For example, how would a person exceed performance for the
performance factor "Embraces Change and Motivates Others to Achieve Goals"?
These performance factors also lead to subjective evaluation by the manager.
Subjective evaluation of employees for incentive compensation should be
minimized.
CAN YOU PROVIDE SOME EXAMLES OF PERFORMCE
FACTORS WHCH YOU CONTEND SHOULD BE CONSIDERED AS A
JOB DUTY OR REQUIREMENT?
Yes. I have listed below certain performance factors which I believe should be
considered job duties or requirements.
~ Customer Focus:
. Shares inormation with customers to build their
understanding of issues and capabilties.
25
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 ~ Job Knowledge:
2
3
. Keeps up with curent developments and trends in area of
expertise as a par of personal development.
4 ~ Planing and Decision Makng:
5
6
. Not afaid to make decisions and ensure appropriate people
are informed.
7 ~ Productivity:
8
9
. Performs well under pressure and does not create undue
pressure for others; meets deadlines.
10 ~ Builds Relationships:
11
12
. Acts with integrity by demonstrating professional,
coureous, ethical and fair behavior at all times.
13 ~ Leadership:
14
15
. Demonstrates passion; personal commitment and
enthusiasm.
16 The above list contains performance factors from each of the six group
17 goals. I believe these performance factors are more properly classified as job
18 requirements or duties. I canot understand, for example, why an incentive plan
19 needs to incent an employee to "act with integrity by demonstrating professional,
20 coureous, ethical and fair behavior at all times." This performance factor should
21 be a job requirement for all employees working at RM and should not be used as
22 a performance factor for incentive compensation.
26
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3
DO YOU HAVE ANY FUTHER COMMNTS REGARING THE
PERFORMANCE FACTORS CONTAID IN THE six GROUP
GOALS?
4 A.Yes. I would like to point out that I only provided examples of performance
5 factors which could not be quantified or which should be job requirements. I am
6 not suggesting these examples are exhaustive, or that the categories are mutually
7 exclusive.
8 Also, referrg back to Exhibit No. 613, I would argue that many of the
9 performance factors do not have performance metrics associated with them to
10 determine if the operations of RMP are improved or maintained.
11 Q.
12
13
IN YOUR REVIW OF. THE COMPANY'S Al GROUP GOALS DID
YOU FIND ANY GROUP GOALS THAT COULD BE ATTRIBUTABLE
TO THE ATTAINMNT OF SHARHOLDER VALUE?
14 A.Yes. Both the Customer Focus and Productivity performance goals have
15 attributes that are designed to enhance shareholder value.
16 . Customer Focus: Dedicated to meeting the expectations of
17 internal and external customers, co-workers and stakeholders;
18 obtains first-hand information from customers and uses it to
19 improve processes and services; acts with customers in mind;20 establishes and maintain effective relationships with21 customers and gains their respect and trst.
22 . Productivity: Achièves a high level of relevant23 accomplishments for the benefit of the company and its
24 customer. Uses appropriate methods to implement solutions;
25 checks processes and tasks to ensure accuracy and efficiency;
26 initiates action to correct problems or notiies others of quality27 issues as appropriate.
27
Meyer, Di
PacifiCorp Idaho Industrial Customers
1
2
3 Q.
4
5 A.
6
7
8
9
10
11
12
13
14 Q.
15
16 A.
17
18
19
20
21
22
Along with these performance goals, many of the performance factors improve
shareholder value.
ARE YOU REJECTING ALL OF THE PERFORMACE FACTORS
WHCH COMPRISE THE SIX GROUP GOALS?
No. I believe that several of the performance factors which comprise the six
group goals would be good staring points to develop performance standards for
an incentive compensation plan that are understandable, quantifiable and
performance-enhancing.
For example, a performance factor under the Planing. and Decision
Making Goal states, "(u)ses metrics and milestones, and goal reassessment to
measure execution and determine whether correction to plan is needed." I believe
this performance factor could be used to implement several performance criteria
for different deparments in adhering to O&M expense control.
PLEASE SUMMZE YOUR INCENTIVE COMPENSATION
ADJUSTMENT.
I am recommending that 50% of the incentive compensation payments be
removed from cost of service. I have discussed some of the concerns I have with
the six group goals of the AlP. The individual goals are weighted 70% while the
group goals are weighted 30% for the employees' overall evaluation. A 50%
reduction to the incentive plan is a fair and reasonable adjustment to the incentive
compensation expense leveL. I believe this is a conservative recommendation.
Paricularly, considerig the curent economic environment, the Commission may
28
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 wish to eliminate all incentive compensation from the RMP's Idaho revenue
2 requirement.
3 Management Fees
4 Q.
5
PLEASE DESCRffE THE "MAAGEMENT FEE" THAT RM HAS
INCLUDED IN ITS TEST YEAR OPERATING EXPENSES.
6 A.RMP pays an anual "Management Fee" to MidAerican Energy Holdings
7 Company ("MEHC") under an "Intercompany Administrative Services
8 Agreement." The Services Agreement allocates certain of MEHC's costs to its
9 subsidiaries. The Agreement describes "Administrative Services" as including,
10 but not being limited to: services by executive, management, professional,
11 technical and clerical employees; financial services tax and accounting services;
12 use of office facilties; and use of vehicles and equipment.1!
13 In 2009, PacifiCorp booked $8,353,029 above-the-line for MEHC
14 management fees. Before allocating any portion of this to Idaho operations, RMP
15 removed $1,053,029 of this amount pursuant to MEHC Merger Idaho
17
Comnitment No. 28 which caps the amount allowable for the fee at $7.3
milion.~ The Idaho-allocated portion of the resulting $7.3 milion fee is
16
18 $393,635 ($7.3 millon x Idaho so allocation factor).
?J
&
Exhibit No 614 at 4-5 (pacifiCorp's Response to Staff Data Request No. 25, Attchment 2, p. 1 in
Washington Docket No. 00-100749).
Rocky Mountain Power Exhibit No.2, Case No. PAC-E-1O-07, page 4.8.
29
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
ARE YOU RECOMMNDING A DISALLOWANCE OF ANY OF THE
AMOUNT THAT RM DID NOT REMOVE?
Yes. I am recommending that the amount included in Idaho rates be reduced by
4 $11 1,601 to reflect disallowance of costs included in the management fee that are
5 not appropriate for inclusion in Idaho rates. Specifically these costs are: MEHC
6 and MidAerican Energy Company ("MEC") bonuses and legislative costs and
7 contributions. Table 4 sumarizes the adjustment that I am proposing.
8 Q.
9
10
11
12 A.
TABLE 4
Adjustment to Afliate Management Fee
System
Amount
Allocation
Factor3 Idaho Situs
MEHC Bonuses 1
MEC Bonuses1
Legislative/Contributions2
5.392%
5.392%
5.392%
Total to Remove $2,069,661 $111,601
Sources:
IPacifiCorp response to WUC Staff Data Request No. 25, Attchment 1,
(Exhibit No. 614).2PacifiCorp response to Washington Public Counsel Data Request No. 103,
Confidential Attchment (Exhibit No. 615).3Rocky Mountain Power Exhibit No.2, E-PAC-lO-07, Page 4.8.
DOES THE $1 MILION REDUCTION THAT RM MADE IN
COMPLIANCE WITH CASE NO. PAC-E-05-08, ORDER NO. 29973,
FUCTIONALLY REMOVE THE BONUS COSTS MENTIONED
ABOVE?
No. The Commitment to reduce. the management fee established in Commission
13 Docket No. PAC-E-05-08 appears to be designed to limit allowable management
30
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 fees and says nothing of any disallowed amounts covering those types of expenses
2 that should be booked below-the-line or otherwise not charged to RM's Idaho
3 customers.2! Moreover, the total amount of inappropriate costs well exceeds the
4 $ 1 milion removed for compliance with Idaho Commitment No. 28. Therefore,
5 the $7.3 milion limitation should be considered before inappropriate costs are
6 removed.
7 Q.
8
9 A.
10
11
12
13
14
15
16
17 Q.
18
19 A.
20
21
is THERE SUPPORT FOR YOUR RECOMMNDATION IN RMP'S
OWN ADMIISTRATIVE SERVICES AGREEMENT WITH MEHC?
Yes. According to the terms of the Services Agreement, the Company must bear
those costs that are inappropriate for recovery in each state where it operates.
Aricle 4(a)(iii) of the Agreement states:
It is the responsibilty of rate-regulated Recipient Paries to this
Agreement (i.e., PacitiCorp) to ensure that costs which would have
been denied recovery in rates had such costs been directly
incurred by the regulated operation are appropriatellc identifed
and segregated in the books of the regulated operation...
PLEASE EXPLAIN THE DISALLOWANCE
RECOMMNDING FOR MEC AN MEHC BONUSES.
ARYOU
RMP has included in Idaho rates _ for anual bonuses paid to MEC and
MEHC executives.il I am recommending disallowance of this entire amount
because, after a review of page 125 of PacifiCorp's Form lO-K, it appears that
'¥
1Q
Re 2008 Idaho General Rate Case, IPUC Case No. PAC-E-05-08, Order No. 29973 at 17.
Exhibit No. 614 at 5-6 (pacifiCorp's Response to Staf Data Request No. 25, Attachment 2, p. 3)
(emphasis added) in Washington Docket No. UE-100749).
See Id. at 2-3 (pacifiCorp's Response to Staff Data Request No. 25, Attachment 1 in Washington
Docket No. UE- 100749).
1l
31
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 these bonuses are tied to performance of PacifiCorp' s parent company and
2 therefore not closely aligned to customer-related performance at the utilty leveL.
3 Unlike incentive compensation at the utilty-company level, MEHC and
4 MEC performance naturally relates more to financial success of the parent
5 corporation, the focus of which is on the financial performance of subsidiaries.
6 MEHC's Form lO-K, page 144, states that the objective of anual bonus awards is
7 to "reward the achievement of significant anual corporate goals." The anual
8 bonuses are given on a subjective basis, but are based on defined objectives that
9 "commonly include financial and non-financial goals." MEHC's 10-K, on
10 page 143, states that the anual incentive awards are par of an overall
11 compensation philosophy meant to "create significant value for (MEHC)."
12 Q.
13
14 A.
WH ARE YOU RECOMMNDING DISALLOWANCE OF
LEGISLATIVE/CONTRIBUTION COSTS?
I believe costs associated with lobbying or influencing legislation should be
15 prohibited from recovery though rates. PacifiCorp's response to Public Counsel
16 Data Request No. 103 in WUTC Docket No. UE-100749 (Exhibit No. 615) shows
17 that the Company has included on a system-basis _ for "Legislative
18 (includes contributions)." This amount does not appear to include regulatory
19 costs, as there are separate "Regulatory" and "Regulation" cost categories. The
20 Idaho-allocated portion of legislative costs is _, which I have removed
21 completely.
32
Meyer,Di
PacifiCorp Idaho Industrial Customers
1 Outside Services
2 Q.
3
4 A.
DID RMP INCLUDE EXPENSES FOR OUTSIDE SERVICES IN ITS
COST OF SERVICE?
Yes. RM has included the test year level (2009) of outside services expense in
5 its cost of service.
6 Q.
7
8 A.
9 Q.
10
11 A.
DO YOU AGREE WITH THE AMOUNT RM HAS IN.CLUDED IN ITS
COST OF SERVICE?
No, I do not. I believe the test year level proposed by RM is too high.
COULD YOU PROVIDE SOME EXAMLES OF OUTSIDE SERVICES
EXPENSE?
Yes. Outside services expense would include expenses for outside legal
12 expenses, engineering analysis, and other services.
13 Q.
14
15 A.
PLEASE PROVIDE THE mSTORICAL LEVELS OF EXPENSE RM
HAS RECOVERED FOR OUTSIDE SERVICES EXPENSE.
Listed below in Table 5 are the levels of outside services expense assigned to
16 RMP's Idaho operations.
TABLES
Outside Services
Expense by Year
Year Amount
2006
2007
2008
2009
$1,067,814
$ 580,987
$ 670,661
$1,209,260
$ 882,181Four-Year Average
33
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 As can be seen from the above table, the level of expense incured in 2009 is the
2 highest level of expense recorded by RM since 2006.
3 Q.
4
5 A.
WHT LEVEL OF EXPENSE DO YOU RECOMMND FOR OUTSIDE
SERVICES?
I recommend a level of expense for outside services based on a four-year average
6 of the expenses listed above. I believe a four-year average is the more reasonable
7 level of expense. A four-year average of outside services expense would reduce
8 RMP's Idaho cost of service by $327,080.
9 Generation Overhaul Expense
10 Q.
11
12 A.
DID RM PROPOSE TO ADJUST GENERATION OVERHUL
EXPENSES IN ITS COST OF SERVICE?
Yes. RMP proposed to decrease generation overhaul expense by $114,184 from
13 the test year leveL. RMP's adjustment normalizes generation overhaul expenses
14 using a four-year average methodology;
15 Q.
16
17 A.
DO YOU AGREE WITH THE METHODOLOGY RM USED TO
NORMIZE TmS EXPENSE?
No. I am in disagreement with RMP on this adjustment. based on two points.
18 First, I do not agree that these expenses should be escalated for ination in
19 calculating this adjustment. Second, I disagree with RM's assumption used to
20 normalize expenses associated with new generation overhaul expenses. I am
21 proposing that RMP's adjustment to decrease generation overhaul expense by
34
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 $114,184 does not go far enough. The generation overhaul expense should be
2 fuer reduced by $134,918 on an Idaho basis.
3 Q.
4
PLEASE DESCRIBE RM'S ESCALATION OF GENERATION
OVERHAUL EXPENSES.
5 A.RMP segregated the historical generation overhaul between Plants-Steam and
6 Plants-Other. For Plants-Steam, RM calculated an average where each year
7 prior to 2009 was escalated to 2009 dollars. RMP then compared this infation
8 adjusted average to the per book expense level for generation overhaul related to
9 Plants-Steam.
10 For Plants-Other, RMP calculated a historical inflation adjusted average
11 for existing generation. For new facilties in Plants~Other, the Company used an
12 infation escalated average, but included some years of cost projections.
13 Summing the averages for both existing and new generation, RM developed an
14 anualized level of generation overhaul expense.
15 Q.WHAT LEVEL OF EXPENSE HAS RMP RECORDED FOR
16 GENERATION OVERHAUL EXPENSE FOR THE YEARS 2oo6-2009?
17 A.Table 6 shows the recorded expenses for generation overhaul expenses for RM.
35
Meyer, Di
PacifiCorp Idaho Industrial Customers
TABLE 6
Historica Analysis of Generation
Overhaul Expenses for Existing Generation
Steam Other
Year Generation Generation Tota
2006 $29,613,264 $2,940,000 $32,553,264
2007 $28,560,541 $2,860,000 $31,420,541
2008 $20,030,017 $1,725,000 $21,755,017
2009 $25,392,474 $2,552,000 $27,944,474
1 As can be seen from the table above, the level of actual generation
2 overhaul expenses over the historical period shows there are fluctuations from one
3 year to another, both upwards and downwards. The absence of an escalation
4 factor has not caused these fluctuations.
5 Q.
6
WH ARE YOU OPPOSED TO ESCALATING THE mSTORIC
GENERATION OVERHAUL EXPENSES?
7 A.The historic expenses recorded by RM vary by year, thus, indicating that past
8 expenses do not need to be escalated to present dollars.
9 Q.
10
11
AR YOU AWAR OF ANY STATEMENTS MAE BY RM wmCH
WOULD ALSO LEAD ONE TO BELIEVE THAT AN ESCALATION
FACTOR SHOULD NOT BE USED FOR THESE EXPENSES?
12 A.Yes. In response to PUC Data Request No. 63, RMP made the following
13 statement:
14 No other ination rates or escalation factors were used to estimate15 test year cost levels.
36
Meyer, Di
PacifiCorp Idaho. Industrial Customers
1
2
3 Q.
4
5 A.
6
7
8
9
10
11
12
13 Q.
14 A.
15
I therefore recommend that the generation overhaul expense adjustment be
recalculated without the use of an escalation factor.
DO YOU HAVE CONCERNS WITH THE METHODOLOGY RM USED
TO ESTIMATE NEW PLANT GENERATION OVERHAUL EXPENSES?
Yes, I do. RMP developed four years of expenses for each new power plant by
estimating generation overhaul expenses for certain plants to be incured though
calendar year 2012. This methodology produced a level of expense of
$3,808,000. I believe this methodology overstates the generation overhaul
expenses. I recommend that the new plant generation overhaul expenses be
developed using the four-year average of expenses incurred for those plants from
2007-2010 (estimated expenses). Using my recommended methodology produces
an anual level of expense of $2,837,000 on an Idaho basis.
DO YOU FEEL THE LEVEL YOU HAVE PROPOSED IS REASONABLE?
Yes, I do. RMP has estimated what its generation overhaul expenses wil be for
these new plants for 2010-2012. I have listed in Table 7 these expense levels.
TABLE 7
Estimated New Plant
Generation Overhaul Expenses
Year AJount
2010 $ 232,000
2011 $2,579,000
2012 $1,898,000
37
Meyer, Di
PacifiCorp Idaho Industrial Customers
1
2
3
4 Q.
5 A.
6
7
8
9
10
11
12
13
14
15
16
As can be seen from the above table, the level I have recommended of
$2,837,000 is more than adequate to provide generation overhaul expenses for
these new plants.
PLEASE SUMARZE YOUR POSITION.
I recommend that the escalation factor for generation overhaul expenses be
eliminated from RMP's adjustment. The history of this expense does not reveal
that these expenses need to be escalated. Furermore, RM states that no
expenses should be escalated.
I also recommend that the new plant generation overhaul expense level be
set at $2,837,000. RMP's proposed level of $3,808,000 is excessive and wil not
be incured by RM prior to 2013. If the Commission feels that the level of new
plant generation overhaul expense I have proposed is also excessive, then I would
suggest that the level of expense for 2011 as estimated by RM be used
($2,579,000).
RM's cost of service should be reduced by $134,918 on an Idaho
jursdictional basis as a result of my recommended adjustments to generation
17 overhaul expenses.
18 Un collectibles
19 Q.
20
21 A.
HAS RMP INCLUDED UNCOLLECTIBLE EXPENSE IN THEIR COST
OF SERVICE?
Yes. RMP is requesting that cost of service include the level of uncollectibles
22 recorded in the test year (2009) of $472,263.
38
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2
3 A.
DO YOU AGREE WITH THE AMOUNT RM PROPOSES TO INCLUDE
IN THE COST OF SERVICE?
No, I do not. I believe that the level proposed by RMP is too high.
4 Q.
5
6 A.
WHAT LEVEL DO YOU PROPOSE BE INCLUDED IN COST OF
SERVICE FOR UNCOLLECTIBLES?
I am recommending that a four-year average of uncollectibles be included in the
7 cost of service. Listed in Table 8 are the levels of uncollectibles and anual rate
8 revenues recorded by RMP for each calendar year from 2006-2009.
TABLES
Uncollectible Expense By Year
Year Amount Revenues
2006 $529,196 $140,250,947
2007 $308,510 $182,699;838
2008 $303,856 $197,505,456
2009 $472,263 $184,995,386
9 As can be seen from the above table RM is proposing the highest level of
10 uncollectible expense that has been experienced by RM since 2006. The table
11 also reveals that the level of revenue does not dictate the level of uncollectibles.
12 For example, in 2008 the revenues were the highest, yet the uncollectibles were
13 not the highest in that year. I believe a four-year average is the more reasonable
14 adjustment for this expense. A four-year average of the uncollectibles expense
15 would reduce the Company's Idaho cost of service by $68,807.
39
Meyer, Di
PacifiCorp Idaho Industrial Customers
1 Q.
2 A.
DOES TmS CONCLUDE YOUR DIRECT TESTIMONY?
Yes, it does.
40
Meyer, Di
PacifiCorp Idaho Industrial Customers
Case. No. PAC-E-10-07
Exhibit No. 610
Witness: Greg R. Meyer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
PACIFICORP IDAHO INUSTRIAL CUSTOMERS
Exhibit Accompanying Direct Testimony of Greg R. Meyer
Qualifications of Greg R. Meyer
October 14, 2010
Q
2 A
3
4 Q
5 A
6
7
8 Q
9
10 A
11
12
13
14
15
16
17
18
19
20
21
22
PacifiCorp Idaho Industrial Consumers
Exhibit No. 610 Page 1 of2
Witness: Greg R. Meyer
Qualifications of Greg R. Meyer
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
Greg R. Meyer. My business address is 16690 Swingley Ridge Road, Suite 140,
Chesterfield, MO 63017.
PLEASE STATE YOUR OCCUPATION.
I am a Senior Consultant in the field of public utilty regulation with the firm of
Brubaker & Associates, Inc. ("BAI"), energy, economic and regulatory
consultants.
PLEASE SUMMARIZE YOUR EDUCATIONAL BACKGROUND AND
EXPERIENCE.
I graduated from the University of Missouri in 1979 with a Bachelor of Science
Degree in Business Administration, with a major in Accounting. Subsequent to
graduation I was employed by the Missouri Public Service Commission. I was
employed with the Commission from July 1, 1979 unti May 31,2008.
I began my employment at the Missouri Public Service Commission as a
Junior Auditor. During my employment at the Commission, I was promoted to
higher auditing classifications. My final position at the Commission was an
Auditor V, which I held for approximately ten years.
As an Auditor V, I conducted audits and examinations of the accounts,
books, records and reports of jurisdictional utilties. I also aided in the planning of
audits and investigations, including staffng decisions, and in the development of
staff positions in which the Auditing Department was assigned. I served as Lead
Auditor and/or Case Supervisor as assigned. I assisted in the technical training of
PacifiCorp Idaho Industrial Consumers
Exhibit No. 610 Page 2 of2
Witness: Greg R. Meyer
other auditors, which included the preparation of auditors' workpapers, oral and
2 written testimony.
3 During my career at the Missouri Public Service Commission, I presented
4 testimony in nine electric rate cases, nine gas rate cases, seven telephone rate
5 cases and several water and sewer rate cases. In addition, I was involved in cases
6 regarding service territory transfers. In the context of those cases listed above, I
7 presented testimony on all conventional ratemaking principles related to a utilty's
8 revenue requirement. During the last three year of my employment with the
9 Commission, I was involved in developing transmission policy for the Southwest
10 Power Pool as a member of the Cost Allocation Working Group.
11 In June of 2008, I joined the firm of Brubaker & Associates, Inc. as a
12 Consultant. The firm Brubaker & Associates, Inc. provides consulting services in
13 the field of energy procurement and public utilty regulation to many clients
14 including industrial and institutional customers, some utilties and, on occasion,
15 state regulatory agencies.
16 More specifically, we provide analysis of energy procurement options
17 based on consideration of prices and reliabilty as related to the ,needs of the
18 client; prepare rate, feasibilty, economic, and cost of service studies relating to
19 energy and utilty services; prepare depreciation and feasibilty studies relating to
20 utilty service; assist in contract negotiations for utility services, and provide
21 technical support to legislative activities.
22 In addition to our main office in St. Louis, the firm has branch offices in
23 Phoenix, Arizona and Corpus Christi, Texas.
Case. No. PAC-E-I0-07
Exhibit No. 611
Witness: Greg R. Meyer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
PACIFICORP IDAHO INDUSTRIL CUSTOMERS
Exhibit Accompanying Direct Testimony of Greg R. Meyer
AmerenUE Rate Base Schedule
Test Year Ending 3/31/08
October 14, 2010
AmerenUE
Case No. ER-2008-o318
Ameren Corp
Test Year Ending 03-31-2008
RATE BASE SCHEDULE
PacifiCorp Idao Industrial Customers
Exhibit No. 61l Page i OF 4
Witness: Grg R. Meyer
1 Plant In Service $12,079,857,343
2 Less Accumulated Depreciation Reserve $5,223,796,832
3 Net Plant In Service $6,856,060,511
4 ADD TO NET PLANT IN SERVICE
5 Cash Working Capital -$44,349,554
6 Prepayments $7,375,656
7 Materials & Supplies $151,254,612
8 Fuel Inventories $173,137,005
9 Net Cost of Removal Reg. Asset $0
10 TOTAL ADD TO NET PLANT IN SERVICE $287,417,719
11 SUBTRACT FROM NET PLANT
12 Federal Tax Offet 10.9151%$18,559,354
13 State Tax Ofet 28.3205%$7,567,121
14 City Tax Offet 61.7342%$205,798
15 Interest Expense Offet 15.6384%$23,990,512
16 Customer Deposits $14,942,116
17 Customer Advances for Construction $2,842,350
18 Pension Tracker Liabilty $11,401,861
19 OPEB Tracker Liabilty $19,902,608
20 Deferred Taxes $1,257,279,860
21 Reserved $0
22 Reserved $0
23 TOTAL SUBTRACT FROM NET PLANT $1,356,691,580
Accounting Schedule: 2
Sponsor: Erin Carle
Page: 1 of 1
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Case. No. PAC-E-lO-07
Exhibit No. 612
Witness: Greg R. Meyer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
PACIFICORP IDAHO INDUSTRI CUSTOMERS
Exhibit Accompanying Direct Testimony of Greg R. Meyer
AmerenUE Missouri Jurisdictional Original Cost Rate Base
For the 12 Months Ended 3/31/09
October 14,2010
PacifiCorp Idaho Industrial Customers
Exhibit 612 Page 1 of 3
Witness: Greg R. Meyer
AmerenUE
MISSOURI JURISDICTIONAL ORIGINAL COST RATE BASE AND COST OF SERVICE
FOR THE TWELVE MONTHS ENDED MARCH 31,2009 WITH TRUE-UP THROUGH FEBRUARY 28,2010
($000)
LINE DESCRIPTION
(A)
REFERENCE
(B)
MISSOURI
JURISDICTIONAL
AMOUNT
(C)
A. Original Cost Rate Base
1 Original Cost of Plant In Service
2 Less: Reserves for Depreciation
3 Net Original Cost of Plant
4 Materials and Supplies
5 Averaae Preoavments
6 Cash Working Capital
7 Interest Expense Cash Requirement
8 Federal Income Tax Cash Requirement
9 State Income Tax Cash Requirement
10 Citv Eaminas Tax Cash Reauirement
11 Average Customer Advances for Construction
12 Average Customer Deposits
13 Accumulated Deferred Taxes on Income
14 Pension Tracker Reg Liabilty
15 OPEB Tracker Reg Liabilty
16 Total Original Cost Rate Base
SCHEDULE GSW-E1-2
SCHEDULE GSW-E2-2
$12,617,264
5,527,036
7,090,229
366,866
10015
9,677
(27,242)
(496)
(78)
(211)
(2,814)
(15,641)
(1,396,803)
(4,251)
(27,806)
6,001,444
SCHEDULE GSW-E3-2
SCHEDULE GSW-E4-2
SCHEDULE GSW-E5
SCHEDULE GSW-E6
SCHEDULE GSW-E6
SCHEDULE GSW-E6
SCHEDULE GSW-E6
SCHEDULE GSW-E7
SCHEDULE GSW-E7
SCHEDULE GSW-E8
SCHEDULE GSW-E9
SCHEDULE GSW-E9
$
B. Revenue Requirement
Operating Expenses:
17 Production
18 Transmission
19 Regional Market Expenses
20 Distribution
21 Customer Accounts
22 Customer Service
23 Sales
24 Administrative and General
25 Total Operating Expenses
26 Depreciation and Amortization
27 Taxes Other than Income Taxes
Income Taxes-Based on Proposed Rate of Return
28 Federal29 State
30 City Earnings
31 Total Income Taxes
Deferred Income Taxes
32 Deferred Income Tax Expense
33 LT.C. Amortization
34 Total Deferred Income Taxes
36 Total Revenue Requirement
SCHEDULE GSW-E11-5 $1,200,541
SCHEDULE GSW-E11-5 40,522
SCHEDULE GSW-E11-5 8,535
SCHEDULE GSW-E11-5 204,335
SCHEDULE GSW-E11-5 56,887
SCHEDULE GSW-E11-5 11,020
SCHEDULE GSW-E11-5 1,195
SCHEDULE GSW-E11-5 271,713
1,794,748
SCHEDULE GSW-E12-3 376,408
SCHEDULE GSW-E13-3 130,950
SCHEDULE GSW-E14 170,952
SCHEDULE GSW-E14 26,864
SCHEDULE GSW-E14 324
198,140
SCHEDULE GSW-E14 (1,898)
SCHEDULE GSW-E14 (4,683)
(6,581)
8.577%514,744
$3,008,409
35 Return (Rate base. 8.577%)
SCHEDULE GSW-E18
SCHEDULE GSW-E5
LINE
PacifiCorp Idaho Industrial Customers
Exhibit 612 Page 3 of 3
Witness: Greg R. Meyer
AmerenUE
INTEREST EXPENSE CASH REQUIREMENT AND
FEDERAL AND STATE INCOME TAX AND CITY EARNINGS TAX CASH REQUIREMENTS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2009 WITH TRUE-UP THROUGH FEBRUARY 28, 2010
($000)
DESCRIPTION
(A)
1
2
INTEREST EXPENSE CASH REQUIREMENT
MISSOURI JURISDICTIONAL INTEREST ON lONG-TERM DEBT
fACTOR PER DIRECT TESTIMONY OF MICHAEL J. ADAMS
INTEREST EXPENSE CASH REQUIREMENT3
4
5
FEDERAL INCOME TAX CASH REQUIREMENT
MISSOURI JURISDICTIONAL CURRENT FEDERAL INCOME TAXES
FACTOR PER DIRECT TESTIMONY OF MICHAEL J. ADAMS
6 FEDERAL INCOME TAX CASH REQUIREMENT
7
8
STATE INCOME TAX CASH REQUIREMENT
MISSOURI JURISDICTIONAL STATE INCOME TAXES
FACTOR PER DIRECT TESTIMONY OF MICHAEL J. ADAMS
9 STATE INCOME TAX CASH REQUIREMENT
10
11
CITY EARNINGS TAX CASH REQUIREMENT
MISSOURI JURISDICTIONAL CITY EARNINGS TAX
FACTOR PER DIRECT TESTIMONY OF MICHAEL J. ADAMS
12 CITY EARNINGS TAX CASH REQUIREMENT
MISSOURI
JURISDICTIONAL
(B)
$182,684
-14.91%
$(27,242)
$170,951
-0.29%
$(496)
$26,864
-0.29%
(78)$
$324
-64.98%
(211)$
SCHEDULE GSW-E6
i
Case. No. PAC-E-l 0-07
Exhibit No. 613
Witness: Greg R. Meyer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
PACIFICORP IDAHO INDUSTRIAL CUSTOMERS
Exhibit Accompanying Direct Testimony of Greg R. Meyer
Performance Factors
October 14,2010
PacifiCorp Idaho Industrial Customers
Exhibit 613 Page 1 of 2
Witness: Greg R. Meyer
Performance Factors
. Customer Focus: Dedicated to meeting the expectations of internal and external
customers, co-workers and stakeholders; obtains first-hand information from customers
and uses it to improve processes and services; acts with customers in mind; establishes
and maintains effective relationships with customers and gains their respect and trust.
. Proactively meets internal or external customer expectations by anticipating needs
and effectively addressing and resolving problems, issues and concerns in a
timely manner
. Develops and sustains productive customer relationships through appropriate
communications
. Shares information with customers to build their understanding of issues and
capabilties
Job Knowledge: Puts knowledge, understanding and skils to practical use on the job;
demonstrates an understanding of key policies, compliance, skils and procedures in
functional and related areas of work.
. Achieves a satisfactory level of skil and knowledge in position-related areas;
demonstrates abilty to learn new skils
. Ensures that all compliance aspects of position are known and followed;
understands and complies with all policies, codes and regulations applicable to
position and company
. Keeps up with current developments and trends in area of expertise as a part of
personal development
. Generates solutions in work situations; utilzes a variety of resources and tools
. Demonstrates clear communication in written and verbal formats
Planning and Decision Making: Identifies and understands issues, problems and
opportunities, demonstrates sound judgment while utilzing plan, execute, measure and
correct process.
. Develops plans using a disciplined planning approach taking into account a
variety of creative alternatives for choosing a recommended course of action with
a clearly defined desired outcome, risks, identification of key assumptions, cost
benefit analysis, milestones and metrics; properly identifies all stakeholders
. Executes in accordance with the plan by taking action that is timely and consistent
with available facts, constraints and probable consequences
. Uses metrics and milestones, and goal reassessment to measure execution and
determine whether correction to plan is needed
. Makes timely and thoughtful corrections to the plan when appropriate; takes
responsibilty for results; properly reports the plan's progress or corrections to the
appropriate individuals
. Not afraid to make decisions and ensure appropriate people are informed
. Makes sound, logical, business decisions; shows good judgment in prioritizing
work
. Demonstrates high levels of personal accountabiliy
1
PacifiCorp Idaho Industrial Customers
Exhibit 613 Page 2 of 2
Witness: Greg R. Meyer
Productivity: Achieves a high level of relevant accomplishments for the benefit ofthe
company and its customers. Uses appropriate methods to implement solutions; checks
processes and tasks to ensure accuracy and efficiency; initiates action to correct problems
or notifies others of quality issues as appropriate.
. Takes initiative by generating new approaches to continuously improve effciency
and quality in every aspect of work
. Performs well under pressure and does not create undue pressure for others; meets
deadlines
. Ensures job processes, tasks and work products are free from errors, omissions or
defects
. Work products are professional and clearly reflect a high level of attention to
detail
. Holds self and others accountable to quality results
. Focuses on the desired outcomes and produces results
Builds Relationships: Identifies opportunities and takes action to develop strategic
relationships across the organization and externally. Relates well to all people and builds
constructive and effective relationships for the improvement ofthe organization as a
whole.
. Adapts interpersonal style to accommodate tasks, situations and individuals
involved
. Effectively exchanges ideas and information with others
. Accepts personal differences and values diversity
. Acts with integrity by demonstrating professional, courteous, ethical and fair
behavior at all times
. Promotes cooperation by sharing information, encouraging contributions
. Open to constrctive feedback and provides it to others
*Leadership: Keeps the organization's vision and values at the forefront of decision-
making and actions; demonstrates ability to guide individuals towards goal achievement
by setting clear expectations, providing feedback and coaching.
. Demonstrates passion; personal commitment and enthusiasm
. Embraces change and motivates others to achieve goals
. Enlists the active participation of appropriate resources to accomplish goals
. Inspires employees to perform to their maximum potential
. Provides opportunities for growt and development through delegation and
succession planning
. Provides candid and timely performance feedback
. Clearly communicates expectations to teams and individuals; sets an example to
others
*Supervisor determines if performance factor is applicable to employee's position.
2
Case. No. PAC-E-I0-07
Exhibit No. 614
Witness: Greg R. Meyer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
PACIFICORP IDAHO INDUSTRIL CUSTOMERS
Exhibit Accompanying Direct Testimony of Greg R. Meyer
PacifCorp's Response to WUTC Data Request 25
REDACTED VERSION
October 14, 2010
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 1 of 12
Witness: Greg R. Meyer
UE-100749/PacifCorp
July 8,2010
WUC Data Request 25
WUTC Data Request 25
Re: Exhibit No. _ (RD-3), Adjustment 4.5 - Mfiiate management Fee
Please explain the components of, and provide the calculation of, the MEHC
Management Fee of$8,353,029booked in 2009. Does PacifCorp expect ths fee
to be of a simlar magnitude in upcomig years?
Response to WUTC Data Request 25
Please refer to Attchment WUTC 25-1 for the components of the MEHC
Mangement Fee of $8,35~,029. Pleae refer to Atthment WUTC 25-2 for the
Intercompany Admstrative Servce Agreement (lSA) agreement. The IASA
addresses the afi1iate management fee between PacifiCorp and its afilates.
Under the IASA, management fees are charged on the'followig basis:
1.) Direct charges: The costs are directly assigned. The par receiving the
benefit will be chaged for the operating cost incured by the par providing
the services, includig, but not lited to, alocable salar and wages, paid
absences, payroll taes, payroll additives (inurance premium, heath care,
retiement benefits, etc.), diect non-labor costs and reimbursements of out-of-
pocket thd par costs and expenses such as travel and traing.
2.) Indirect charges: Costs incured for the general benefit of the receiving
group for which direct chargig and servce charges are not practical. An
allocation methodology has been estalished and used consistently from year
to year.
3.) Service charges: Costs that are impractical to charge directly, but for which a
cost/enefit relationship can be reasonably identified. A practica allocation
method has been established by the providing par that allocates the cost of
this service equitably and consistently 10 tle recipient par.
In the filing, Adjustment 4.5 of Exhibit No_(RBD-3) reduces the $8,353,209
expense booked to the allowed $7.3 millon in accordance with MEHC
transaction commtment WA 4. Ths commtment expires December 31, 2010.
The Company wil continue to effectvely maage the management fee chages
and will strve to keep any growt in charges at reasonable levels, aligned with
infationary assumptions and projected new operationa support requirements.
PREP ARR: R. Bryce Dalley
SPONSOR: R. Bryce Dalley
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 2 of 12
Witness: Greg R. Meyer
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PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 3 of 12
Witness: Greg R. Meyer
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PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 4 of12
Witness: Greg R. Meyer
, WA UE-100749
WUTC25 Attachment WUTC 25 -2
INTRCOMPANY ADMINIATIE SERVICES AGREEMENT
BETEN
MIDAMERICAN ENERGY HOLDINGS COMPAN
AND
ITS SUBSIDIARIES
This Intercmpany Administrative Services Agreement ('Agreemenl) is entered into as of March 31, 2006
by and between MidAmrin Energy Holdings Company (hereinafter the 'Companyj and it direct and
indirect subsidiaries (hereinafter the 'Subsidiaries') (each a 'Part and together the "Partes').
WHEREA, the Company provides senior management, executive oversight and other administrative
services that provide value to and benefi the Subsidiaries as entiies in the consolidated group;
WHEREA, the Subsidiaries have access to professional, technical and other specialized reSources thaI
the Company may wish to utirlZe from time to tim in the provision of such administrative services; and
WHEREA, the Company and Subsidiaries may desire to utilize the professional, technical and other
specialized resurces of certain Subsidiaries;
NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, the
Company and Subsidiaries agree as follows:
ARTICLE 1. PROVISION OF ADMINISTRATIVE SERVICES
Upon and subjecl to the terms of this Agreement, services wDI be provided between and among the
Company and ks Subsidiaries that are not directl applicable to the production, distribution or sale of a
product or service availble to customers of the Company or as subsidiaries ("Administrative Servces").
For purposes ofthis Agreement, Administratie Services shall include, but not be limned to the following:
a) services by execute, management, professional, technical and clericl employees;
b) financial services, payroll processing services, employee benefis participation. supply chain and
purchase order processing services, ta and accounting services, contract negotiation and
administration services, risk management services, environmental services and engineering and
technical services;
c) the use of offce faciinies, including but not limited to offce space, conference rooms, fumkure,
equipmen~ machinery, supplies, computers and computer softare, insurance policies and other
personal propert;
d) the use of automobiles, airplanes, other vehicles and equipment;
Attach WUTC 25 -2.pdt Page 1 at9
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page Sof12
Witness: Greg R. Meyer
WA UE-100749
WUC25 Attachment WUTC 25 -2
To obtain specialized expertise or to achieve effciencies, the following situations may arise under this
Agreement whereby Administratie Services may be provided between and among the Company and it
Subsidiaries:
a) The Company may directly assign or allote common costs to the Subsidiaries,
b) The Company may procure Admiistratie Services from the Subsidiaries for it own benefi,
c) The Company may procure Administrative Services from the Subsidiaries for subsequent
allocation to some or all Subsidiaries commnly benefing, or
d) The Subsidiaries may procure Administrative Services from each other.
ARCLE 2. DEFINmONS
For purposes of this Agreem~nt these terms shall be defined as fonows:
(a) "lws. shall mean any law, staMe, rule, regulatin or ordinance.
(b) "State Commisions. shall mean any state public utiit commission or state public service
commision with jurisdiction over a rate-regulated Part. .
(c) "Subsidiaries. shall mean current and Mure direct and indirect majori-owned subsidiaries ofthe
Company.
ARTICLE 3. EFFCTIVE DATE
This Agreement shal be effectie as ofthe date set fort abe; proved, however, that in the junsdicions in
which regulatoiy approval is required before the Ageement becomes effe, the effectie date shall be as ofthe date of such approval .
ARTICLE 4. CHARGES AND PAYMENT
(a) CHARGES.
Partes shall charge for Administrative Services on the following basis:
(i) Direct Charges: The Part receiving the benefi of Administrative Services ("Recipient Part") wil
be charged for the operating costs incurred by the Part providing the Administratie Services
("Providing Part), including, but not limited to, allocable salaiy and wages, incenties, paid
absences, payroll taxes, payroll addftives (insurance premiums, healt care and retirement
benefit and the like), direct non-labor costs, if any, and similar expenses, and reimbursement of
out-of-pocket third part costs and expenses.
(I Service Charges: Costs that are impractical to charge directly but for which a cotlenefi
relationship can be reasonably identifed. A practical allocation method wil be established by
Providing Part that ållocates the cost of this service equitably and consistentl to the Recipient
Part. !my changes in the methodOlogy wil be communicated in wnting to rate-regulated
subsidiaies at least 180 days before the implementation of the change.
(iii Allocations: Costs incurred for the general benefi of the entire corporate group for which direct
charging ånd service charges are not practicL. An allocation methodology will be estabßshed
and used cons.istently from year to year. Any changes to the methodology wil be communicated
Page 2
Attach WUTC 25 -2.pdf Page 2 af9
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 6 of 12
Witness: Greg R. Meyer
WA UE-100749
WUTC25 Attchment WUTC 25 -2
in writing to rate-regulated subsidiaries at least 180 days before the implementation of the
change.
The charges constiute full compensation to the Providing Part for all charges, costs and expenses
incurred by the Providing Part on behalf of the Recipient Part in providing the Administrative Services,
unless otherwise specifially agreed to in wriing between the Partes.
If events or circumstances arise which, in the opinion of the Parties, render the costs of providing any
Administratie Services materiaDy different from those charged under a specilc rate or formula then in
effect, the specifc rate or formulas shall be equitably adjusted to take into account such events or changed
circumstances.
Providing Parties wUl bil each and all Recipient Partes, as appropriate, for Administrtie Services
rendered under this Agreement in as specifc a maner as practicable. To the extent that direct charging
for services rendere is not practcable, the Providing Part may utifize allocation methodlogies to assign
charges for saivces rendered to the Recipient Part, reflective of the driers of such cots. Such
allocation methodoloies may utUize allocation bases that include, but are not limited to: employee labor,
employee counts, assets, and mun¡-factor allocation formulae.
Any cost allocation methodology for the assignment of corporate and affliate costs wil comply wit the
following priciples:
~ For Administatie Services rendered to a rate-regulated subsldiaiy of the Company or each
cost categoiy subject to alloation to rate-regulated subsidiaries by the Company, the
Company must be able to demonstrate thtsuch service or cost categoiy is reasonable for the
rate-regulated subsidiaiy for the perfrmance of it regulated operatins, is not duplicative of
Administrtive Services already being perfrmed witin the rate-regulated subsidiaiy, and is
reasonable and prudent.
i~ The Company and Providing Parties will have in place posftive lie reporting systems
adequate to support the allocation and assignment of costs of executives and other relevant
personnel to Recipient Partie.
iü) Partes must maintain records suffcient to specifically Identify costs subject to allocation,
particularly wit respect to their origin. In addftion, the records must be adequately supported
in a manner suffcient to JUstify recovery of the costs in rates of rate-regulated subsidiaries.
Iv) It is the responsibilil of rate-regulated Recipient Pares to this Agreement to ensure that costs
which would have been denied recoeiy in rates had such costs been direct~ incurred by the
regulated operation are appropriately identified and segregated in the books of the regulated
operation.
(b) PAYMENT.
(i Each Providing Part shall bil the Recipient Part monthly for all charges pursuant to
this Agreement via bilings to the Company. The Company, in its capacil as a clearinghouse for
Page 3
Attach WUTC 25 -2.pdf Page 3 of9
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 70f12
Witness: Greg R. Meyer
WA UE-100749
WUTC25 Attchment WUTC 25 -2
intercompany charges within the Company shall aggregate all charges and bil all Recipient Partes in a
single bil. Full payment to or by the Company for all Administrative Services shall be made by the end of
the calendar month following. the intercompany charge. Charges shaH be supported by reasonable
documentatin, which may be maintained in electronic form.
(it) The Parties shall make adjustments to charges as required to reflec the discovery of
errrs or omissions or changes in the charges. The Parties shall conduct a true-up process at least
quarterly and more frequently if necessary to adjust charges based on recncßiation of amounts charged
an costs incurred. It is the intent of the Parties that such true-up proces will be conducted using
substantially the same process, procedures and methods of review as have been in efft prior to
executon ofthis Agreement by the Parties.
ARTICLE 5. GENERAL OBLIGATIONS; STANDARD OF CARE
Rate-regulated Parties wUl comply with all appficale State and Federal Laws regarding affliated interest
transactions, including timely filing of applications and reports. The Partes agree not to cross-subsidize
between the rate-regulated and non-rate-regulate businesses or between any rate-regulated busineses,
and shall comply with any applicable State Commission Laws and orders. Subjec to the term of this
Agreement, the Parties shall perrm their obligations hereunder in a commercially reasnable manner.
ARTICLE 6. TAXES
Each Part shaH bear all taxes, duties and other simla charges except taxes based upon it gross income
(and any related Interes and penaltes), imposed as a resuft of its receip of Administrative Services under
this Agreement, including without limittion sales, use, and value-added taes.
ARTICLE 7. ACCOUNTING AND AUDITING
Providing Partes and the Company shall maintain such books and records as are necessary to support the
charge for Administratie Services, in suffient detail as may be necesary to enable the Parties to satisf
applicable regulatory requirements ("Records"). All Parties:
(a) shall provide access to the Records at all reasonable times;
(b) shall maintain the Recrds in accrdance wit good recrd management practices and whh at
least the same degree of completeness, accuracy and care as it maintains for its own records; and
(e) shall maintain it own accounting records, separate from the other Parts accounting records.
Subject to the provisions of this Agreement, Records supporting intercompany bDlings shall be available for
inspection and copying by any qualifed representative or agent of either Part or its affliates, at the
expense of the inquiring Part. In addition, State Commission staff or agents may audit the accounting
records of Providing Parties that form the basis for charges to rate-regulated subsidiaries, to determine the
reasonableness of allocation faclors used by the Providing Part to assign costs to the Recipient Party and
amounts subject to allocation or direct charges. All Partie agree to cooperate fully with such audits.
Page 4
Attach WUTC 25 -2.pdf Page 4 of 9
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 8 of 12
Witness: Greg R. Meyer
WA UE-100749
WUTC25 Attachment WUTC 25 -2
ARTICLE B. BUDGETING
In advance of each budget year. Providing Partes shall prepare and deliver to the Recipient Partes, £Or
their review and approval, a proposed budget for Administrtive Services to be perfrmed during that year.
The approved schedule of budgeted Administratie Services shall evidence the base level of
Administrative Servces. The schedule shall be updated at least annually. Each Part shall promptl notif
the other Part in wrKing of any requeste materil change to the budget costs for any serice being
provided.
ARTICLE 9. COOPERATION WIT OTHERS
The Partes will use goo faith efforts to cooperate with each other in all matters relating to the provision
and receipt of Administrative Services. Such good faith cooperatin wil include providing electrnic access
in the same manner as provided other vendors and contrators to systems used in connection wit
Administratie Services and using commerciall reasonable effrt to obtin all consents, licenses.
sublicenses or approvals necesary to permft each Part to perorm its obligations. Each Part shall make
available to the other Part any informatin required or reasonably requested by the other Par regarding
the performnc of any Administrative Service and shall be responsible for timely providing that information
and for the accracy and completeness of that in£ormation; provided, however, that a Part shall. not be
liable for not providing any informtion that is subject to a confidentialit obligation owed by ft to a person or
regulatory body othr than an affliate of it or the other Part. Bler Part shall not be nable for any
i~airment of any Administrative Service caused by it not receivng informtion, eiter timely or at all. or by
it receiving inaccurate or incomplete information from the other Par that is required or reasonably
requested regading tht Administrative Service. The Partes will cooperate wit each other in making such
in£ormation available as needed in the event of any and all internal or external audtts, utilit regulatory
proceedings, legal actons or dispute resolution. Each Part shall fully cooperate and coordinate wit eah
othets employees and contrctors who may be awarded other work. The Partes shall not comm" or permit
any act which will interfere wit the perfrmance of or receipt of AdmInistrtive Servces by eiter Parts
employees or contractors.
ARTICLE 10. COMPLIANCE WITH ALL LAWS
Each Part shall be responsible for (~ it compliance wit all laws and govemmental regulations affecting
it business, including but not limited to. laws and governmental regulations governing federal and state
affliate transactions, workers' compensation, heatth, safety and securit, and (iI) any use it may make of
the Administratie Services to assist ft in complying with such laws and governmental regulations.
ARICLE 11. liMIT AriON OF LIABILIT
Notwitstanding any other provision of this Agreement and except for (a) rights provided under Aricle 12 in
connection with Third-Part Claims, (b) direct or actual damages as a resuK of a breach of this Agreement
and (c) liabilit caused by a Part's negligence or willfl misconduct, no Part nor their respective directors,
offers, employees and agents, wil have any liabilit to any other Part, or their respective directors,
offcers, employees and agents, Whether based on contract, warranty, tort, strict liabilit, or any other
theory, for any indirect, incidental, consequential, special damages, and no Par, as a resutt of providing a
Service pursuant to this Agreement. shall be liable to any other Part for more than the cost of the
Administrative Service(s) related to the claim or damages.
PageS
Attch WUTC 25 -2.pdf Page 5 of9
PacifiCorp Idaho. Industrial Consumers
Exhibit No. 614 Page 9 of 12
Witness: Greg R. Meyer
WA UE-1 00749
WUTC25 Attchment WUTC 25 -2
ARTICLE 12. INDEMNIFICATION
Each of the Partes wUI bidemnlf, defend, and hold harmess each other Part, members of fts Board of
Directors, offcers, employees and agents against an frm any thircJrt claims resulting frm any
negUgence or willfl misconduct of a Part's employees, agents, representaties or subcontractors of any
tier, their employees, agents or representaties in the perfrmnce or nonperfrmance of it obligations
under this Agreement or in any way related to this Agreement If a Third-Part claim ariing out of or in
connection wfth this Agreement results from negligence of multle Parts (including their employees,
agents, suppliers and subcontractors), each Part wil bearliabilil wit respect to the Third.Part Claim in
proporton to fts own negligence.
ARTICLE 13. OISPUTE RESOLUTION
The Parties shall prol'li resolve any conflicts arising under this Agreement and such resolution shall be
final. If applicable, adjustments to the charges wil be made as required to reflect the dlScovery of errors or
omissions in the charges. If the Parties are unable to reslve any serve, performce or buget ises or if
there Is a materi breach of this Agreement tht has not been corrted witin ninety (90) days, represntaties
of the affected Partes will met prOJtly to revew and resolve those isues in go fait.
ARTICLE 14. TERMINATION FOR CONVENIENCE
A Part may terminate it participation in this Agreement efther wit respect to all, or wih respecl to any
one or more, of the Administratie Services provided hereunder at any time and from time to time, for any
reason or no reason, by giving notice oftermination at least six (60) days in advance ofthe effective date
of the lermination to enable the other Part to adjust it availble staffng and facUites. In the event of any
termination wit respec to one or more, but less than all, Administratie Servic, this Agreement shall
contiue in full force and eff with respec to any Administratie Servces not terminated hereby. If this
Agreement is termbiated in whole or in part the Paies wil cooperate In good fait wfth each other in all
reaonable respects in order to effct an effcient transiton and to minimize the disruption to the business
of all Parties, including the assignment .or trnsfer of the rights and obligations under any contracts.
Transitonal assistance service shall include organizing and delivering records and documents necessary
10 allow continuatin of the Administrative Services, including delienng such materials in electronic forms
and versions as reasonably requested by Ihe Part.
ARTICLE 15. CONRDENTAL INFORMATIONlONOISCLOSURE
To the fullest extenl allowed by law, the provision of any Administrative Service or reimbursement for any
Administratie Service provided pursuant to this Agreement shall not operate 10 impair or waive any
privilege availale to either par in connection wfth the Administrative Service, it provision or
reimbursement for the Administrative Service.
Ali Partes wil maintain in confidence Confidential Informtion provided to each other in connection with this
Agreement and wil use the Confidential Informtion solely for the purpse of carring out its obligations
under this Agreement. The term Confiential Informtin means any oral or wrilen jnforrmlion, Qncluding
witut ämittion, computer progrms, coe, macros or instructions) which is rmde availble to the Company, it
Page 6
Attach WUTC 25 -2.pdf Page 6 of9
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 10 of 12
Witness: Greg R. Meyer
WA UE.100749
WUTC25 Attachment WUTC 25 .2
Subsidianes or one of it represnlatives, regadles of the manner in which such informtin is fumished.
Confintiallnfomalin als includes th followin:
a. All Information regarding the Administrative Services, including, but not Iimtted to, price, costs,
methods of operation and softre, shall be maintained in confidence.
b. Systems used to perform the Administrative Services provided hereunder are confiential and
proprietary to the Company, Ds Subsidiaries or third partes. Both Parties shall treat these systems and all
related procedures and documenlation as confiential and proprietary to the Compny, its Subsidiaries or
it third part vendors.
c. Al systems, procedure and related materials provided to either Part are for it intemal use
only and only as related to the Administrative Services or any of the underlying systems used to provide
the Administrative Services.
Notwitstanding anyhig in this Arle 15 to the contrary, the term "Conlientillnfrmatin" does not include
any informtin which (i at the time of dislosure is generally avaDable to and known by the pubric (other than as
a resuit of an unpermitd disloure made direcUy or indirectl by a Par), (i was avaDable to a Part on a non-
confident basis from another source (provied that such source is not or was not bound by a confientiali
agreement wit a Part or had any other duty of confientili to a Part), or (ñQ has been independentl
acquired or develoed witout vilating an of the obliati urer this Ageement
The Pares sha use go fafth elfrf at the termnatin or exiratin of this Agreement to ensure that all usr
acces and paswords are canceRed.
All Confidential Information supplied or developed by a Part shall be and remain the sole and exclusive
propert of the Part who supplied or developed it.
ARTICLE 16. PERMITED DISCLOSURE
Notwithstanding provisions 01 this Agreement to the contrary, each Part may disclose Confidential
Information (i) to the exent required by a State Commision, a court of competent jurisdiction or other
govemmental authorit or otherwise as required by law, including wtthout 6mhation disclosure obligations
impsed under the federal securities laws, provided that such Part has given the other Part prior notice
of such requirement when legaOy permissible to perm~ the other Part to take such legal actin to prevent
the disclosure as it deems reasonable, appropriate or necesary, or (iO on a "need-to-knw. basis under
an obligation ofconfidentialily to üs consullants, legal counsel, affliates, accountants, banks and other
fiancing sources and their advisors.
ARTICLE 11. SUBCONTRACTORS
To the extent provided herein, the Parties shall be fully responsible for the acts or omissions of any
subcontractors of any tier and of all persons employed by such subcontrctors and shall maintain complete
Page 7
Attach WUTC 25 -2.pdf Page 7 of9
PacifiCorp Idaho Industrial Consumers
Èxhibit No. 614 Page 11 of 12
Witness: Greg R. Meyer
WA UE-100749
WUTC25 Attachment WUTC 25 -2
control over all such subcontrctors. tt being understood and agreed that not anything contained herein
shall be deemed to create any contractual relation between the subcontractor of any tier and the Parties.
ARTICLE 18. NONWAIVER
The faOure of a Part to insist upon or enforc strt perfrmance of any of the term of this Agreement or to
exercise any rights herein shall not be construed as a waiver or rerinquishment to any extent of tts right to
enforce such term or rights on any fuure occasion.
ARTICLE 19. SEVERABILrr
My provision of this Agreement prohibfted or. rendered unenforceable by operation of law shall be
ineffctive only to the extent of such prohibiton or unenforceabilit witout invalidating the remaining
provisions of this Agreement.
ARTICLE 20. ENTIRE AGREEMENTIDOCUMENTS INCORPORATED BY REFERENCE
All understandings, representations, warranties, agreements and any referenced attachments, if any,
existing between the Partes regarding the subjec matter hereof .are merged into this Agreement, which
fully and cor,pletely express the agreement of the Partes wfth repect to the subject matter hereof.
ARTlCLE21. OTHER AGREEMENTS
This Agreement does not address or govern the Partes' relationship involving: (a) the ta allcation
agreement nor (b) any other relationships not specifically Identified herein. All such relatinships not
addressed or governed by this Agreement wil be governed and controßed by a separate agreement or
tariff specifically addressing and governing those relationships or by applicable Laws or orders.
Page 8
Attach WUTC 25 -2.pdf Page 8 of9
WAUE-100749
WUTC25
PacifiCorp Idaho Industrial Consumers
Exhibit No. 614 Page 12 of 12
Witness: Greg R. Meyer
Attachment WUTC 25 -2
This Agreement has ben duly executd on behalf of the Pares as follws:
I'DAMRlCA ENERGY HOGS COMPANYBY:~
Patrick J. Goodmn
Ti Sr. Vice President &
Chief Financial Officer
..
PPHONGk:
Br~4
Brian K. Hankel
Ti1 Vice President & Treasurer
CE ELCTC UK FUDING COMPANBy~
Patrick J. Goodman
TiØe: Director
Thomas B. pecketer
TWe: Vice President & Controller
AtlachWUTC 25 -2.pdf
~
Brian K. Hankel
Ti Vice Presi dent & Treasurer
KRHOING. LLBr.~
Patrick J. Goodma
TiØ Vice President & Treasurer
~m¡aJ~By: ~,
Brian K. Hankel
TiUe: Vice President & Treasure;r
CE CASENA WATER AND ENERGY COMPAN
~~ &/¡;-;
Brian K. Hankel
TiD: Vice President & Treasurer
Page 9
Page 9 of9
Case. No. PAC-E-I0-07
Exhibit No. 615
Witness: Greg R. Meyer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
PACIFICORP IDAHO INDUSTRIL CUSTOMERS
Exhibit Accompanying Direct Testimony of Greg R. Meyer
PacifiCorp's Response to Public Counsel Data Request 103
REDACTED VERSION
October 14,2010
PacifiCorp Idaho Industral Consumers
Exhibit No. 61S Page 1 ofS
Witness: Greg R. Meyer
DE- 1 00749/PacifiCorp
September 14, 2010
Public Counel Data Request i 03
Public Counsel Data Request 103
Re: Management Fee.
(a) Pleae provide the amounts included in the Washigton-alocated
portion of the MEHC management fee attbutable to: (1) Board of
Directors' Fees; (2) Board of Dirctors' Meeting Costs; (3) other
Director-related costs; (4) Executive compensation (broken down
by type); (5) Executive travel (Iisted by trp); (6) Executive meãIs;
(7) Executive meetig costs; (8) Executive training/education
(broken down by event/coure); (9) All other executve or director
perquisites; (10) Chartable donations and other corporate
sponsorslups (broken down by cost); (1 i) Dues and fees for
organzations/foundations (broken down by
organzation/foundaton); (12) shareholder relations costs (broken
down tye of cost); (13) Advertising or other corporate
communications (broken down by project/campaign); and/or (14)
Subsidiar-related costs.
Response to Public Counsel Data Request 103
All costs biled by MidAencan Energy Holdigs Company (":MHC")
are denved by either direct chages or allocation of costs. Because the
billigs do not include the detals of the allocated costs, the Company does
not have the break-down requested above. Please refer to Confdential
Attachment PC 103 which lists the costs of the MEHC deparents
included in the filing on a total-company and a Washigton only basis.
Confdential inormation is provided subject to the terms and conditions of
the protective order in ths proceedig.
PREP ARR: R. Bryce Dalley
SPONSOR: To Be Detennned
)
PacifiCorp Idaho Industrial Consumers
Exhibit No. 615 Page 2 of 5
Witness: Greg R. Meyer
WASHIGTON
UE-100749
GENERA RATE CASE
PACIFIC POWER
PC DATA REQUEST 90-105
CONFIDENTIAL PER PROTECTIV.E ORDER
IN UTe DOCKET UE-I00749
CONFIDENTIAL (LEVEL YELLOW)
ATTACHMENT
PC 103
. IN HA COpy AND ON THE ENCLOSED
CONFIDENTIAL CD