Docket No. 0000- -ER- Witness: Cindy A. Crane BEFORE THE WYOMING PUBLIC SERVICE COMMISSION ROCKY MOUNTAIN POWER Direct Testimony of Cindy A. Crane March 0
0 0 Introduction Q. Please state your name, business address and present position with PacifiCorp dba Rocky Mountain Power ( the Company ). A. My name is Cindy A. Crane. My business address is 0 South Main, Suite 00, Salt Lake City, Utah. I am the President and Chief Executive Officer of Rocky Mountain Power. Qualifications Q. Please describe your professional background. A. I joined PacifiCorp in 0. Since then I have served as Director of Business Systems Integration, Managing Director of Business Planning and Strategic Analysis, Vice President of Strategy and Division Services, and Vice President of Interwest Mining Company and Fuel Resources. My responsibilities in these positions included the management and development of PacifiCorp s 0-year business plan, managing the construction of the Company s Wyoming wind plants, directing operations of the Energy West Mining and Bridger Coal companies, and coal supply acquisition and fuel management for PacifiCorp s coal-fired generating plants. In October 0, I was appointed to my present position as President and Chief Executive Officer of Rocky Mountain Power. In my position, I am responsible for the Company s business affairs in the states of Idaho, Utah, and Wyoming. I have accountability for managing the Company s infrastructure investments and operations in order to deliver safe and reliable electric service to our customers at reasonable prices, which includes a reasonable return to investors. Page Direct Testimony of Cindy A. Crane
0 0 Q. Please describe Rocky Mountain Power s presence in Wyoming. A. Rocky Mountain Power is a major employer, taxpayer and energy provider in the state of Wyoming. Most significantly, the Company has the privilege and opportunity of providing safe, reliable, and reasonably priced electric service to approximately,000 customers in Wyoming. In doing so, it employs over,00 people in the state to operate and maintain four thermal generation stations, nine wind powered generation projects representing approximately megawatts ("MW") of renewable generation capability, and over,000 miles of transmission and distribution lines. Purpose and Summary Q. What is the purpose of your testimony? A. The purpose of my testimony is to support and introduce the Company s request for a revenue increase and explain why an increase is needed at this time even though a rate case was just completed in 0. In doing so, I will give an overview of the major components of the request and identify the witnesses that will present the details of the Company's request. Q. What is the amount of the rate relief being requested in this Docket? A. The revenue requirement request in this case represents a. percent overall increase, or $. million, over current rates for the period rates will be in effect in 0. The details of the revenue requirement and all of the adjustments made in the case to arrive at the requested increase are explained in the testimony and exhibits of Company witness Steven R. McDougal. The testimony of Company witness Joelle R. Steward describes how different customer classes will Page Direct Testimony of Cindy A. Crane
0 0 experience different percentage increases based on their share of the cost of providing electric service to them. Q. What are the main drivers of the Company s request for an increase in revenues? A. The main factors include:. Recovery of capital investments necessary to provide safe, reliable electric service to our customers or to meet mandatory compliance requirements for facilities. This filing includes investments for Selective Catalytic Reduction ("SCR") systems at Jim Bridger Units and for which the Commission previously issued a certificate of public convenience and necessity ("CPCN"), and the remaining rate base balance of the Sigurd to Red Butte Transmission line that was reviewed in the 0 General Rate Case in Docket No. 0000--ER- ( 0 GRC ) but only included /th of the investment level due to the average rate base calculation. In addition to the recovery of these investments, the Company is also requesting a return on investment of. percent as supported by Company witness Dr. Samuel C. Hadaway;. An increase in net power costs ("NPC") as addressed by Company witness Gregory N. Duvall; and. An increase in Operations and Maintenance ("O&M") expense primarily due to the impacts of the Company's proposal to close the Deer Creek Mine in Docket No. 0000--EA- ("Mine Closure Application"), and due to a request for O&M funding specifically earmarked to maintain and Page Direct Testimony of Cindy A. Crane
0 0 improve system reliability within Wyoming. Need for Rate Relief Q. Why is this increase needed so soon after an increase was just approved in 0 and made effective January, 0? A. For the last several years, the Company has been dealing with two major cost drivers in providing electric service to its Wyoming customers and meeting its obligation to serve, namely, required capital investments and increases in net power costs. The primary investment drivers in this case reflect the culmination of years of work on several major infrastructure projects to deliver and maintain service to customers or to meet federally mandated compliance requirements to continue to operate several Wyoming-based generation units. For the costs related to net power costs, the Company's base rates in prior cases have not adequately reflected the actual levels of incurred variable costs in generating electricity needed by our customers. As a result, significant true-ups through the Company's Energy Cost Adjustment Mechanism ("ECAM") have been required. The Company has taken steps in this case to improve the forecast of NPC and to reflect a level of anticipated net power costs that will be experienced during the rate effective period. As a result, a resetting of the base level of net power costs in rates results in upward pressure on customers' prices. Q. Has the Company taken steps to manage the level of rate increases being requested in Wyoming? A. Yes. While many of the capital investments that are being placed into service and reflected in rate base in this case have been underway for years and could not be Page Direct Testimony of Cindy A. Crane
0 0 avoided, the Company reviewed its capital investment plans for the future and rephased or eliminated many projects based on projections of load growth, market dynamics or compliance requirements. The Company is attempting to align as closely as possible its capital expenditure levels with its levels of depreciation expense to manage the growth of rate base levels and the resulting rate impacts it would otherwise have. The Company is also managing its controllable costs in a prudent manner, which is evident in that they are not a material driver in this case. The Company is sensitive to the impact rate changes have on its customers and is working to be as efficient as possible and to also reduce the risk of future cost increases as evidenced by its actions related to the Deer Creek Mine closure. In spite of price increases and our focused efforts to manage cost increases throughout the business, the Company is not recovering its prudently incurred costs, i.e., net power costs, Operation and Maintenance Administrative and General ( OMAG ), and capital expenditures ( CAPEX ). The increase in rates proposed in this case, combined with a forecasted test period that matches the rate effective period, will allow the Company a reasonable opportunity to recover its prudent costs. Major Components of the Rate Increase Capital Investments Q. Please describe the capital investments that contribute to the need for rate relief. A. This case includes approximately $. million more in net electric plant in service on a Wyoming allocated basis over the net electric plant in service Page Direct Testimony of Cindy A. Crane
0 0 approved by the Commission in the 0 GRC. $. million of the Wyoming allocated portion of the capital investments includes the Sigurd to Red Butte transmission line and the SCR installations at the Jim Bridger Power Plant for units and. This case includes approximately $. million more Wyoming allocated rate base than approved by the Commission in the 0 GRC, after factoring in changes related to accumulated deferred income taxes and other miscellaneous rate base items. The details of these capital investments can be found in Exhibit RMP (SRM-) of Company witness Mr. McDougal's testimony, and the investments being made for the Jim Bridger SCRs are supported by Company witness Chad A. Teply. Q. Have the major investments included in your request for rate relief been previously addressed before this Commission in some manner? A. Yes. The Sigurd to Red Butte transmission line was included in rate base in the 0 GRC for / of the investment level due to the average rate base calculation, and was approved by the Commission. This case simply reflects the remaining balance of the investment in rate base. In relation to the Jim Bridger SCR investments, the Company stipulated to a process to allow Wyoming parties an opportunity to review the Company's decision to make the investments in SCR equipment at Jim Bridger as part of the CPCN proceeding to determine if the projects were needed and in the public interest. As discussed in Mr. Teply's testimony, the Parties to the 00 Stipulation agreed to not challenge the Company's prudence or recovery of the costs associated with the Jim Bridger Stipulation and Agreement ("00 Stipulation") approved in Docket No. 0000--ER-0 (the 00 General Rate Case ). Page Direct Testimony of Cindy A. Crane
0 0 SCR investments in any future Wyoming rate case except to the extent that () the cost of the environmental project exceeds the estimated costs or () there is evidence of mismanagement. However, the 00 Stipulation did not in any way limit the Commission's ability to review the prudence of the investment when it was to be presented for cost recovery as is being done in this case. Consistent with its position in the CPCN Docket for the Jim Bridger SCR investments and its current experience with the Jim Bridger SCR projects, the Company reiterates that the investments are needed and the costs are prudent. The Company has properly managed the costs of the project and will successfully complete the projects in order to meet its compliance requirements. Q. Are there other significant capital investment projects that are located in Wyoming and are also included in this rate case? A. Yes. In addition to the Jim Bridger Units & investments mentioned above, other specific projects that are located in Wyoming include:. Construction of the new 0 kv Standpipe substation in response to growth in Carbon County; this project is expected to commence service in May 0;. Construction of Silver Creek transmission line located in southwest Wyoming, expected to go into service in phases, with the final phase commencing service in November 0;. Construction of the Bar Nunn/Natrona County Airport new kv transmission line and kv substation which is required in response to load growth in the Bar Nunn/Natrona County airport area; this project is Page Direct Testimony of Cindy A. Crane
0 0 expected to commence service in November 0; and. Conversion of the Casper Outer Loop from kv to kv and construction of a new kv transmission line from the Red Butte substation to tap into the Casper-WAPA transmission line in response to reliability issues and growth in the Casper area. This project is expected to commence service in June 0. Many of these projects have also been the subject of prior proceedings before the Commission or agreements with parties. Additional details for costs included for these projects can be found in Mr. McDougal's testimony and exhibits. Net Power Costs Q. Please explain why net power costs are a driver in the need for rate relief in this case. A. As described in the testimony of Company witness Mr. Duvall, total Company net power costs are $ million (. percent) higher than in the 0 GRC, and on a Wyoming-allocated basis NPC in this case are $ million (. percent) higher than in the 0 GRC. The change in NPC from the 0 GRC are the result of:. increases in load growth forecasts;. the reduction in wholesale sales revenue due to lower prices for wholesale market sales transactions with a 0 percent decline in price, and expired contracts with Sacramento Municipal Utility District and Shell Energy North America;. an increase in purchased power expense due to the addition of new Page Direct Testimony of Cindy A. Crane
0 0 qualifying facilities ( QFs") power purchase agreements, which are partially offset by the expiration of long-term purchase agreements;. a reduction in coal fuel expense driven by the closure of the Carbon power plant in April 0 and the proposed closure of the Deer Creek Mine as detailed in the Mine Closure Application;. higher natural gas expense due to increased generation output at the Company s natural gas fired plants due to lower natural gas prices; and,. higher wheeling expenses resulting from use of the Bonneville Power Administration ( BPA ) transmission system. Q. Please explain how the Company is proposing to treat net power costs within base rates in this case. A. The Company is proposing to remove all NPC and certain associated variable costs from base rates and include those as a separate tariff rider as part of a new proposal for replacing the ECAM and recovering NPC through Tariff Schedule. The reason for the separation is due to the volatile and unpredictable nature of power costs, which has resulted in forecasts that have been below the actual power costs the Company has incurred over the last several years. This is one of the contributing factors that has led to the Company filing rate cases on a frequent basis over the past decade. More details on the Company's proposal are included in the testimony of Mr. Duvall and Frank C. Graves, who is a consultant from the Brattle Group presenting testimony on behalf of the Company. Q. Has the Company taken any steps to reduce net power costs? A. Yes. The Company has taken a leadership role in developing and implementing Page Direct Testimony of Cindy A. Crane
0 0 the energy imbalance market with the California Independent System Operator. The energy imbalance market went live October, 0, with binding financial transactions beginning November, 0. Wyoming customers are already receiving cost savings from the energy imbalance market which help to reduce net power costs. Mr. Duvall discusses why the Company's participation in the innovative energy imbalance market is a major reason to remove the sharing bands from the ECAM. Operations and Maintenance ("O&M") Expense Deer Creek Mine Closure Q. Please explain the increase in non-npc O&M expense related to the closure of the Deer Creek Mine. A. While the net power costs in this case reflect a decrease due to the Company's proposal in the Mine Closure Application, the amortization of certain regulatory assets also reflected in that application increase non-npc O&M expense during their period of amortization. In this Docket, the Company has included the impact of its accounting treatment from the Mine Closure Application as filed in that proceeding. Company witness Mr. McDougal details each of the components of the Mine Closure Application and its impact to the revenue requirement in this case. Distribution Maintenance Q. Please explain the increase in the O&M distribution expense in this case. A. The Company is requesting an increase in the O&M distribution expense of $. million for projects located in Wyoming over the level in the 0 GRC. The Page 0 Direct Testimony of Cindy A. Crane
0 0 Company is requesting the additional maintenance funding to improve the reliability of targeted portions of the network. This funding will be used to complete additional reliability work plans in Wyoming as described by Company witness Paul J. Radakovich. Introduction of Witnesses Q. Please identify the witnesses supporting the Company s application and the subject of their testimony. A. In addition to myself, the Company witnesses that filed direct testimony in support of the application and the subjects of their testimony are as follows: Bruce N. Williams, Vice President and Treasurer, provides testimony about the Company s cost of debt, preferred stock and capital structure including the Company s overall return on rate base requested in this case. Dr. Samuel C. Hadaway, FINANCO, Inc., provides testimony about the Company s return on equity. Steven R. McDougal, Director, Revenue Requirement, presents the Company s overall revenue requirement based on the forecasted results of operations for the test period. He will describe the sources of the forecast data and present certain normalizing adjustments related to revenue, operations and maintenance expense, depreciation and amortization, taxes, and rate base. Gregory N. Duvall, Director, Net Power Costs and Load Forecasting, discusses the forecast test period loads and sales in Wyoming that outline the changes from the 0 general rate case to this current case. Mr. Duvall further describes the Company s total net power costs and the influences that are driving up total net Page Direct Testimony of Cindy A. Crane
0 0 power costs beyond the level approved in the 0 general rate case. He will also outline how the Company proposes to separate net power costs from base rates and include them within the modified ECAM. Frank C. Graves, Principal, The Brattle Group, provides testimony regarding the Company's need for a revised ECAM mechanism that allows it to recover all of its prudently incurred net power costs. Stephen A. Larsen, Vice President of Interwest Mining, specifically addresses the issue of coal costs and the cost drivers associated with fuel. Chad A. Teply, Vice President of Resource Development and Construction, PacifiCorp Energy, provides testimony in support of the SCR pollution control equipment retrofits on the Jim Bridger Power Plant Units and. Paul J. Radakovich, Vice President, Operations for Rocky Mountain Power, provides testimony on the various operations and maintenance work activities that are completed on the network. Additionally, he supports the Company's request for an additional $. million for maintenance expenses in this case. Joelle R. Steward, Director, Pricing, Cost of Service, and Regulatory Operations, presents the Company s class cost of service study and rate spread and rate design proposals. Conclusion Q. Please summarize your testimony. A. The Company has properly and prudently invested in infrastructure projects that will allow it to continue to provide safe and reliable power to its Wyoming customers and to be in compliance with Environmental Protection Agency Page Direct Testimony of Cindy A. Crane
0 requirements in order to continue to generate low cost power from its Wyominglocated Jim Bridger Generation Station, Units and. The Company is prudently managing its other costs including its net power costs as evidenced by its leadership role in creating the energy imbalance market and is taking actions to control those costs or to eliminate future risks of increasing costs. However, our ability to totally mitigate the cost impacts of the capital additions and increasing net power costs is limited. Our electricity is and will continue to remain a great value. Because of the impact electricity prices have on the economy and our customers, we are committed to continue making prudent near- and long-term decisions that are in the best interests of our customers needs and desires. Q. Does this conclude your direct testimony? A. Yes. Page Direct Testimony of Cindy A. Crane