Volume 1 of 2 Depreciation

Transcription

1 NEVADA POWER COMPANY d/b/a NV Energy BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA IN THE MATTER of the Application of NEVADA POWER COMPANY d/b/a NV Energy for approval of new and revised Depreciation rates for its Electric and Common Accounts ) ) ) ) ) ) ) ) Docket No Volume 1 of 2 Depreciation Transmittal Letter Table of Contents Certificate of Service Application Draft Notice Testimony Ellen Y. Fincher Kevin C. Geraghty Ned W. Allis Statement A Statement B As of December 31, 2016

2 June 5, 2017 Ms. Trisha Osborne, Assistant Commission Secretary Public Utilities Commission of Nevada Capitol Plaza 1150 East William Street Carson City, Nevada RE: s Application for approval of new and revised depreciation rates for its electric and common accounts. Dear Ms. Osborne: Enclosed for filing please find s Application for approval of new and revised Depreciation rates for its Electric and Common Accounts. The filing contains two volumes and is organized as follows: Volume 1 Transmittal Letter, Table of Contents, Certificate of Service, Application, Draft Notice, Testimony, and Statements A and B Volume 2 Statement C Consistent with the Commission s electronic filing regulations as adopted in Docket No , following this cover letter please find a table of contents for the complete filing which provides the page reference for each item in the volume. Should you have any questions regarding this filing, please contact me at (775) or tclausen@nvenergy.com. Respectfully submitted, /s/tim Clausen Tim Clausen Senior Attorney Page 2 of 143

3 Table of Contents Page 3 of 143

4 Electric Department Depreciation Table of Contents Volume 1 of 2 Description Page No. Transmittal Letter 2 Table of Contents 3 Certificate of Service 5 Application 7 Draft Notice 12 Prepared Direct Testimony Ellen Fincher 15 Kevin C. Geraghty 27 Ned W. Allis 35 Statement A 67 Statement A1(a) - A summary for each account and the factors used 68 to compute the proposed rates Statement A1(b) - The depreciable utility plant in place on the date of the study and the annual accrued depreciation using the preceding rates 77 Statement A1(c) - The depreciable utility plant in place on the date of the study and the annual accrued depreciation using the present rates 84 Statement A1(d) - The change in accrued depreciation which will result from the application of proposed rates 93 Statement B 97 Part I - Introduction 105 Part II Estimation of Survivor Curves 110 Part III Service Life Considerations 131 Part IV Net Salvage Considerations 136 Part V Calculation of Annual and Accrued Depreciation 139 Volume 2 of 2 Description Page No. Statement C Part VI Results of Study 3 Part VII Service Life Statistics 15 Part VIII Net Salvage Statistics 137 Part IX Detailed Depreciation Calculations 201 Part X Description of Service Life and Net Salvage Estimates 311 Page 4 of 143

5 Certificate of Service Page 5 of 143

6 and Sierra Pacific Power Company CERTIFICATE OF SERVICE I hereby certify that I have served the foregoing NEVADA POWER COMPANY D/B/A NV ENERGY S 2017 APPLICATION FOR APPROVAL OF NEW AND REVISED DEPRECIATION RATES in Docket No upon all parties of record in this proceeding by electronic service to the following: FEDERAL EXPRESS: HAND DELIVERED: Tammy Cordova Staff Counsel Division Public Utilities Comm. of Nevada Public Utilities Comm. of Nevada 9075 West Diablo Drive Suite E. William Street Las Vegas, NV Carson City, NV tcordova@puc.nv.gov pucn.sc@puc.nv.gov FEDERAL EXPRESS: HAND DELIVERED: Michael Saunders Attorney General s Office Senior Deputy Attorney General Bureau of Consumer Protection Attorney General s Office 100 N. Carson St. Bureau of Consumer Protection Carson City, NV W. Twain Ave., Ste. 100 bcpserv@ag.nv.gov Las Vegas, NV bcpserv@ag.nv.gov Filing will be available on the following SFTP site: Host IP Address: User ID: legalpub Password: E9*F2pKY DATED this 5 th day of June /s/ Connie Silveira Connie Silveira Legal Assistant Sierra Pacific Power Company 1 Page 6 of 143

7 Application Page 7 of 143

8 and Sierra Pacific Power Company BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA IN THE MATTER of the Application of ) NEVADA POWER COMPANY, d/b/a ) NV ENERGY for approval of new and revised ) Depreciation rates for its Electric and Common ) Docket No Accounts ) ) APPLICATION FOR APPROVAL OF NEW AND REVISED DEPRECIATION RATES ( Nevada Power or Company ) pursuant to NAC , et seq., submits its Application to the Public Utilities Commission of Nevada ( Commission ) for approval of new and revised depreciation rates for its electric and common accounts (the Application ). Coincident with the filing of this Application and in accordance with NRS , Nevada Power has submitted an application to address its revenue requirement for general rates for its electric operations. The general rate case application includes the new and revised depreciation rates that are the subject of this Application. Nevada Power requests that these matters be consolidated so that the new and revised depreciation rates established pursuant to this Application may properly be reflected in Nevada Power s revenue requirement for its electric and common accounts. In support of its Application, Nevada Power submits the following: 1. Nevada Power is a Nevada corporation and wholly-owned subsidiary of NV Energy Inc., a Nevada corporation. Nevada Power is engaged in providing electric service to the public in portions of Nye and Clark Counties pursuant to a certificate of public convenience and necessity issued by this Commission. Nevada Power is a public utility as that term is defined and used in Chapter 704 of the Nevada Revised Statutes. 1 Page 8 of 143

9 and Sierra Pacific Power Company Nevada Power s primary business office is located at 6226 W. Sahara Avenue, Las Vegas, Nevada. All correspondence related to this Application, including a copy of all pleadings, notices, orders and discovery requests, should be ed to regulatory@nvenergy.com and also sent to the undersigned counsel and to the manager of Regulatory Services, whose names and addresses are set forth below: Tim Clausen Senior Attorney 6100 Neil Road 6100 Neil Road Reno, NV Reno, NV Trevor Dillard Manager, Regulatory Services tclausen@nvenergy.com regulatory@nvenergy.com 3. This Application is made pursuant to and in compliance with NRS et seq., (governing the contents of the filing of general rate cases, etc.), the provisions of NAC through (relating to depreciation rates), and NAC (relating to applications). This Application, together with the attached Statements, Depreciation Study and testimony, sets forth all material facts, which Nevada Power is prepared to prove and upon which the Commission may base its decision granting the relief requested. 4. The depreciation and amortization rates for most categories of electric plant in service currently utilized by Nevada Power were established in 2011 (see, Commission Docket No , Order issued December 23, 2011). 5. This Application contains updated depreciation and amortization rates based on a complete study of electric and common plant in service as of December 31, 2016 ( Depreciation Study ). Based on the information and data accompanying this Application, full implementation of the findings of the study will result in an increase to current annual depreciation and amortization expense of approximately $18 million for electric common plant. 2 Page 9 of 143

10 and Sierra Pacific Power Company The accompanying Depreciation Study was finalized in April 2017 and utilizes plant balances as of December 31, The Depreciation Study is incorporated in this Application by this reference and includes a table of contents which provides an index of statements and supporting documentation and worksheets that are prescribed under the regulation. a. Statement A sets forth schedules summarizing present and accrued depreciation rates and charges and the changes in depreciation expense which will result from the application of the proposed rates, along with other information as required by NAC ; b. Statement B, the Depreciation Study report, sets forth the methods and procedures used in the study and the basis for the final selection of the parameters utilized, and such other information as required by NAC ; c. Statement C includes workpapers supporting the analysis of the life of each category of plant and the value to be gained from salvage for each plant account, and such other information as required by NAC Also included with the Depreciation Study and incorporated herein by reference are the prepared direct testimony and testimony exhibits of depreciation expert Mr. Ned Allis, and Company witnesses Ms. Ellen Fincher and Mr. Kevin Geraghty. PRAYER FOR RELIEF WHEREFORE, Nevada Power respectfully requests that the Commission: 1. Accept Nevada Power s Application herein as being in compliance with NAC et seq.; 3 Page 10 of 143

11 Consolidate this Application with Nevada Power s application to review its revenue requirement filed contemporaneously with this Application; 3. Issue an order approving the new and revised depreciation and amortization rates reflected herein to be properly reflected in Nevada Power s new revenue requirement for electric and common accounts; 6 and Sierra Pacific Power Company Grant any specific waivers of Commission rules or regulations as are necessary to grant Nevada Power s requests as contained in this Application; and necessary. 5. Provide such other and further relief as the Commission may find appropriate and Dated this 5 th day of June, Respectfully submitted, NEVADA POWER PACIFIC POWER COMPANY D/B/A NV ENERGY By: /s/ Tim Clausen Tim Clausen Senior Attorney 6100 Neil Road P.O. Box Reno, Nevada Tel: Fax: tclausen@nvenergy.com 4 Page 11 of 143

12 Draft Notice Page 12 of 143

13 Draft Notice Application for Applications, Petitions and Complaints The Commission requires a draft notice be included with all applications, petitions and complaints. See Nevada Administrative Code Please include one copy of this form with all the above filings. I. Include a title that describes the relief requested, or proceeding scheduled pursuant to Nevada Administrative Code ( NAC ) (4)(a.) IN THE MATTER of the Application by NEVADA POWER COMPANY d/b/a NV ENERGY for approval of new and revised depreciation rates for its Electric and Common Accounts II. Include the name of the applicant, complainant, petitioner, or the name of the agent for same pursuant to NAC (4)(b).. III. Include a paragraph with a brief description of the purpose of the filing or proceeding with an introductory statement in plain English understandable to a person of average knowledge and intelligence, that summarizes the relief requested or proceeding scheduled, AND its impact upon consumers, pursuant to NAC (4)(c). ( Nevada Power ) is filing its new and revised depreciation rates. The new and revised depreciation rates are reflected in a complete study of depreciation and amortization rates, which was completed in April 2017 using plant in service information through December 31, Based on the information and data accompanying this Application, full implementation of the findings of the depreciation study will result in an increase to current annual depreciation and amortization expense of approximately $18 million. Coincident with the filing of this Application and in accordance with Nevada Revised Statutes ( NRS ) , Nevada Power has submitted an Application to maintain its current revenue requirement for general rates for its electric and common accounts. Nevada Power requests that these matters be consolidated. 1 Page 13 of 143

14 IV. A declaration by the applicant, petitioner, or complainant whether a consumer session is required by NRS (1). 1 A consumer session is not required for this Application. V. If the draft notice pertains to a tariff filing, please include the tariff number and the section number(s) or schedule number(s) being revised. Not applicable. 1 NRS Commission required to conduct consumer session for certain rate cases; Commission required to conduct general consumer session annually in certain counties. 1. The Commission shall conduct a consumer session to solicit comments from the public in any matter pending before the Commission pursuant to NRS to , inclusive, in which: (a) A public utility has filed a general rate application, an application to recover the increased cost of purchased fuel, purchased power, or natural gas purchased for resale or an application to clear its deferred accounts; and (b) The changes proposed in the application will result in an increase in annual gross operating revenue, as certified by the applicant, in an amount that will exceed $50,000 or 10 percent of the applicant s annual gross operating revenue, whichever is less. 2. In addition to the case-specific consumer sessions required by subsection 1, the Commission shall, during each calendar year, conduct at least one general consumer session in the county with the largest population in this state and at least one general consumer session in the county with the second largest population in this state. At each general consumer session, the Commission shall solicit comments from the public on issues concerning public utilities. Not later than 60 days after each general consumer session, the Commission shall submit the record from the general consumer session to the Legislative Commission. 2 Page 14 of 143

15 ELLEN Y. FINCHER Page 15 of 143

16 BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA 2017 Depreciation Study Docket No PREPARED DIRECT TESTIMONY OF Ellen Y. Fincher 6 and Sierra Pacific Power Company I. INTRODUCTION 1. Q. PLEASE STATE YOUR NAME, OCCUPATION, BUSINESS ADDRESS, AND PARTY FOR WHOM YOU ARE FILING TESTIMONY. A. My name is Ellen Fincher. I am the Manager of Plant Accounting for NV Energy, Inc. ( NV Energy ), ( Nevada Power ), and Sierra Pacific Power Company ( Sierra and, together with Nevada Power, the Companies ). I work primarily out of NV Energy s office located at 6100 Neil Road in Reno, Nevada. I am filing testimony in this proceeding on behalf of Nevada Power. 2. Q. PLEASE BRIEFLY DESCRIBE YOUR PROFESSIONAL BACKGROUND AND EXPERIENCE. A. I joined NV Energy in June I have a Bachelor of Science degree in finance. I have 30 years of experience in the electric and gas utility industry, primarily in the accounting division at NV Energy. As Manager, Plant Accounting, my responsibilities include ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Companies. As such, I am also responsible for providing testimony in regulatory filings dealing with plant in Fincher DIRECT 1 Page 16 of 143

17 1 2 service and depreciation. More details regarding my professional background and qualifications are set forth in Exhibit Fincher-Direct Q. HAVE YOU SUBMITTED PREPARED TESTIMONY IN A PREVIOUS REGULATORY PROCEEDING? A. Yes. My most recent testimony was filed in Sierra s 2016 electric depreciation case (Docket No ) and gas depreciation case (Docket No ). and Sierra Pacific Power Company Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. The purpose of my testimony is to address the following: a) Nevada Power s continued improvements in processes and procedures. b) Development of site-specific decommissioning costs for Nevada Power s production plant assets that were provided to Gannett Fleming for developing Nevada Power s 2017 Electric Depreciation Study ( 2017 Study). 5. Q. ARE YOU SPONSORING ANY EXHIBITS TO YOUR PREPARED DIRECT TESTIMONY? A. Yes, I am sponsoring two exhibits: Exhibit Fincher-Direct-1 Statement of Qualifications and Exhibit Fincher-Direct-2 Production Plant and Pond Decommissioning Study Estimates 6. Q. ARE ANY OF THE MATERIALS YOU ARE SPONSORING CONFIDENTIAL? Fincher DIRECT 2 Page 17 of 143

18 1 A. No. 2 3 II. TESTIMONY SUPPORTING STATEMENTS and Sierra Pacific Power Company A. Continued Improvements in Processes and Procedures 7. Q. PLEASE DESCRIBE THE ONGOING IMPROVEMENTS NEVADA POWER HAS MADE IN REGARDS TO ASSET RECORDS. A. Nevada Power continued to make improvements in its processes and procedures to maintain accurate continuous property records. These include: Monthly reports provided to executives listing all work orders eligible for unitization, along with comments that provide additional information needed from the business to process, including information on retirements and cost of removal in order to properly account for the final unitization of a work order. The implementation of a quarterly management review process. As part of NV Energy s internal control processes, executives meet quarterly to review suspended projects, current estimates of asset retirement obligations, balance of plant held for future use, and other assets to insure continued proper accounting treatment. Retirement and cost of removal process improvements have been implemented, with continued attention given to the work management system for all distribution and new business work orders. Fincher DIRECT 3 Page 18 of 143

19 Q. PLEASE DESCRIBE THE RESULTS/BENEFITS OF THE IMPROVEMENTS NEVADA POWER HAS MADE IN REGARDS TO ASSET RECORDS. A. The results/benefits of the improvements Nevada Power has made in regards to asset records is 1) more accurate and reliable data provided to Gannett Fleming to prepare the deprecation study, 2) improved retirement information, 3) timely and accurate cost of removal reported and 4) timely final unitizations. and Sierra Pacific Power Company B. Decommissioning Costs 9. Q. HAVE THE UPDATED PRODUCTION PLANT AND POND DECOMMISSIONING COSTS BEEN PROVIDED IN THIS DOCKET? A. Yes. The updated decommissioning costs for production plant and pond have been provided as Exhibit Fincher-Direct Q. ARE THE DECOMMISSIONING COSTS RELIED UPON IN THE 2017 STUDY THE SAME COSTS USED IN THE 2011 DEPRECIATION STUDY? A. No. While the decommissioning costs prepared by URS Corporation ( URS ) and approved in Docket No form the basis of the decommissioning costs for the 2017 Study, the approved decommissioning costs were based on 2011 price levels. These costs were escalated to 2016 dollars for the 2017 Study. The Company used the same approach for Nevada Power as was approved by the Commission in the Sierra general rate case stipulated agreement in Docket No Also, newly acquired plants since the last prepared decommissioning Fincher DIRECT 4 Page 19 of 143

20 study (Las Vegas Gen Block 1, Las Vegas Gen Block 2, Las Vegas Gen Block 3, Nellis Solar, SunPeak 3, SunPeak 4 and SunPeak 5) were incorporated into the costs, while the units that were retired since the last prepared decommissioning study (Sunrise 1 and 2 and Reid Gardner 1-4) were removed. 5 and Sierra Pacific Power Company For the newly acquired plants, the decommissioning costs were calculated using similar units in Nevada Power s generation fleet. For example, Las Vegas Gen 1, which is a 1 x 1 combined cycle unit, was calculated using Clark 5 plus one-half of Clark 9. Las Vegas Gen 2 and 3, which are 2x1 combined cycles, were calculated using Clark 5 plus Clark 6 plus Clark 9. SunPeak 3-5, were calculated using the similar units of Harry Allen 3 and 4 and Clark Mt. 3 and 4. The approach of using similar units was preferred to incurring the costs of a new decommissioning study. The escalated decommissioning cost estimates were then incorporated into unit-specific work papers that depreciation expert Mr. Ned Allis, of Gannett Fleming, used in developing terminal net salvage rates in the 2017 Study. The work paper comparing the currently approved decommissioning cost estimates and the new cost estimates are provided in Exhibit Fincher Direct-2 attached to my testimony. 11. Q. HOW DO THE NEW DECOMMISSIONING COSTS COMPARE TO THE CURRENTLY APPROVED DECOMMISSIONING COSTS? A. The decommissioning costs for Nevada Power have increased approximately $11.8 million after incorporating the cost escalation described above. Fincher DIRECT 5 Page 20 of 143

21 and Sierra Pacific Power Company Q. DO THE CALCULATIONS PROVIDED TO GANNETT FLEMING TAKE INTO ACCOUNT PRODUCTION PLANT WITH JOINT OWNERSHIP? A. Yes. Three of the plants in Nevada Power s generation fleet are jointly owned and share costs with its partners. The jointly owned units are Navajo Units 1, 2 and 3. The amounts developed by URS in the decommissioning study reflect 100 percent of the dismantling costs. The Navajo amounts presented in URS s decommissioning study were provided by Salt River project and were from a 2008 Sargent & Lundy estimate. The 100 percent decommissioning cost estimates were multiplied by Nevada Power s percentage (85%) of the 750 MW plant capacity, to establish Nevada Power s share and the amounts used by Gannett Fleming. The results of this calculation are reflected in Exhibit Fincher Direct Q. DID THE DECOMMISSIONING STUDY INCLUDE A NEW COST ESTIMATE FOR THE JOINTLY OWNED NAVAJO UNITS? A. No. Nevada Power is a partner in the Navajo units with Salt River Project and is not the operating agent for this facility. As discussed above, the decommission costs were provided by Salt River Project from a 2008 Sargent & Lundy estimate. Accordingly, the decommissioning study performed by URS for Nevada Power did not include a different estimate for Navajo Units 1, 2 and Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? A. Yes. Fincher DIRECT 6 Page 21 of 143

22 Exhibit Fincher-Direct-1 Page 1 of 2 Statement of Qualifications of ELLEN Y. FINCHER NV Energy 6100 Neil Road Reno, NV (775) efincher@nvenergy.com Mrs. Fincher has over 30 years of experience in various capacities at NV Energy including credit, customer accounting, budgeting, gas pipeline, business services & controls, project management & reporting, process improvement, and general management and supervision. Mrs. Fincher has prepared numerous statements, reports, data responses and studies on plant in service for regulators and interveners. PROFESSIONAL EXPERIENCE 2015 to present NV Energy Manager, Plant Accounting In March, 2015, I assumed leadership responsibility of the Plant Accounting department with a staff of nine. In this role, I have the responsibility for ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Company. I am the expert witness in all regulatory filings dealing with plant in service to 2015 NV Energy Team Leader/Supervisor, Plant Accounting Primary responsibilities included ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Company to 2013 NV Energy Accountant/Staff Accountant Plant Accounting Primary responsibilities included ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Company to 2005 Sierra Pacific Power Company Senior Consultant, Business Services Primary responsibilities included customer support, budget vs. actual variance analysis and management reporting to assist my customers in management of their business. My focus was directed toward fiscal responsibility and meeting budget commitments where operating and capital resources were required to 2002 Sierra Pacific Power Company Pipeline Business Analyst/Scheduler Primary responsibilities included processing of daily shipper nominations, pipeline transportation, FERC filings, property sales and use tax filings, invoice processing, budget vs. actual variance analysis, rate case filings to 1997 Sierra Pacific Power Company Scheduler Page 22 of 143

23 Exhibit Fincher-Direct-1 Page 2 of 2 Primary responsibilities included budget and cost control function for Generation Division, worked with partner in Valmy plant in providing all budget vs. actual reports 1984 to 1992 Sierra Pacific Power Company Budget Analyst/Senior Budget Analyst, Corporate Budgets Primary responsibilities included customer support, budget vs. actual variance analysis and management reporting to assist customers in management of their business to 1984 Sierra Pacific Power Company Student Intern, Credit and Collections and Customer Accounting REGULATORY EXPERIENCE I have prepared numerous statements, reports, data responses and studies on plant in service for regulators and interveners, and prepared and defended testimony in proceedings before the Public Utilities Commission of Nevada. EDUCATION 1984 University of Nevada, Reno Bachelor of Science Degree in Finance PROFESSIONAL CERTIFICATIONS, LICENSES, AND MEMBERSHIPS Edison Electric Institute Property Accounting and Valuation Committee Society of Depreciation Professionals Page 23 of 143

24 EXHIBIT FINCHER-DIRECT-2 Page 24 of 143

25 NEVADA POWER COMPANY PRODUCTION PLANT AND POND DECOMMISSIONING STUDY ESTIMATES URS CORPORATION - CLEVELAND WRECKING COMPANY DECOMMISSIONING STUDY PER COMMISSION ORDER PROPOSED ESCALATION FOR DOCKET 17-06XXX Capacity Capacity Estimated Estimated CPI CPI Decom Cost MW MW Decom. Cost Decom. Cost Escalation Escalation as Proposed Production Unit Unit Type 100% NPC Share 100% NPC Share 100% NPC Share NPC Share*Escalation Steam Production Plant Clark #9 CC Steam Turbine/Gas 84 5,823,216 5,823, , ,816 6,384,032 Clark #10 CC Steam Turbine/Gas 84 5,823,216 5,823, , ,816 6,384,032 11,646,432 11,646,432 1,121,632 1,121,632 12,768,064 Navajo #1 Steam Turbine/Coal ,020,333 3,515,638 2,987, ,580 3,854,218 (1) Navajo #2 Steam Turbine/Coal ,020,333 3,515,638 2,987, ,580 3,854,218 (1) Navajo #3 Steam Turbine/Coal ,020,333 3,515,638 2,987, ,580 3,854,218 (1) subtotal Steam Production - S & L 2008 estimate 93,061,000 10,546,913 8,962,419 1,015,741 11,562,654 Total Steam Production Plant 104,707,432 22,193,345 10,084,051 2,137,373 24,330,718 Other Production Plant Clark #4 Gas Turbine/Gas , ,046 26,778 26, ,824 Clark #5 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060, , ,376 5,548,028 Clark #6 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060, , ,376 5,548,028 Clark #7 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060, , ,376 5,548,028 Clark #8 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060, , ,376 5,548,028 Clark #11 to #22 Gas Turbine/Gas 624 4,300,143 4,300, , ,134 4,714,277 Goodsprings Waste Heat Generator , ,102 77,537 77, ,639 Harry Allen #3 Gas Turbine/Gas 74 1,053,858 1,053, , ,494 1,155,352 Harry Allen #4 Gas Turbine/Gas 74 1,053,858 1,053, , ,494 1,155,352 Harry Allen #5, #6, #7 CC Gas/Steam Turbine/Gas 483 8,825,426 8,825, , ,950 9,675,376 Higgins CC Gas/Steam Turbine/Gas ,286,990 11,286,990 1,087,015 1,087,015 12,374,005 Las Vegas Gen Block 1 CC Gas/Steam Turbine/Gas 51 7,972,260 7,972, , ,784 8,740,044 Las Vegas Gen Block 2 CC Gas/Steam Turbine/Gas ,944,520 15,944,520 1,535,568 1,535,568 17,480,087 Las Vegas Gen Block 3 CC Gas/Steam Turbine/Gas ,944,520 15,944,520 1,535,568 1,535,568 17,480,087 Lenzie Block #1 CC Gas/Steam Turbine/Gas 585 6,959,312 6,959, , ,230 7,629,542 Lenzie Block #2 CC Gas/Steam Turbine/Gas 585 6,959,312 6,959, , ,230 7,629,542 Nellis Solar PV II Solar PV 15 4,300,000 4,300,000 89,010 89,010 4,389,010 Silverhawk CC Gas/Steam Turbine/Gas 560 4,815,481 4,815, , ,764 5,279,245 SunPeak 3 GTG/Gas 74 1,053,858 1,053, , ,494 1,155,352 SunPeak 4 GTG/Gas 74 1,053,858 1,053, , ,494 1,155,352 SunPeak 5 GTG/Gas 74 1,053,858 1,053, , ,494 1,155,352 Total Other Production Plant 113,903, ,903,008 10,644,539 10,644, ,547,547 Subtotal production plant (without Navajo) 125,549, ,549,440 11,766,171 11,766, ,315,610 Total Production Plant 218,610, ,096,353 20,728,590 12,781, ,878,265 CPI All Urban Increase CPI All Urban Increase (1) Navajo Generation Station estimate prepared by Sargent & Lundy for Salt River Project in March, Page 25 of 143

26 Page 26 of 143

27 KEVIN C. GERAGHTY Page 27 of 143

28 and Sierra Pacific Power Company BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA 2017 Depreciation Study Docket No PREPARED DIRECT TESTIMONY OF Kevin C. Geraghty 1. Q. PLEASE STATE YOUR NAME, JOB TITLE, EMPLOYER AND BUSINESS ADDRESS. A. My name is Kevin C. Geraghty. I am the Senior Vice President of Energy Supply for ( Nevada Power or the Company ) and Sierra Pacific Power Company ( Sierra, and together with Nevada Power, the Companies ). My work address is 6226 West Sahara Avenue, Las Vegas Nevada, I am filing testimony in this proceeding on behalf of Nevada Power. 2. Q. WHAT ARE YOUR PRIMARY RESPONSIBILITIES AS SENIOR VICE PRESIDENT, ENERGY SUPPLY, FOR THE COMPANIES? A. I am responsible for managing Nevada Power s and Sierra s generation fleet and resource optimization. 3. Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EMPLOYMENT EXPERIENCE. A. I hold a Bachelor of Science Degree in Electrical Engineering. I have worked in diverse areas of energy supply since I joined the Companies in Geraghty-DIRECT 1 Page 28 of 143

29 Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA ( COMMISSION )? A. Yes, I have testified in numerous proceedings before the Commission. My most recent appearance in a general rate case was in Sierra s 2016 general rate case, Docket No Q. ARE YOU SPONSORING ANY EXHIBITS WITH YOUR TESTIMONY? A. Yes. I sponsor Exhibit Geraghty-Direct-1, my Statement of Qualifications. and Sierra Pacific Power Company Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING? A. I am supporting Nevada Power s request to change the depreciation expense associated with the Navajo Generating Station. Specifically, I address the planned retirement date for the Navajo Generating Station. 7. Q. PLEASE PROVIDE SOME BACKGROUND ON THE NAVAJO GENERATING STATION? A. The Navajo Generating Station is a 2,250 megawatt coal-fired facility located near Page, Arizona and is situated on Navajo Nation Land. It is part of the Navajo Project, which also includes transmission to Nevada and Arizona. 8. Q. ARE THERE OTHER OWNERS OF THE NAVAJO PROJECT? A. Yes. In addition to Nevada Power, the remaining owners of the Navajo Generating Station include Salt River Project for itself and on behalf of the United States, Arizona Public Service, and Tucson Electric Power. Nevada Power has an 11.3 percent undivided interest (255 megawatts) in the Navajo Generating Station. The Geraghty-DIRECT 2 Page 29 of 143

30 1 2 3 Salt River Project purchased the plant-only ownership interest of Los Angeles Department of Water and Power ( LADWP ), but LADWP still retains ownership in the transmission for the Navajo Project Q. WHEN DOES NEVADA POWER PLAN TO RETIRE OR ELIMINATE ITS INTEREST IN THE NAVAJO GENERATING STATION? A. The Navajo Generating Station will be retired, and Nevada Power will cease receiving power from the plant, on or before December 22, and Sierra Pacific Power Company Q. HOW WAS THIS RETIREMENT DATE DETERMINED? A. The current ownership agreement as well as the lease associated with the project expire December 22, Additionally, the Nevada Legislature passed law (Senate Bill 123) in 2013 that required Nevada Power to create and receive Commission approval for an emission reduction and capacity replacement plan ( ERCR Plan ) to retire or eliminate its interest in coal-fired plants a minimum of 800 megawatts by December 31, Q. HAS NEVADA POWER CREATED AND RECEIVED APPROVAL FOR THIS ERCR PLAN? A. Yes. Nevada Power submitted its ERCR Plan in Docket No and the Commission issued an order approving the ERCR Plan on December 18, Senate Bill 123 is codified in Nevada Revised Statutes sections Geraghty-DIRECT 3 Page 30 of 143

31 Q. WAS A PLANNED RETIREMENT DATE FOR THE NAVAJO GENERATING STATION INCLUDED IN THAT ERCR PLAN? A. Yes. Nevada Power requested to retire or eliminate its interest in the Navajo Generating Station by December 31, and Sierra Pacific Power Company Q. CAN NEVADA POWER COMPLY WITH SENATE BILL 123 OR WITH ITS APPROVED ERCR PLAN WITHOUT RETIRING OR ELIMINATING ITS INTEREST IN THE NAVAJO GENERATING STATION? A. No. Retiring or eliminating the 255 megawatts represented by Nevada Power s ownership in the Navajo Generating Station is the only means to comply with Senate Bill 123 and the approved ERCR Plan. 14. Q. WILL NEVADA POWER CONTINUE TO OWN TRANSMISSION ASSOCIATED WITH THE NAVAJO GENERATING STATION AFTER IT IS RETIRED? A. Nevada Power will maintain ownership of transmission facilities that are located off the Navajo Nation land. If a new lease or lease extension is reached with the Navajo Nation that allows for these transmission facilities to remain on Navajo Nation land, then Nevada Power may continue to own facilities on Navajo Nation land as well. 15. Q. DOES THIS CONCLUDE YOUR TESTIMONY? A. Yes it does. Geraghty-DIRECT 4 Page 31 of 143

32 Exhibit Geraghty-Direct-1 Page 1 of 2 KEVIN C. GERAGHTY SVP, Energy Supply NV Energy, Inc 6226 West Sahara Avenue Las Vegas, NV (702) Mr. Geraghty joined NV Energy, Inc ( NVE ) in June 2008 as Executive, Power Generation and currently serves as the company s Senior Vice President for Energy Supply. He has 30 years of experience in power generation with extensive knowledge of operations, maintenance, construction and management of coal, gas and hydro facilities. Mr. Geraghty has prepared and /or directed the preparation of various reports and analyses for submission to multiple state jurisdictions, EPA, NERC and FERC. Mr. Geraghty has also sponsored testimony before the Arizona Corporation Commission. EMPLOYMENT HISTORY NV Energy, Inc. 6/08 to Present SVP, Energy Supply Responsible for managing all of NV Energy s power generation assets,interests in jointlyowned assets, resource optimization and the gas local distribution company in northern Nevada. Responsibilities include resource optimization, coal procurement, operations, maintenance, construction, strategic planning, capital management and financial functions associated with gas operations, power production and procurement. Allegheny Energy 12/87 to 6/08 Director Level Assignments: Smith, Western, Fort Martin and Harrison Regions 5/99 to 12/07 Managed all aspects of six (6) coal plants, seven (7) small hydro plants and multiple peaking combustion turbine sites. Managed the development and siting of a 1,080 MW combined cycle facility in La Paz County, Arizona. Managed the company s interest in several other energy projects and/or contracts in Nevada, Arizona and California. Manager Level Assignments: Operations, Maintenance and Engineering Hatfield s Ferry and Harrison Power Stations 4/93 to 5/99 Managed all departmental-specific functions at two (2) large, coal-fired facilities; each facility had three (3) large ( ) supercritical units. Page 32 of 143

33 Exhibit Geraghty-Direct-1 Page 2 of 2 Engineering Level Assignments: Plant (Hatfield s Ferry) and Construction 12/87 to 4/93 Performed plant engineering assignments in support of production, reliability and performance at the 1,665 MW coal-fired Hatfield s Ferry Power Station. Performed construction engineering assignments in support of large O&M and CAPEX projects at every facility in the fleet (including coal, gas, hydro and oil facilities). EDUCATION University of Pittsburgh, Pittsburgh, PA Bachelor of Science in Electrical Engineering ASSOCIATIONS AND MEMBERSHIPS Board Member, Las Vegas Natural History Museum Board Member, FIRST Nevada Page 33 of 143

34 Page 34 of 143

35 NED W. ALLIS Page 35 of 143

36 and Sierra Pacific Power Company BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA 2017 Depreciation Study Docket No I. INTRODUCTION AND PURPOSE PREPARED DIRECT TESTIMONY OF Ned W. Allis 1. Q. WOULD YOU PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND IDENTIFY THE PARTY FOR WHOM YOU ARE FILING TESTIMONY. A. My name is Ned Allis. I am filing testimony on behalf of ( Nevada Power or the Company ). My business address is 209 Senate Avenue, Camp Hill, PA Q. BY WHOM AND IN WHAT CAPACITY ARE YOU EMPLOYED? A. I am Project Manager, Depreciation and Technical Development for Gannett Fleming Valuation and Rate Consultants, LLC ( Gannett Fleming ). Gannett Fleming provides depreciation consulting services to utility companies in the United States and Canada. I am responsible for conducting depreciation, valuation and original cost studies, determining service life and salvage estimates, conducting field reviews, presenting recommended depreciation rates to clients, and supporting such rates before state and federal regulatory agencies. I am also responsible for Gannett Fleming s proprietary depreciation software, training of depreciation staff, and the development of solutions for technical issues related to depreciation. 3. Q. WHAT IS YOUR EDUCATIONAL BACKGROUND? A. I have Bachelor of Science degree in Mathematics from Lafayette College in Easton, PA. Allis-DIRECT 1 Page 36 of 143

37 Q. DO YOU BELONG TO ANY PROFESSIONAL SOCIETIES? A. Yes. I am the current Vice President of the Society of Depreciation Professionals ( Society ) and an associate member of the American Gas Association/Edison Electric Institute ( AGA/EEI ), an industry accounting committee. I also serve as an instructor for depreciation training provided by the Society. 6 and Sierra Pacific Power Company Q. DO YOU HOLD ANY SPECIAL CERTIFICATION AS A DEPRECIATION EXPERT? A. Yes. The Society has established national standards for depreciation professionals. The Society administers an examination to become certified in this field. I passed the certification exam in September of 2011 and was recertified in March of Q. HAVE YOU RECEIVED ANY ADDITIONAL EDUCATION RELATING TO UTILITY PLANT DEPRECIATION? A. Yes. I have completed the following courses conducted by the Society: Depreciation Basics, Life and Net Salvage Analysis and Preparing and Defending Depreciation Study. 7. Q. PLEASE OUTLINE YOUR EXPERIENCE IN THE FIELD OF DEPRECIATION. A. I joined Gannett Fleming in October 2006 as an Analyst. My duties included assembling basic data required for depreciation studies, conducting statistical analyses of service life and net salvage data, calculating annual and accrued depreciation, assisting in preparing reports and assisting in providing testimony setting forth and defending the results of the studies. I also developed and maintained Gannett Fleming s proprietary depreciation software. In March of 2013, Allis-DIRECT 2 Page 37 of 143

38 I was promoted to the position of Supervisor, Depreciation Studies. In March of 2017, I was promoted to my current position of Project Manager, Depreciation and Technical Development. More details regarding my professional background and qualifications are set forth in Exhibit Allis-Direct-1. 5 and Sierra Pacific Power Company Q. HAVE YOU SUBMITTED TESTIMONY IN PRIOR PROCEEDINGS BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA ( COMMISSION )? A. Yes. I submitted testimony related to depreciation in the two most recent rate cases for Sierra Pacific Power Company ( Sierra ), Docket Nos and Q. HAVE YOU SUBMITTED TESTIMONY IN ANY OTHER JURISDICTIONS? A. Yes. In addition to Nevada, I have submitted testimony on depreciation related topics to the New York Public Service Commission, the New Jersey Board of Public Utilities, the Florida Public Service Commission, the District of Columbia Public Service Commission, and the Federal Energy Regulatory Commission ( FERC ). 10. Q. WHAT IS THE PURPOSE OF YOUR PREPARED DIRECT TESTIMONY IN THIS PROCEEDING? A. I am sponsoring Statements A, B and C of the depreciation application for electric plant, which set forth the results of my depreciation study for Nevada Power s electric plant in service as of December 31, 2016 (the 2017 Depreciation Study or Depreciation Study ). Allis-DIRECT 3 Page 38 of 143

39 Q. ARE YOU SPONSORING ANY EXHIBITS? A. Yes. I am sponsoring the following Exhibits: Exhibit Allis-Direct-1 Statement of Qualifications Exhibit Allis-Direct-2 ON Line Depreciation Rates 5 and Sierra Pacific Power Company Q. WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY? A. My testimony will explain the methods and procedures of the depreciation report as well as set forth the annual depreciation rates as of December 31, Statement A sets forth the recommended depreciation rates in the 2017 Depreciation Study, as well as a comparison between the existing rates and the recommended rates. Statements B and C provide detailed methods, procedures and results of the Depreciation Study as of December 31, Each section of the Depreciation Study will be explained in Part II of my testimony. In Part III of my testimony I discuss the calculated theoretical reserve imbalance. Finally, I discuss the depreciation rates calculated for ON Line assets in Part IV of my testimony. 17 II. METHODS USED IN DEPRECIATION STUDY Q. PLEASE DEFINE THE CONCEPT OF DEPRECIATION. A. The FERC Uniform System of Accounts defines depreciation as follows: Depreciation, as applied to depreciable electric plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of electric plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities C.F.R. 101 (FERC Uniform System of Accounts), Definition 12. Allis-DIRECT 4 Page 39 of 143

40 and Sierra Pacific Power Company Q. IN PREPARING THE DEPRECIATION STUDY, DID YOU FOLLOW GENERALLY ACCEPTED PRACTICES IN THE FIELD OF DEPRECIATION AND VALUATION? A. Yes, I did. I followed generally accepted practices as outlined in various depreciation manuals such as National Association of Regulatory Utility Commissioners ( NARUC) Public Utility Depreciation Practices; Depreciation Systems by Wolf and Fitch; The Estimation of Depreciation by Fitch, Wolf, and Bissinger; Engineering Valuation and Depreciation by Marston and Winfrey; and various other public utility depreciation references. 15. Q. DID YOU REVIEW PRIOR COMMISSION ORDERS ADDRESSING DEPRECIATION ACCRUAL RATES? A. Yes I did. I focused in particular on Nevada Power s most recent depreciation study and associated order in Docket No I also reviewed Sierra s most recent electric depreciation studies and the associated Commission orders in Docket Nos , and I participated in each of these cases as either a witness or as the lead analyst for the depreciation study. 16. Q. DID YOU REVIEW THE REGULATORY FILING REQUIREMENTS IDENTIFIED BY THE COMMISSION? A. Yes I reviewed Nevada Administrative Code ( NAC ) sections through Q. DOES YOUR DEPRECIATION STUDY AND ASSOCIATED SCHEDULES PROVIDE ALL THE REQUIRED INFORMATION FROM THE ABOVE MENTIONED SECTIONS. Allis-DIRECT 5 Page 40 of 143

41 1 A. Yes, they do. 2 and Sierra Pacific Power Company Q. PLEASE DESCRIBE THE CONTENTS OF YOUR REPORT. A. Statement A provides schedules setting forth both the depreciation rates resulting from the Depreciation Study, as well as the currently approved depreciation rates. Statements B and C set forth the 2017 Depreciation Study. The Depreciation Study is presented in 10 parts. Parts I through V are included in Statement B and Parts VI through X are included in Statement C. Part I, Introduction, presents the scope and basis for the 2017 Depreciation Study; Part II, Estimation of Survivor Curves, explains the process of estimating survivor curves and the retirement rate method of life analysis; Part III, Service Life Considerations, discusses factors and the informed judgment involved with the estimation of service life; Part IV, Net Salvage Considerations, discusses factors and the informed judgment involved with the estimation of net salvage; Part V, Calculation of Annual and Accrued Depreciation, explains the method, procedure and technique used in the calculation of annual depreciation expense and the theoretical reserve; Part VI, Results of Study, sets forth the service life estimates, net salvage estimates, annual depreciation rates and accruals and theoretical reserves for each depreciable group. This section also includes a description of the detailed tabulations supporting the 2017 Depreciation Study; Part VII, Service Life Statistics, sets forth the survivor curve estimates and original life tables for each plant account and subaccount; Allis-DIRECT 6 Page 41 of 143

42 Part VIII, Net Salvage Statistics, sets forth the net salvage analysis for each plant account and subaccount; Part IX, Detailed Depreciation Calculations, sets forth the calculation of average remaining life for each property group; and Part X, Description of Service Life and Net Salvage Estimates, provides a discussion of the considerations that inform the service life and net salvage estimates for each plant account and the probable retirement dates for each generating unit. and Sierra Pacific Power Company Q. PLEASE IDENTIFY THE DEPRECIATION METHOD THAT YOU USED. A. I used the straight line remaining life method of depreciation, with the average service life procedure. The annual depreciation rates and accruals are based on a method of depreciation accounting that seeks to distribute the unrecovered cost of fixed capital assets over the estimated remaining useful life of each unit, or group of assets, in a systematic and rational manner. 20. Q. WHAT ARE YOUR RECOMMENDED ANNUAL DEPRECIATION ACCRUAL RATES FOR NEVADA POWER? A. My recommended annual depreciation accrual rates as of December 31, 2016, for Nevada Power are set forth in the tables on pages VI-5 through VI-13 of the 2017 Depreciation Study. 21. Q. HOW DID YOU DETERMINE THE RECOMMENDED ANNUAL DEPRECIATION ACCRUAL RATES? A. I performed this determination in two phases. In the first phase, I estimated the service life and net salvage characteristics for each depreciable group (that is, each Allis-DIRECT 7 Page 42 of 143

43 plant account or subaccount identified as having similar characteristics). In the second phase, I calculated the composite remaining lives and annual depreciation accrual rates based on the service life and net salvage estimates determined in the first phase. 5 and Sierra Pacific Power Company Q. PLEASE DESCRIBE THE FIRST PHASE OF THE DEPRECIATION STUDY, IN WHICH YOU ESTIMATED THE SERVICE LIFE AND NET SALVAGE CHARACTERISTICS FOR EACH DEPRECIABLE GROUP. A. The service life and net salvage studies consisted of compiling historical data from records related to Nevada Power s plant; analyzing these data to discern historic trends of survivor and net salvage characteristics; obtaining supplementary information from management and operating personnel concerning practices and plans as they relate to plant operations; and interpreting the above data and information, as well as estimates used by other electric utilities to form judgments of average service life and net salvage characteristics. 23. Q. WHAT HISTORICAL DATA DID YOU ANALYZE FOR THE PURPOSE OF ESTIMATING SERVICE LIFE CHARACTERISTICS? A. I analyzed the Company s accounting entries that record plant transactions during the 79-year period from 1938 through The transactions included additions, retirements, transfers and the related balances. The Company s records also included the surviving dollar values by year installed for each plant account as of December 31, Q. WHAT METHOD DID YOU USE TO ANALYZE THE SERVICE LIFE DATA? Allis-DIRECT 8 Page 43 of 143

44 A. I used the retirement rate method. The retirement rate method is an actuarial method for deriving survivor curves using the average rates at which property of each age group is retired. It is the industry preferred method when sufficient data are available. 5 and Sierra Pacific Power Company Q. WOULD YOU EXPLAIN HOW YOU USED THE RETIREMENT RATE METHOD TO ANALYZE NEVADA POWER S SERVICE LIFE DATA? A. I applied the retirement rate method to each different group of property in the study. For each property group, I used the retirement rate method to form a life table that, when plotted, shows an original survivor curve for that property group. Each original survivor curve represents the average survivor pattern experienced by the several vintage groups during the experience band studied. The survivor patterns do not necessarily describe the life characteristics of the property group; therefore, interpretation of the original survivor curves is required in order to use them as valid considerations in estimating service life. Iowa-type survivor curves were used to perform these interpretations. 26. Q. WHAT IS AN IOWA-TYPE SURVIVOR CURVE AND HOW DID YOU USE SUCH CURVES TO ESTIMATE THE SERVICE LIFE CHARACTERISTICS FOR EACH PROPERTY GROUP? A. Iowa-type curves are a widely used group of generalized survivor curves that represent the range of survivor characteristics usually experienced by utilities and other industrial companies. The Iowa curves were developed at the Iowa State College Engineering Experiment Station through an extensive process of observing and classifying the ages at which various types of property used by utilities and other industrial companies had been retired. Allis-DIRECT 9 Page 44 of 143

45 Iowa-type curves are used to smooth and extrapolate original survivor curves determined by the retirement rate method. Iowa curves and truncated Iowa curves were used in this study to describe forecasted rates of retirement based on the observed rates of retirement and the outlook for future retirements. 5 and Sierra Pacific Power Company The estimated survivor curve designations for each depreciable property group indicate the average service life, the family within the Iowa system to which the property group belongs, and the relative height of the mode. For example, the Iowa 50-R2 indicates an average service life of 50 years; a right-moded, or R, type curve (the mode occurs after average life for right-moded curves); and a moderate height, 2, for the mode (possible modes for R type curves range from 1 to 5). 27. Q. SHOULD THE ESTIMATION OF SURVIVOR CURVES BE BASED SOLELY ON THE RESULTS OF STATISTICAL LIFE ANALYSES? A. No. Because depreciation requires the estimation of future service lives for assets currently in service, and because the historical database only allows for the analysis of a portion of the full service lives of each group of assets, informed judgment is necessary to determine the most reasonable survivor curve estimate. Judgment must be used not only to incorporate information external to the statistical analyses, but also to properly interpret the historical data as part of the curve fitting process. Authoritative depreciation texts support that judgment is necessary in the estimation of depreciation, and that reliance only on statistical results can, and does, produce unreasonable results. 28. Q. WHAT APPROACH DID YOU USE TO ESTIMATE THE LIVES OF PRODUCTION FACILITIES? Allis-DIRECT 10 Page 45 of 143

46 and Sierra Pacific Power Company A. The life span method was used to estimate the lives of electric generation facilities, for which concurrent retirement of the entire facility is anticipated. In this method, the survivor characteristics of such facilities are described by the use of interim retirement survivor curves (typically Iowa curves) and probable retirement dates. The interim survivor curve describes the rate of retirement for assets that will be retired prior to the final retirement of the facility (for example, retirements related to the replacement of elements of the facility). For a power plant, examples of interim retirements include the retirement of piping, boiler tubes, condensers, turbine blades, and rotors that occur during the life of the facility. Interim survivor curves were developed using the retirement rate method in a manner similar to that used for mass property. The probable retirement date, an estimate of the probable date at which a facility will be retired based on its anticipated operating life, affects each year of installation for the facility by truncating the interim survivor curve for each installation year at its attained age as of that date. The life span of the facility is the time from when the plant is originally placed in service to the expected date of its eventual retirement (i.e., the probable retirement date). The use of interim survivor curves, truncated at the estimated probable retirement dates, provides a consistent method of estimating the lives of several years installation for a particular facility inasmuch as a single concurrent retirement for all the years of installation will occur at that specified date. 29. Q. HAS THE LIFE SPAN METHOD BEEN USED PREVIOUSLY BY NEVADA POWER? Allis-DIRECT 11 Page 46 of 143

47 1 2 3 A. Yes. The life span method was used and accepted by the Commission in Nevada Power s most recent depreciation study, as well as in Sierra s recent depreciation studies. 4 and Sierra Pacific Power Company Q. WHAT ARE THE BASES FOR THE PROBABLE RETIREMENT DATES THAT YOU ESTIMATED FOR EACH FACILITY? A. The probable retirement dates for Nevada Power s steam production and other production facilities are established using the Commission-approved Life Span Analysis Process ( LSAP ), which is developed and approved during the Company s Integrated Resource Planning ( IRP ) process. The two primary changes in life span estimates from the previous depreciation study are for the Company s coal-fired facilities. As required by Nevada law, the Company has retired all four units at the Reid Gardner facility, and these generating units are therefore not included in the depreciation study. Similarly, the Company also plans to retire the Navajo generating station by the end of 2019, and the life span for this facility has been updated to reflect this change. Company witness Mr. Kevin Geraghty supports the 2019 retirement date for Navajo in his direct testimony. The Commission has not approved new retirement dates for the Company s other generating facilities through the LSAP process since the 2011 depreciation study. The retirement dates for these facilities used in the 2017 Depreciation Study are therefore the same as those approved by the Commission in Docket No For production facilities that were not part of the previous studies (Las Vegas Gen Block 1, 2 and 3 and SunPeak 3, 4 and 5), the life spans are consistent with the life spans currently used for similar facilities. Additionally, a 30-year life span is used Allis-DIRECT 12 Page 47 of 143

48 1 2 for the Nellis Solar facility, consistent with the terms of the Company s agreement with the Nellis Air Force Base. 3 and Sierra Pacific Power Company Q. DID YOU PHYSICALLY OBSERVE NEVADA POWER S ELECTRIC PLANT AND EQUIPMENT AS PART OF YOUR DEPRECIATION STUDY? A. Yes. On January 26 and 27, 2017, my firm held a number of meetings with personnel involved with operations and maintenance of Nevada Power s production, transmission, distribution and general plant. Discussions were held regarding retirement, construction, and operations of electric plant assets. Field visits were also conducted of the Harry Allen, Nellis solar, Las Vegas Gen Block, SunPeak, Clark and Goodsprings generating facilities, as well as the MYS Substation. Meetings and field reviews are typically conducted to become familiar with the Company s operations and obtain an understanding of the function of the plant and information with respect to the reasons for past retirements and the expected future causes of retirements. This knowledge, as well as information obtained from other interviews and discussions with management and Company personnel, was incorporated in the interpretation and extrapolation of the statistical analyses. 32. Q. WOULD YOU PLEASE EXPLAIN THE CONCEPT OF NET SALVAGE? A. Net salvage is a component of the service value of capital assets that is recovered through depreciation rates. The service value of an asset is its original cost less its net salvage. Net salvage is the salvage value received for the asset upon retirement less the cost to retire the asset. When the cost to retire exceeds the salvage value, the result is negative net salvage. Allis-DIRECT 13 Page 48 of 143

49 Inasmuch as depreciation expense is the loss in service value of an asset during a defined period (e.g. one year), it must include a ratable portion of both the original cost and the net salvage. That is, the net salvage related to an asset should be incorporated in the cost of service during the same period as its original cost so that customers receiving service from the asset pay rates that include a portion of both elements of the asset s service value, the original cost and the net salvage value. 7 and Sierra Pacific Power Company For example, the full recovery of the service value of a $100 transformer might actually be $130, as the full cost would include not only the $100 of original cost, but also, on average, $45 to remove the transformer at the end of its life and $15 in salvage value. In this example, the net salvage component is negative $30 ($15 $45), and the net salvage percent is negative 30% (($15 - $45)/$100). 33. Q. PLEASE DESCRIBE HOW YOU ESTIMATED NET SALVAGE PERCENTAGES. A. The net salvage estimate for each plant account is based on informed judgment that incorporates the analysis of historical net salvage data. The net salvage analysis for most accounts incorporated analyses of Nevada Power s historical data for the period of 1986 through In the historical analyses the net salvage, cost of removal and gross salvage amounts were expressed as percentages of the original cost retired. These percentages were calculated on annual, overall and five year averages as well as three-year moving average bases for the 1986 to 2016 period. 34. Q. WAS NET SALVAGE FOR PRODUCTION FACILITIES CALCULATED IN THE SAME MANNER? Allis-DIRECT 14 Page 49 of 143

50 A. Net salvage for production was estimated separately for interim retirements and for final retirements. For interim retirements for production plant, net salvage was estimated in the same manner as described above. For final net salvage, estimates were based on actual site specific dismantling studies. The two net salvage estimates (interim and final) were combined to develop a composite net salvage percent for each production account. 7 and Sierra Pacific Power Company Q. FOR PRODUCTION PLANT HOW WAS THE DECOMMISSIONING COST ESTIMATE DEVELOPED? A. The estimates of decommissioning costs used in the 2017 Depreciation Study are based on the estimates ordered by the Commission in Nevada Power Docket No The estimates in that filing were developed for steam production and other production facilities based on site specific studies performed for Nevada Power by URS Corporation. The URS study was finalized in April of 2011 and was modified by the Commission s Order from Docket No Rather than perform a new decommissioning study, for purposes of the current Depreciation Study the decommissioning costs approved in the Commission s order for Docket No were escalated by the Company to 2016 for the 2017 Depreciation Study. For the Las Vegas and Sun Peak generating stations, the estimates were based on comparable generating units. The decommissioning estimates for the Nellis solar facility are based on an estimate developed for the Company. The development of the decommissioning estimates is discussed in further detail in the prepared testimony of Company witness Ellen Fincher These escalated decommissioning costs were used to develop a percentage by account. This net salvage percentage was then added to the interim retirement net Allis-DIRECT 15 Page 50 of 143

51 salvage percentage to develop an overall net salvage percent for each generating station by account. A description of these calculations and the development of net salvage percentages used for each production account, are provided in Parts VIII and X of the Depreciation Study. 5 and Sierra Pacific Power Company Q. IS THIS AN ACCEPTED METHOD OF DEVELOPING DECOMMISSIONING COSTS? A. Yes, a site-specific study for each individual generating station is generally considered to be the best method to establish decommissioning costs for production plant. This method has been used by the Company in the past and was approved by the Commission in previous rate cases as recently as Docket No Q. PLEASE DESCRIBE THE SECOND PHASE OF THE PROCESS THAT YOU USED IN THE DEPRECIATION STUDY, IN WHICH YOU CALCULATED COMPOSITE REMAINING LIVES AND ANNUAL DEPRECIATION ACCRUAL RATES. A. After I estimated the service life and net salvage characteristics for each depreciable property group, I calculated the annual depreciation accrual rates for each group based on the straight line remaining life method, using remaining lives weighted consistent with the average service life procedure. The annual depreciation accrual rates were developed as of December 31, Q. PLEASE DESCRIBE THE STRAIGHT LINE REMAINING LIFE METHOD OF DEPRECIATION. Allis-DIRECT 16 Page 51 of 143

52 1 2 3 A. The straight line remaining life method of depreciation allocates the original cost of the property, less accumulated depreciation, less future net salvage, in equal amounts to each year of remaining service life. 4 and Sierra Pacific Power Company Q. PLEASE DESCRIBE THE AVERAGE SERVICE LIFE PROCEDURE FOR CALCULATING REMAINING LIFE ACCRUAL RATES. A. The average service life procedure defines the group for which the remaining life annual accrual is determined. Under this procedure, the annual accrual rate is determined for the entire group or account based on its average remaining life and this rate is applied to the surviving balance of the group s cost. The average remaining life of the group is calculated by first dividing the future book accruals (original cost less allocated book reserve less future net salvage) by the average remaining life for each vintage. The average remaining life for each vintage is derived from the area under the survivor curve between the attained age of the vintage and the maximum age. Then, the sum of the future book accruals is divided by the sum of the annual accruals to determine the average remaining life of the entire group for use in calculating the annual depreciation accrual rate. 40. Q. PLEASE PROVIDE AN EXAMPLE TO ILLUSTRATE THE DEVELOPMENT OF THE ANNUAL DEPRECIATION ACCRUAL RATE FOR A PARTICULAR GROUP OF PROPERTY IN YOUR DEPRECIATION STUDY. A. Account 353 Station Equipment is used as an example to illustrate how the annual depreciation rate is determined for a particular group of property. The retirement rate method was used to analyze the survivor characteristics of this property group. Aged plant accounting data were compiled from 1938 through 2016 and analyzed Allis-DIRECT 17 Page 52 of 143

53 and Sierra Pacific Power Company for periods that best represent the overall service life of this property. The life table for the experience band is presented on pages VII-51 and VII- 52 and the life table for the experience band is presented on pages VII-53 and VII-54 of the depreciation study. The life table displays the retirement and surviving ratios of the aged plant data exposed to retirement by age interval. For example, page VII-51 shows $627,722 retired during age interval with $663,276,247 exposed to retirement at the beginning of the interval. Consequently, the retirement ratio is ($627,722/$663,276,247) and the survivor ratio is ( ). The percent surviving at age 1.5 of percent is multiplied by the survivor ratio of to derive the percent surviving at age 2.5 of percent. This process continues for the remaining age intervals for which plant was exposed to retirement during the period from 1938 through The resultant life table, or original survivor curve, is plotted along with the estimated smooth survivor curve, the 60-R2, on page VII-50. The net salvage analysis is presented on pages VIII-23 and VIII-24. The net salvage percentage for each year is based on the result of annual gross salvage minus the cost to remove plant assets as compared to the original cost of plant retired during the period 1986 through The overall average cost of removal, gross salvage and net salvage percentages, as well as moving three-year averages and the most recent five-year averages are also calculated. The calculation of annual depreciation related to the original cost of Account 353 Station Equipment, at December 31, 2016, is presented on pages IX-57 and IX-68. The calculation is based on the 60-R2 survivor curve, (5) percent net salvage, the attained age, and the allocated book reserve. The tabulation sets forth the Allis-DIRECT 18 Page 53 of 143

54 1 2 3 installation year, the original cost, calculated accrued depreciation, allocated book reserve, future accruals, remaining life and annual accrual. These totals are brought forward to the table on page VI and Sierra Pacific Power Company Q. WERE YOU ABLE TO DEVELOP RESULTS FOR EVERY DEPRECIABLE ACCOUNT IN THE STUDY USING THE ABOVE MENTIONED STATISTICAL METHODS? A. Yes. The above mentioned statistical methods were used for each depreciable plant account. Information obtained from Company personnel, comparisons to other electric utilities and experience and knowledge of the electric utility industry were factored into the final results. 42. Q. DID YOU USE THIS SAME METHODOLOGY FOR ALL GENERAL PLANT ACCOUNTS? A. No. As has been the practice in previous depreciation studies, amortization accounting was used for several General Plant accounts. Amortization is appropriate for accounts that have a large number of units, but relatively small asset values. 43. Q. PLEASE DESCRIBE AMORTIZATION ACCOUNTING. A. In amortization accounting, units of property (typically general plant) are capitalized the same as they are in depreciation accounting. Retirements are recorded when a vintage is fully amortized rather than as the units are removed from service as is the case for depreciation accounting. Each plant account or group of assets is assigned a fixed period which represents an anticipated life during which the asset will render service. For example, in amortization accounting assets that Allis-DIRECT 19 Page 54 of 143

55 1 2 have a 10-year amortization period will be fully recovered after 10 years of service and taken off the Company books, even if they remain in service. 3 and Sierra Pacific Power Company Q. HAS THE COMPANY USED AMORTIZATION ACCOUNTING FOR CERTAIN ACCOUNTS IN THE PAST? A. Yes. In Docket No the Commission has approved the use of amortization accounting for the following General Plant accounts: Office Furniture and Equipment Computers 393 Stores Equipment 394 Tools, Shop, and Garage Equipment 395 Laboratory Equipment 397 Communications Equipment 398 Miscellaneous Equipment 45. Q. HOW WERE THE AMORTIZATION PERIODS DETERMINED? A. The amortization periods used in this study were based on informed judgment, which incorporated the current approved amortization periods, a consideration of the period during which the assets will render most of their service, the amortization period and service lives used by other utilities for this type of property, and discussions with Company personnel. The amortization periods recommended in the 2017 Depreciation Study are the same as those approved by the Commission in Docket No Q. DID YOU USE AMORTIZATION ACCOUNTING FOR ALL GENERAL PLANT ACCOUNTS? A. No. For general plant Account 390 Structures and Improvements, Account 392 Transportation Equipment and Account 396 Power Operated Equipment Allis-DIRECT 20 Page 55 of 143

56 1 2 amortization accounting is not used. For these accounts the process for determining depreciation rates was the same as for other depreciable plant accounts Q. WHAT WERE YOUR OVERALL RESULTS OF THE DEPRECIATION STUDY? A. As can be seen in Statement A(1)(d), the overall result of the Depreciation Study is an increase in electric depreciation expense as of December 31, 2016, of approximately $15.2 million. However, this increase is due entirely to the depreciation expense for the Navajo plant, which will be retired in and Sierra Pacific Power Company III. Recovering the undepreciated costs of the Navajo plant over the plant s three year remaining life results in an increase in depreciation expense for this plant of approximately $16.5 million. For the Company s assets excluding the Navajo plant the study results in a decrease in depreciation expense of approximately $1.3 million. THEORETICAL RESERVE IMBALANCE Q. WHAT IS A THEORETICAL RESERVE IMBALANCE? A. A theoretical reserve imbalance ( TRI or imbalance ) is calculated as the difference between a company s book accumulated depreciation, or book reserve, and the calculated accrued depreciation, or theoretical reserve I should note that in prior proceedings, different terms have been used for the theoretical reserve imbalance, including theoretical reserve variance, and theoretical excess depreciation reserve or TEDR. For this testimony I will use the term theoretical reserve imbalance, which is consistent with the terminology used in NARUC s Public Utility Depreciation Practices Allis-DIRECT 21 Page 56 of 143

57 Q. WHAT IS THE BOOK RESERVE? A. The book reserve, also referred to as the book accumulated depreciation or the accumulated provision for depreciation, is a running total of historical depreciation activity. It is equal to the historical depreciation accruals, less retirements and cost of removal, plus historical gross salvage. The book reserve also represents a reduction to the original cost of plant when calculating rate base. 7 and Sierra Pacific Power Company Q. WHAT IS THE THEORETICAL RESERVE? A. The theoretical reserve is an estimate of the accumulated depreciation based on the current plant balances and depreciation parameters (service life and net salvage estimates) at a specific point in time. 51. Q. IS THE THEORETICAL RESERVE THE CORRECT RESERVE? A. No. The theoretical reserve is an estimate based on the current plant balances, and current life and net salvage estimates at a certain point in time. It can provide a benchmark of a Company s reserve position, but it is not the correct reserve amount. In Wolf and Fitch s Depreciation Systems, the authors explain this point on page 86: The CAD 2 is not a precise measurement. It is based on a model that only approximates the complex chain of events that occur in an actual property group and depends upon forecasts of future 2 The term Calculated Accrued Depreciation ( CAD ) is synonymous with the theoretical reserve Allis-DIRECT 22 Page 57 of 143

58 1 2 life and salvage. Thus, it serves as a guide to, not a prescription for, adjustments to the accumulated provision for depreciation. 3 and Sierra Pacific Power Company Q. IF A THEORETICAL RESERVE IMBALANCE EXISTS, DOES A COMPANY NORMALLY TAKE ACTION TO DIRECTLY ADJUST THE BOOK RESERVE? A. No. In most jurisdictions an explicit adjustment directly to the book reserve (such as amortizing a theoretical reserve imbalance over a fixed period of time) is not made. In the majority of jurisdictions, including Nevada, the remaining life technique is used. When using remaining life technique, there is an automatic adjustment, or self-correcting mechanism, which will increase or decrease depreciation expense to account for any imbalances between the book and theoretical reserves. Thus, the depreciation rates presented in the 2017 Depreciation Study, and in previous depreciation studies, already include an adjustment for the theoretical reserve imbalance. No further adjustment is needed. 53. Q. HAVE YOU CALCULATED THE THEORETICAL RESERVE IMBALANCE BASED ON THE CURRENT DEPRECIATION STUDY? A. Yes. 54. Q. WHAT IS THE TRI BASED ON IN THE 2017 DEPRECIATION STUDY? A. In the 2017 Depreciation Study, the TRI is calculated to be a negative amount of $18,446,943 as of December 31, This is less than 1 percent of the calculated theoretical reserve. Allis-DIRECT 23 Page 58 of 143

59 and Sierra Pacific Power Company Q. HOW WOULD YOU CHARACTERIZE THE LEVEL OF THE THEORETICAL RESERVE IN THE 2017 DEPRECIATION STUDY? A. The TRI is less than 1 percent of the theoretical reserve, which I characterize as small. Because depreciation is by nature a forecast of events that will occur over many decades in the future, it should be expected that there should be a theoretical reserve imbalance. An imbalance that is less than 1 percent of the calculated theoretical reserve is quite small, and is smaller than the 10 percent threshold that has been discussed in previous Nevada Power (Docket No ) and Sierra (Docket No ) depreciation cases. 56. Q. WHAT IS YOUR RECOMMENDATION REGARDING THE THEORETICAL RESERVE IMBALANCE? A. My recommendation is that the Company should use the remaining life technique, and that there should be no accelerated amortization of the TRI. 57. Q. ARE THERE ANY ACCOUNTS FOR WHICH YOU HAVE RECOMMENDED SPECIFIC ADJUSTMENTS DUE TO UNIQUE CIRCUMSTANCES? A. Yes. For Account 392 Transportation Equipment and Account 396 Power Operated Equipment, the accumulated depreciation balances are relatively close to the original cost balances for these accounts when compared to the age of the assets in these accounts. The resulting remaining life depreciation rates would therefore be close to 0 percent. This situation arose as a result of changes over time to Company policies related to leasing vehicles. While the remaining life depreciation rates for these accounts would allocate the costs of the existing assets over their remaining service lives, they would be too low for any new vehicles or power operated Allis-DIRECT 24 Page 59 of 143

60 1 2 3 equipment added between now and the next depreciation study. In the next depreciation study, the result would therefore likely be too low of an accumulated depreciation balance and a resulting increase in depreciation expense. 4 5 For this reason, I have recommended separating a portion of the accumulated 6 depreciation for these accounts to be incorporated into a separate amortization, and 7 basing the remaining life depreciation calculations on an accumulated depreciation 8 balance that produces remaining life depreciation rates that are more appropriate 9 for new additions to these accounts. The accumulated depreciation for the separate and Sierra Pacific Power Company IV. amortization is recommended to be amortized over three years, which is consistent with amortizations that have been used in prior cases for occurrences such as retired power plants. The overall result is a lower level of depreciation expense in the current Depreciation Study and depreciation rates that are more appropriate to be applied to new assets added to these accounts. ON LINE DEPRECIATION RATES Q. CAN YOU EXPLAIN THE CALCULATIONS OF DEPRECIATION RATES FOR ONLINE ASSETS? A. Yes. I have calculated depreciation rates for the ON Line assets based on plant balances as of December 31, 2016 using the same survivor curve and net salvage estimates proposed in the current Depreciation Study. This is consistent with the approach used in Sierra s most recent depreciation case in Docket No The calculated depreciation rates for ON Line assets are provided by plant account in Exhibit Allis-Direct 2 of my direct testimony. The updated depreciation rates for ON Line assets result in a decrease in depreciation expense of approximately $400,000 for the total ON Line investment balances Allis-DIRECT 25 Page 60 of 143

61 Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? A. Yes and Sierra Pacific Power Company Allis-DIRECT 26 Page 61 of 143

62 Exhibit Allis-Direct-1 Page 1 of 2 NED W. ALLIS TECHNICAL SPECIALTIES x x Public Utility Plant Depreciation Software Development PERSONAL INFORMATION x x x B.S., Mathematics, Lafayette College Member, Officer and Faculty Member, Society of Depreciation Professionals Certified Depreciation Professional EXPERIENCE Mr. Allis joined the firm in October 2006 and is Project Manager, Depreciation and Technical Development for Gannett Fleming Valuation and Rate Consultants, LLC. His responsibilities include supervising assembly of the basic data required for depreciation studies, conducting statistical analyses of service life and net salvage data, calculating annual and accrued depreciation, and preparing reports and expert testimony setting forth and defending the results of the studies. Mr. Allis is also responsible for Gannett Fleming s proprietary depreciation software, training of depreciation staff, and the development of solutions for technical issues related to depreciation. Several representative assignments include: x Florida Power & Light Company: The 2016 depreciation study for this electric utility included the development of service life and net salvage estimates, field inspections and the calculation of annual and accrued depreciation. Mr. Allis submitted direct and rebuttal testimony as well as oral testimony in public hearings for the Company s 2016 rate case. Additional services have included annual updates and analyses of the Company s depreciation rates and reserve position. x Consolidated Edison Company of New York: The 2014 depreciation studies for this electric and gas utility included the development of service life and net salvage estimates, field inspections and the calculation of annual and accrued depreciation. Mr. Allis submitted direct and rebuttal testimony in the Company s 2016 rate case. Additional services have included the 2013 depreciation studies for electric and gas divisions of the Company s affiliate Orange and Rockland Utilities. x Sierra Pacific Power Company: The 2016 depreciation study for this electric utility included the development of service life and net salvage estimates, field inspections the calculation of annual and accrued depreciation, and a detailed analysis of the Company s theoretical reserve. Mr. Allis submitted direct and rebuttal testimony in the Company s 2016 rate case. x Pepco: The depreciation study for this electric utility included the development of service life and net salvage estimates, and the calculation of annual and accrued depreciation. Mr. Allis submitted rebuttal testimony as well as oral testimony in public hearings for the Company s 2013 rate case in the District of Columbia. x Pacific Gas & Electric Company: The 2014 depreciation studies for this gas and electric utility included the development of service life and net salvage estimates Page 62 of 143

63 Exhibit Allis-Direct-1 Page 2 of 2 NED W. ALLIS and the calculation of annual and accrued depreciation. Additional services included assisting in the development of expert testimony for the Company s 2017 general rate case. Mr. Allis has submitted testimony in the Company s annual FERC rate cases. x PacifiCorp: The 2011 depreciation study for this electric utility included the development of service life and net salvage estimates, field inspections the calculation of annual and accrued depreciation, and a detailed analysis of the Company s theoretical reserve. Additional services included assisting the development of expert testimony for regulatory filings in multiple jurisdictions. x Louisville Gas & Electric Company and Kentucky Utilities Company: The 2011 depreciation studies for these electric and gas utilities included the development of service life and net salvage estimates, field inspections and the calculation of annual and accrued depreciation. Additional services included assisting the development of expert testimony for the Company s 2012 general rate case. x : The 2011 depreciation study for this electric utility included the development of service life and net salvage estimates, field inspections and the calculation of annual and accrued depreciation. Additional services included assisting the development of expert testimony for the Company s 2011 general rate case. x UGI Utilities, Inc.: The 2009, 2010, 2011, 2013 and 2015 depreciation studies for this gas and electric utility included the development of service life estimates, the calculation of annual and accrued depreciation using the equal life group procedure and the preparation of reports required by the Pennsylvania Public Utility Commission. Additional services have included the development of Annual Depreciation Reports for each subsidiary Company, the preparation of depreciation filing requirements for the 2009 rate filings for the Company s Penn Natural Gas and Central Penn Gas subsidiaries, and providing support for expert testimony in these rate filings. x Equitable Gas Company: The 2012 depreciation study for this gas utility included the development of service life and net salvage estimates, field inspections and the calculation of annual and accrued depreciation using the equal life group procedure. Additional services have included the development of Annual Depreciation Reports, the preparation of depreciation filing requirements and providing support for expert testimony related to depreciation for the Company s 2008 rate filing. Mr. Allis is the current Vice President of the Society of Depreciation Professionals. He has contributed to publications by the American Gas Association and Edison Electric Institute, including Introduction to Depreciation for Public Utilities and Other Industries and Depreciation in an IFRS Environment. Mr. Allis s technical education has included the completion of the Depreciation Basics, Life and Net Salvage Analysis and Preparing and Defending a Depreciation Study courses offered by the Society of Depreciation Professionals. He also serves as an instructor for the Society of Depreciation Professionals Introduction to Depreciation, Life and Net Salvage Analysis and Analyzing the Life of Real-Word Property courses. Page 63 of 143

64 EXHIBIT ALLIS-DIRECT- 2 Page 64 of 143

65 CALCULATED COMPOSITE SURVIVOR NET ORIGINAL BOOK FUTURE ANNUAL ACCRUAL REMAINING ACCOUNT CURVE SALVAGE COST RESERVE ACCRALS RATE AMOUNT LIFE (1) (2) (3) (4) (5) (6) (7) (8) (9) OTHER PRODUCTION PLANT 346 MISCELLANEOUS POWER PLANT EQUIPMENT PHOTOVOLTAIC SOLAR 25 - R ,649 6, , , TOTAL ACCOUNT ,649 6, , ,658 TOTAL OTHER PRODUCTION 116,649 6, , , TOTAL PRODUCTION PLANT 116,649 6, ,873 4,658 TOTAL TRANSMISSION PLANT 139,708,148 10,061, ,434, ,716, POLES, TOWERS AND FIXTURES 50 - R1 (45) 14,787 1,284 20, OVERHEAD CONDUCTORS AND DEVICES 60 - R2 (25) 1, , TRANSFORMERS 40 - R2 0 3, , TOTAL DISTRIBUTION PLANT 19,759 1,683 25, COMMUNICATION EQUIPMENT 15 - SQ 0 13,174,137 2,277,457 10,896, , TOTAL GENERAL PLANT 13,174,137 2,277,457 10,896, ,715 TOTAL DEPRECIABLE ELECTRIC PLANT 153,018,693 12,347, ,466, ,600,470 NV ENERGY ON LINE ASSETS SUMMARY OF ESTIMATED SURVIVOR CURVES, ORIGINAL COST, BOOK RESERVE AND CALCULATED ANNUAL DEPRECIATION ACCRUAL RATES AS OF DECEMBER 31, 2016 TRANSMISSION PLANT LAND NONDEPRECIABLE 84, LAND RIGHTS 70 - R4 0 14,308, ,994 13,586, , STATION EQUIPMENT 60 - R2 (5) 34,301,042 1,828,803 34,187, , TOWERS AND FIXTURES 65 - R4 (20) 12,783, ,905 14,486, , POLES AND FIXTURES 55 - R2 (20) 48,684,131 4,372,592 54,048, ,042, OVERHEAD CONDUCTORS AND DEVICES 60 - R2 (30) 29,546,677 2,284,679 36,126, , DISTRIBUTION PLANT GENERAL PLANT Page 65 of 143 NOTES: 1 ACCRUAL RATE SHOWN CORRESPONDS TO THE AMORTIZATION PERIOD.

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