BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA APPLICATION OF LIBERTY UTILITIES (CALPECO ELECTRIC) LLC (U 933 E)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Liberty Utilities (CalPeco Electric) LLC (U 933 E) for Authority to Update Rates Pursuant to Its Energy Cost Adjustment Clause Effective January 1, 2017. Application No. 16-07- APPLICATION OF LIBERTY UTILITIES (CALPECO ELECTRIC) LLC (U 933 E) Pursuant to Article 2 of the California Public Utilities Commission s ( Commission ) Rules of Practice and Procedure ( Rules ), Liberty Utilities (CalPeco Electric) LLC (U 933 E) ( Liberty Utilities ) submits the following application and accompanying testimony ( Application ). First, Liberty Utilities seeks authority to update rates pursuant to its Energy Cost Adjustment Clause ( ECAC ) and to become effective January 1, 2017. Liberty Utilities requests an annual decrease in the revenues to be collected through from ECAC rates of $3.606 million from the proposed revenues to be recovered through the ECAC rates incorporated into the all-party settlement currently pending in Liberty Utilities 2016 general rate case application (Application ( A. ) 15-05-008) ( GRC/ECAC Settlement Rates ). 1 The requested decrease represents a 12.06 percent annual decrease in the rate recovery from ECAC rates as compared to the GRC/ECAC Settlement Rates. 1 See A. 15-05-008, Joint Motion to Adopt All-Party Settlement Agreement Among Liberty Utilities (CalPeco Electric) LLC (U933E), the Office of Ratepayer Advocates, and the A-3 Customer Coalition (May 28, 2016) ( GRC Settlement Approval Motion ), at Attachment A. DWT 29968006v1 0089731-000050 1

Second, Liberty Utilities seeks approval of its greenhouse gas ( GHG ) 2017 cost and revenue forecast and reconciliation, and to accordingly set GHG rates to be effective January 1, 2017. Third, as required by Decision ( D. ) 15-12-021, Ordering Paragraph No. 5, Liberty Utilities is submitting a compliance filing showing the comparison between the unit cost of renewable energy under the [2016] NV Energy [Services Agreement], versus the cost of renewable energy Liberty Utilities paid pursuant to the agreement Liberty Utilities had with NV Energy during the prior period January 1, 2011 through December 31, 2015 ( Prior NV Energy Services Agreement ). I. LIBERTY UTILITIES Liberty Utilities serves approximately 49,000 electric customers in California, in and around the Lake Tahoe Basin. Its service territory is geographically compact and generally encompasses the western portions of the Lake Tahoe basin. Liberty Utilities customers are located in portions of Placer, El Dorado, Nevada, Sierra, Plumas, Mono, and Alpine Counties. Almost 80 percent of Liberty Utilities customers are located in the Lake Tahoe Basin. The biggest population center is the City of South Lake Tahoe. The Liberty Utilities service territory extends from Portola in the north to Markleeville and Topaz Lake in the south. During the period January 1, 2011 through December 31, 2015, Liberty Utilities procured essentially 100 percent of its energy supply through the Prior NV Energy Services Agreement. 2 On April 24, 2015, Liberty Utilities submitted A. 15-04-019 seeking approval of a new agreement with NV Energy ( 2016 NV Energy Services Agreement ) with a term to commence on January 1, 2016, immediately upon the expiration of the Prior NV Energy Services 2 The Commission approved, and authorized Liberty Utilities to recover its costs associated with, the Prior NV Energy Services Agreement in D. 10-10-017. DWT 29968006v1 0089731-000050 2

Agreement. The Commission authorized Liberty Utilities to enter the 2016 NV Energy Services Agreement in D. 15-12-021. 3 The 2016 NV Energy Services Agreement continues to obligate NV Energy to deliver the full requirements necessary for Liberty Utilities to serve its retail and wholesale electric customers on a real-time basis. Importantly, the 2016 NV Energy Services Agreement also provides Liberty Utilities with the purchase flexibility to displace purchases from NV Energy with purchases from, among other alternative supply sources, the Luning Solar Project. The project is a 50 MW solar generating facility currently being constructed in Hawthorne, Nevada, and has a projected commercial operation date of February 1, 2017. In D. 16-01-021 ( Luning Approval Decision ), the Commission authorized Liberty Utilities to enter into a purchase and sale agreement to acquire, operate, maintain, and obtain renewable generation from, the Luning Solar Project. For purposes of this Application, Liberty Utilities is forecasting that during its eleven months of generation in 2017, the Luning Solar Project will deliver approximately 140,000 MWh to Liberty Utilities. This generation from the Luning Solar Project will displace renewable generation that Liberty Utilities would otherwise purchase pursuant to the 2016 NV Energy Services Agreement. This displacement in the purchases from NV Energy by the deliveries from the Luning Solar Project decreases Liberty Utilities forecast of power purchases, which in turn causes a reduction in the forecast of the Fuel and Purchased Power Costs used to derive Liberty Utilities ECAC rates. 3 The Commission conditioned its approval on the Parties amending the agreement to incorporate certain changes D. 15-12-021 required. On December 22, 2015, Liberty Utilities submitted Advice Letter 51-E presenting the Commission with an amended 2016 NV Energy Services Agreement which revises the agreement in accordance with the requirements of D. 15-12-021. The Federal Energy Regulatory Commission authorized NV Energy to provide the power sales and other services set forth in the 2016 NV Energy Services Agreement. See FERC Docket No. ER15-2592-001, Letter Order, Power Purchase Agreement (December 29, 2015). Accordingly the 2016 NV Energy Services became effective in accordance with its terms as of January 1, 2016. DWT 29968006v1 0089731-000050 3

Lastly, Liberty Utilities owns and operates the 12 MW diesel-fired Kings Beach Generating Station ( Kings Beach ). Kings Beach is permitted to operate no more than 720 machine hours per calendar year, and is used in limited, emergency situations (i.e., in 2015 Kings Beach generated less than 546 MWh). 4 II. LIBERTY UTILITIES ENERGY COST ADJUSTMENT CLAUSE A. Background The purpose of the ECAC is to reflect in rates (1) Liberty Utilities Fuel and Purchased Power Costs, and (2) certain other energy-related costs. Liberty Utilities ECAC tariff obligates it to revise its ECAC Billing Factors in calendar years when it does not file a general rate case application (e.g., 2016), if a change to total ECAC revenues of +/- 5 percent occurs as a result of the combination of revisions to the: (1) Offset Rate based on the new Fuel and Purchased Power forecast for the Forecast Period; and, (2) Balancing Rate to amortize any projected over- or under-collection balance in the Energy Cost Adjustment Balancing Account as of the Revision Date. 5 The ECAC tariff defines Forecast Period as the twelve calendar month period commencing with the Revision Date, which for this Application is January 1, 2017. B. Summary of ECAC Request Liberty Utilities proposes an overall annual decrease in ECAC revenues of $3.606 million from the GRC/ECAC Settlement Rates to reflect and pass through to customers the costs to Liberty Utilities to recover its Fuel and Purchased Power Costs. The net decrease is composed 4 See Placer County Air Pollution Control District, Authority to Construct/Temporary Permit to Operate, Permit Nos. AC-07-113A, AC-07-113B, AC-07-113C, AC-07-113D, AC-07-113E, and AC-07-113F. A machine hour represents the operation by any one of the facility s six 2 MW units (e.g., during an hour in which Kings Beach operates its six generators, it will be charged with 6 machine hours against its permit limitation). 5 See D. 12-11-030, at Exhibit B. DWT 29968006v1 0089731-000050 4

of: (1) an approximate annual $4.680 million decrease associated with changes to the Offset Rate; and (2) an approximate annual $1.074 million increase associated with changes to the Balancing Rate. 1. Offset Rate The decrease related to the Offset Rate is driven primarily by the forecast of a substantial decrease in the Fuel and Purchased Power Costs. The substantial decrease in Purchased Power Costs is attributable to reductions in: (1) the quantity, and (2) the price of, purchased power. First, as explained above and in Chapter 1, Liberty Utilities anticipates that the 50 MW Luning Solar Project will commence commercial operations as of February 1, 2017, and that its solar generation will displace renewable power Liberty Utilities would otherwise purchase from NV Energy. As a consequence, Liberty Utilities is projecting a significant reduction in the quantity of the renewable power that it purchases and thus a corresponding decrease in its Purchased Power Costs. Second, in general, renewable energy represents the more expensive component of the NV Energy supply portfolio that it uses to supply Liberty Utilities. Thus, by reducing the volumes of renewable power purchased at these higher cost levels from NV Energy, Liberty Utilities effectively reduces the average price of the power that it will purchase from NV Energy. Another component of Fuel and Purchased Power Costs is the fuel-related costs associated with Kings Beach. The cost for the fuel burn associated with the Kings Beach Facility is projected to be $72,242 in 2017. Liberty Utilities derived this forecast by taking the average of Liberty Utilities annual recorded costs to purchase fuel from 2012 to 2015. The final component of the Fuel and Purchased Power Cost is associated with certain confidential payments that Liberty Utilities will indirectly be obligated to pay the minority owner DWT 29968006v1 0089731-000050 5

( Tax Equity Partner ) of the Luning Solar Project ( Tax Equity Partner Distribution Payment ). 6 2. Balancing Rate Liberty Utilities is forecasting an overcollection in the Energy Cost Adjustment Clause Balancing Account, as of December 31, 2016, of $3.733 million. This forecast assumes that current ECAC rates will remain effective through September 30, 2016 and that as of October 1, 2016, the GRC/ECAC Settlement Rates will become effective as requested in the pending motion to approve the settlement in the general rate case ( GRC Settlement Approval Motion ). 7 Liberty Utilities proposes to amortize the $3.733 million overcollection over a period of 24 months beginning on January 1, 2017. This updated amount of the projected overcollection as of December 31, 2016 in the Balancing Account is less than the $6.673 million projected overcollection upon which the Balancing Rate was derived in the GRC/ECAC Settlement Rates. 8 As a consequence of this reduction in the projected overcollection in the Balancing Account in this Application, Liberty Utilities is proposing to increase the Balancing Rate annually by $1.074 million. C. Revenue Allocation and Rate Design The revenue allocation and rate design Liberty Utilities proposes in this Application similarly assumes the GRC/ECAC Settlement Rates and associated revenue allocation and rate 6 In the Luning Approval Decision, the Commission determined that the ratemaking treatments for all expenses related to the acquisition and operation of the Luning facility described in the [Luning] Settlement Agreement should result in just and reasonable rates. Luning Approval Decision, mimeo at 42 (Conclusions of Law No. 2). The Luning Settlement Agreement provides that Liberty Utilities could record the distributions it will make to the Tax Equity Partner in its ECAC Balancing Account and to recover the amount of the Tax Equity Partner Distribution Payments in accordance with its ECAC tariff. Luning Approval Decision, Attachment A, Section 3.7. 7 See GRC Settlement Approval Motion. The GRC Settlement Approval Motion requests an effective date for the settlement agreement of October 1, 2016. The deadline for filing of comments on the GRC Settlement Approval Motion was June 17, 2016. No comments have been filed. 8 See GRC Settlement Approval Motion at 6. DWT 29968006v1 0089731-000050 6

design will be approved and become effective as of October 1, 2016. Accordingly, Liberty Utilities proposed ECAC-related decrease will be allocated as follows: (1) the Offset Rate will generate 14.24 percent less in revenues than the revenues that will be realized by the Offset Rates for each customer class agreed to in the GRC/ECAC Settlement Rates; and (2) the change in the Balancing Rate will be on an equal cent per kwh basis and will increase the Balancing Rate by reducing the current credit of $0.00500 per kwh to a credit of $0.00308 per kwh. The combination of the proposed decrease in the Offset Rate and increase in the Balancing Rate results in an overall decrease in the aggregate ECAC rate from $0.05037 per kwh to $0.04283 per kwh. III. 2017 GHG COST AND REVENUE FORECAST AND RECONCILIATION A. Background In D. 14-10-033, the Commission required Liberty Utilities to file its [future GHG forecast revenue and reconciliation requests] as an additional chapter or section within its... [ECAC application], but in any event not later than August 1 of each year. 9 Accordingly, Liberty Utilities is including its 2017 GHG revenue forecast and reconciliation request as part of this ECAC Application. 10 B. Specific GHG-Related Requests Liberty Utilities requests in this Application that the Commission authorize Liberty Utilities to use for purposes of setting its GHG rates that reflect and pass through to customers 9 D. 14-10-033, mimeo at 51 (Ordering Paragraph No. 10). 10 Liberty Utilities did not file its 2016 GHG revenue forecast and reconciliation request as part of its 2016 ECAC request that was filed as part of its 2016 general rate case application. Liberty Utilities requested an extension (see April 30, 2015 Letter to Executive Director Sullivan Re: Request for Extension of Time to Comply with Ordering Paragraph No. 10 of Decision 14-10-033) to file its 2016 GHG revenue forecast and reconciliation request and to file the GHG request separate from its 2016 general rate case application. Liberty Utilities filed its 2016 GHG forecast revenue and reconciliation request as a separate application on August 3, 2015 ( A.15-08-007 ) enabling Liberty Utilities to use additional recorded months from 2015 to base its 2016 GHG-related forecasts. DWT 29968006v1 0089731-000050 7

the GHG costs Liberty Utilities incurs for the California cap-and-trade program, to be effective commencing January 1, 2017: 1) Forecast 2017 GHG emissions costs incurred directly or indirectly by Liberty Utilities as a result of the GHG cap-and-trade program ( GHG Costs ); 2) Forecast 2017 administrative and customer outreach expenditures by Liberty Utilities associated with the cap-and-trade program ( GHG Administrative and Customer Outreach Expenses ); and 3) Forecast 2017 allowance revenues Liberty Utilities will realize by selling the allowances allocated to its customers by the California Air Resources Board ( GHG Allowance Revenues ), as adjusted by the amortization of the 2016-year end forecasted over collection in the GHG Revenue Balancing Account ( GHG Account Balance ) (as adjusted, GHG Adjusted Allowance Revenues ). Liberty Utilities additionally requests that the Commission find Liberty Utilities reconciliation of its 2015 GHG costs to be reasonable, and allow Liberty Utilities to accordingly adjust its 2017 GHG rates. In this Application, Liberty Utilities specifically requests approval to decrease its Carbon Pollution Permit Cost rate by $0.00055/kWh, reduce its small business rate credit by $0.00051/kWh, and reduce the amount of the semi-annual California Climate Credit by $3.59 through the following GHG-cost, accounting and ratemaking matters: 1) Total confidential forecasted 2017 GHG Costs represented on Line 24 of Template D- 2 attached in Appendix A of Chapter 2; 2) Total forecasted 2017 GHG Administrative and Outreach Expenses: $245,100; 3) Total forecasted 2017 GHG Adjusted Allowance Revenues: $3,108,411; 4) Total forecasted 2017 Small Business Volumetric Return: $368,918; 5) Total forecasted 2017 EITE Customer Return: $0.00; and 6) Total recorded 2015 GHG Administrative and Outreach Expenses: $283,893. Based on its current forecasts, Liberty Utilities projects that its residential customers will receive a semi-annual California Climate Credit of $22.96 on the bills they receive each April DWT 29968006v1 0089731-000050 8

and October 2017. The actual amount of the California Climate Credit will change based on the forecasts that the Commission approves for Liberty Utilities. IV. DECISION 15-12-021 COMPLIANCE FILING In accordance with Ordering Paragraph No. 5 of D. 15-12-021, Liberty Utilities includes the requested compliance filing in Chapter 3 of the accompanying testimony. As required, the compliance filing contains a comparison of the unit cost of renewable energy under the 2016 NV Energy Services Agreement as compared with the prices for renewable energy Liberty Utilities paid pursuant to the Prior NV Energy Services Agreement. The compliance filing also provides, as Ordering Paragraph No. 5 requires, the work papers that support the comparison. These work papers (attached as Appendix A to Chapter 3) consist of the monthly invoices that NV Energy provided for its sales to Liberty Utilities for the months of January through April 2016. V. PROCEDURAL REQUIREMENTS A. Statutory Authority Liberty Utilities files this Application pursuant to Sections 451, 454, and 701 of the Public Utilities Code, and Article 2 of the Commission s Rules of Practice and Procedure, and prior decisions, orders, and resolutions of this Commission. B. Rule 2.1(a) Applicant Information Liberty Utilities is a California limited liability company. It has its principal place of business at 933 Eloise Avenue, South Lake Tahoe, CA 96150. DWT 29968006v1 0089731-000050 9

C. Rule 2.1(b) -- Correspondence All correspondence and communications with respect to this Application should be addressed or directed as follows: Steven F. Greenwald Vidhya Prabhakaran Davis Wright Tremaine LLP 505 Montgomery Street, Suite 800 San Francisco, CA 94111-6533 Telephone: (415) 276-6500 Facsimile: (415) 276-6599 Email: stevegreenwald@dwt.com Email: vidhyaprabhakaran@dwt.com Ken Wittman Liberty Utilities (CalPeco Electric) LLC 933 Eloise Avenue South Lake Tahoe, CA 96150 Telephone: 530-541-5780 Email: ken.wittman@libertyutilities.com D. Rule 2.1(c) Categorization, Need for Hearings, Schedule, and Issues to be Considered Liberty Utilities proposes that this proceeding be categorized as ratesetting pursuant to Rule 1.3(e). Liberty Utilities does not believe that hearings will be necessary as this Application contains ample information, analysis, and documentation that provides the Commission with a sufficient record upon which to grant the relief requested. Liberty Utilities tariffs contemplate that the revisions to its ECAC and GHG rates that this Application proposes are to become effective as of January 1, 2017. Liberty Utilities accordingly proposes the following procedural schedule: Application Filed July 1, 2016 Protest/Responses to Application Due August 4, 2016 Applicants Reply to Protest/Responses August 15, 2016 Prehearing Conference September 2016 Scoping Memo September 2016 DWT 29968006v1 0089731-000050 10

Proposed Decision issued Final Commission Decision issued Final Rates Effective October 10, 2016 November 10, 2016 January 1, 2017 Liberty Utilities believes that the only issues that should be considered as part of this proceeding are whether: 1. The requests to update Liberty Utilities rates pursuant to its ECAC tariff effective January 1, 2017 are reasonable; 2. To approve Liberty Utilities GHG 2017 cost and revenue forecast and reconciliation, and to accordingly determine the GHG rates proposed to become effective January 1, 2017 are reasonable; and 3. The compliance filing contained within Chapter 3 satisfies the requirements set forth in D. 15-12-021 (Ordering Paragraph No. 5). E. Rule 2.2 Organization and Qualification to Transact Business A copy of the Articles of Organization of Liberty Utilities has previously been filed with the Commission as part of Application 14-04-037, Exhibit A. A Certificate of Status for Liberty Utilities issued by the California Secretary of State has previously been filed with the Commission as part of Application 15-04-016, Exhibit A. F. Index of the Exhibits and Testimony Chapters and Appendices to this Application Liberty Utilities submission in support of this Application includes the following: Testimony Chapter and Appendix List Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause (Alain R. Blunier) (Public Version) Appendix A Witness Statements of Qualifications: Alain R. Blunier Appendix B 2017 Energy Cost Adjustment Clause Revenue Requirement Chapter 2 2017 GHG Cost and Revenue Forecast and Reconciliation (Alain R. Blunier) DWT 29968006v1 0089731-000050 11

Appendix A Attachments C and D to D. 14-10-033 (Public Version) Chapter 3 D.15-12-021 Compliance Filing (Alain R. Blunier)(Public Version) Appendix A Work Papers (Alain R. Blunier) (Public Version) VI. CONCLUSION Liberty Utilities respectfully requests that the Commission authorize it to: 1) Grant Liberty Utilities request to update its ECAC rates pursuant to this Application effective January 1, 2017; 2) Authorize Liberty Utilities to file a Tier 1 Advice Letter to revise its ECAC tariff with new ECAC Billing Factors as described above; 3) Grant Liberty Utilities requests to update its GHG rates based on its 2017 GHG cost and revenue forecast and reconciliation by approving its: a. forecast 2017 GHG Costs; b. forecast 2017 GHG Administrative and Customer Outreach Expenses; c. forecast 2017 GHG Adjusted Revenues; d. proposed reconciliation of its 2015 GHG costs as reasonable; and e. proposed adjustment of 2017 GHG rates as reasonable and in accordance with the outcome of the proposed reconciliations; 4) Authorize Liberty Utilities to file a Tier 1 Advice Letter to implement changes to its GHG rates associated with Liberty Utilities 2017 GHG cost and revenue forecast and reconciliation, as described above; 5) Find that Liberty Utilities has complied fully with the requirements set forth in Ordering Paragraph No. 5 of D. 15-12-021; and 6) Grant Liberty Utilities such other and further relief requested, and as the Commission finds just and reasonable. DWT 29968006v1 0089731-000050 12

Respectfully submitted, By: /s/ DAVIS WRIGHT TREMAINE LLP Steven F. Greenwald Vidhya Prabhakaran Davis Wright Tremaine LLP 505 Montgomery Street, Suite 800 San Francisco, CA 94111-6533 Tel. (415) 276-6500 Fax. (415) 276-6599 Email: stevegreenwald@dwt.com Email: vidhyaprabhakaran@dwt.com July 1, 2016 Attorneys for Liberty Utilities (CalPeco Electric) LLC DWT 29968006v1 0089731-000050 13

PUBLIC VERSION - REDACTED Docket No.: A.16-07- Exhibit No.: Date: July 1, 2016 Witness: Alain R. Blunier ALJ: DIRECT TESTIMONY OF LIBERTY UTILITIES (CALPECO ELECTRIC) LLC CHAPTER 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause (Witness: Alain R. Blunier) (Public Version)

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier TABLE OF CONTENTS I. INTRODUCTION AND SUMMARY... 1 II. 2016 NV ENERGY SERVICES AGREEMENT AND LUNING SOLAR PROJECT... 2 III. FORECASTS... 9 IV. ENERGY COST ADJUSTEMENT CLAUSE REVENUE REQUIREMENTS. 12 V. REVENUE ALLOCATION AND RATE DESIGN... 13 VI. CONCLUSION... 14 DWT 29966196v1 0089731-000050 Chapter 1 1-i

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 I. INTRODUCTION AND SUMMARY 1. Q: Please state your name, occupation, and business address. A: My name is Alain R. Blunier. My business address is 933 Eloise Avenue, South Lake Tahoe, California 96150. I am employed by Liberty Utilities Service Corp. 1 as a Rate Analyst II. My responsibilities are to provide services to Liberty Utilities (CalPeco Electric) LLC ( Liberty Utilities ). 2. Q: Does Appendix A of Chapter 1 entitled Witness Statements of Qualifications: Alain R. Blunier accurately summarize your background, education, and experience? A: Yes. 3. Q: What is the purpose of your direct testimony in this chapter? A: My testimony in this chapter explains the derivation of Liberty Utilities proposed changes to its Energy Cost Adjustment Clause ( ECAC ) rates, including (i) the Fuel and Purchased Power forecast for 2017 used for purposes of calculating the Offset Rate; and (ii) 1 Liberty Utilities Service Corp. is an affiliate of Liberty Utilities created to administer certain payment and benefit programs for the Liberty Utilities and the affiliates of Liberty Utilities which provide utility services in the United States. See A. 15-11-009, Application of Liberty Utilities (CalPeco Electric) LLC (U 933 E) for Exemption from the Affiliate Transaction Rules for Its Transactions with Liberty Utilities Service Corp., or, in the Alternative, for a Waiver from Affiliate Transaction Rules V.C., V.G.1., and V.G.2.c, at 2-3, 20 (Filed November 12, 2015); see also A.15-11-009, Scoping Memo and Ruling of Assigned Commissioner (May 18, 2016). DWT 29966196v1 0089731-000050 Chapter 1 1-1

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 the forecast of the ECAC balancing account as of December 31, 2016 for purposes of calculating the Balancing Rate. 4. Q: Describe why Liberty Utilities is filing an ECAC application this year. A: Liberty Utilities ECAC tariff, authorized in D. 12-11-030, requires that Liberty Utilities file an ECAC application in any year in which it is not filing a general rate case application and its forecasts that the total ECAC revenues are expected to deviate by more than 5 percent from the revenues collected through its current ECAC rates. 2 As will be explained, Liberty Utilities forecasts that its annual ECAC revenue requirement will decrease by 12.06 percent. Accordingly, Liberty Utilities is obligated to file this application and request authority to revise its ECAC rates as of January 1, 2017. 11 12 II. 2016 NV ENERGY SERVICES AGREEMENT AND LUNING SOLAR PROJECT 1. Q: Explain the background, implications and consequences of the 2016 13 14 15 16 17 18 NV Energy Services Agreement on the revision to the ECAC rates Liberty Utilities is proposing in this Application. A: During the period January 1, 2011 through December 31, 2015, Liberty Utilities procured essentially 100 percent of its energy supply through an agreement with NV Energy ( Prior NV Energy Services Agreement ). The Prior NV Energy Services Agreement obligated NV Energy to provide Liberty Utilities the full requirements of energy sufficient to 2 D. 12-11-030, at Exhibit B; Liberty Utilities, Preliminary Statement No. 6. DWT 29966196v1 0089731-000050 Chapter 1 1-2

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 enable Liberty Utilities to serve the load requirements of its customers. NV Energy s obligation under the Prior NV Energy Services Agreement to provide Liberty Utilities its full requirements was on a real-time basis; thus, as Liberty Utilities load varied from minute to minute, NV Energy was obligated to follow these variations in load on a real-time basis. On April 24, 2015, Liberty Utilities submitted Application ( A. ) 15-04-019 seeking approval of a new agreement with NV Energy ( 2016 NV Energy Services Agreement ) with a term to commence on January 1, 2016, immediately upon the expiration of the Prior NV Energy Services Agreement. The Commission authorized Liberty Utilities to enter the 2016 NV 9 Energy Services Agreement in Decision ( D. ) 15-12-021. 3 The 2016 NV Energy Services 10 11 12 13 14 Agreement continues to obligate NV Energy to deliver the full requirements necessary for Liberty Utilities to serve its retail and wholesale electric customers on a real-time basis. Importantly, the 2016 NV Energy Services Agreement also provides Liberty Utilities the purchase flexibility to displace purchases from NV Energy with purchases from, among other alternative supply sources: (i) a Liberty Renewable Project, including the Luning 3 D. 15-12-021 conditioned the Commission s approval on the Parties amending the agreement to incorporate certain changes D. 15-12-021 required. On December 22, 2015, Liberty Utilities submitted Advice Letter 51-E presenting the Commission with an amendment to the 2016 NV Energy Services Agreement that revises the agreement in accordance with the requirements of D. 15-12-021. The Federal Energy Regulatory Commission authorized NV Energy to provide the power sales and other services set forth in the 2016 NV Energy Services Agreement. See FERC Docket No. ER15-2592-001, Letter Order, Power Purchase Agreement (December 29, 2015). Accordingly the 2016 NV Energy Services Agreement became effective in accordance with its terms as of January 1, 2016. DWT 29966196v1 0089731-000050 Chapter 1 1-3

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Solar Project, which will be described further; (ii) capacity and energy from up to 8 MW of capacity of renewable energy located within the service territory of Liberty Utilities; and (iii) any Qualifying Facility located within the service territory of Liberty Utilities. 4 As will be further explained in Chapter 3, the 2016 NV Energy Services Agreement reduces the costs of the renewable energy that Liberty Utilities purchases from NV Energy. These reductions in the price of renewable energy and the other price reductions Liberty Utilities obtained in the 2016 NV Energy Services Agreement are reflected in the $11.020 million reduction in the annual ECAC revenue requirement that is incorporated into the all-party settlement currently pending in Liberty Utilities 2016 general rate case application (A. 15-05- 008) ( GRC Settlement ). The joint motion to approve the GRC Settlement ( GRC Settlement Approval Motion ) 5 requests that the Commission approve the settlement on a schedule that enables the reduction in the ECAC rates to become effective as of October 1, 2016. The authorizations Liberty Utilities requests in this ECAC application assume that the Commission will timely 4 2016 NV Energy Services Agreement, at Section 4.6. 5 A.15-05-008, Joint Motion to Adopt All-Party Settlement Agreement Among Liberty Utilities (CalPeco Electric) LLC (U933E), the Office of Ratepayer Advocates, and the A-3 Customer Coalition (May 18, 2016). DWT 29966196v1 0089731-000050 Chapter 1 1-4

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 approve the GRC Settlement 6 and the settlement ECAC rates ( GRC/ECAC Settlement Rates ) will become effective as of October 1, 2016. 2. Q: Explain the background, implications and consequences of the Luning Solar Project on the revision to the ECAC rates Liberty Utilities is proposing in this Application. A: The Luning Solar Project is a 50 MW solar project currently being constructed in Hawthorne, Nevada. A third party developed and is now constructing the Luning Solar Project. For purposes of this ECAC application, the Luning Solar Project is projected to commence commercial operation as of February 1, 2017. In D. 16-01-021 ( Luning Approval Decision ), the Commission authorized Liberty Utilities to enter into a purchase and sale agreement to acquire, operate, and maintain the Luning Solar Project. During the initial approximately five years of the Luning Solar Project s operation, the Solar Project Company will own the Luning Solar Project. An affiliate of Liberty Utilities will obtain a majority coownership interest in the Solar Project Company and a Tax Equity Partner will own the minority interest. The Luning Approval Decision also authorizes Liberty Utilities to purchase the 6 The deadline for filing of comments on the GRC Settlement Approval Motion was June 17, 2016. No comments have been filed. DWT 29966196v1 0089731-000050 Chapter 1 1-5

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 minority interest of its Tax Equity Partner in the Solar Project Company. 7 After the completion 2 3 4 5 of its purchase of the Solar Project Company, Liberty Utilities will become the 100 [percent] direct owner of the Luning Solar Project. 8 During this initial period when the Solar Project Company owns the Luning Solar Project, Liberty Utilities will purchase the solar generation through a power purchase agreement 6 entered with the Solar Project Company. 9 Under general ratemaking principles, the costs that 7 8 9 10 11 12 13 14 15 Liberty Utilities would incur to purchase the solar generation pursuant to the power purchase agreement with the Solar Project Company would be recorded as a Fuel and Purchased Power Cost and be recovered through the ECAC mechanism. However, the Luning Solar Project presents unique circumstances, including that from an operational perspective as of the first day of commercial operations, Liberty Utilities will have possession, and function as if it is the owner-operator, including having all of the operating and safety responsibilities of the 100 percent owner for the Luning Solar Project. 10 Additionally, the commercial arrangements relating to the Luning Solar Project differ from a garden-variety long-term power purchase agreement as within a relatively short period (projected 7 The Luning Approval Decision explains that the participation of the Tax Equity Partner and the various arrangements enable Liberty Utilities to reduce the capital cost of its investment to own the Luning Solar Project and thus, in addition, to the environmental and greenhouse gas reduction benefits of a solar project, reduce costs to its customers. See Luning Approval Decision, mimeo at 36. 8 See Luning Approval Decision, mimeo at 39. 9 Luning Approval Decision, mimeo at 16-17. 10 See Luning Approval Decision, mimeo at 20. DWT 29966196v1 0089731-000050 Chapter 1 1-6

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 to be about 5 years) Liberty Utilities will become the 100 percent direct owner. The Commission accordingly granted Liberty Utilities the authority to recover its costs associated with the Luning Solar Project beginning as of its Commercial Operation Date as if the Luning Solar Project were utility-owned generation, and thus be authorized to recover the costs of the solar generation delivered by the Luning Solar Project primarily through general rates. 11 Thus for purposes of this ECAC application, Liberty Utilities is not including within its Fuel and Purchased Power Cost forecast the costs it will incur during 2017 to purchase solar power from the Solar Project Company pursuant to the power purchase agreement. An additional consequence of the Luning Solar Project is that the volumes of purchased power that Liberty Utilities is forecasting for 2017 in this Application reflect that certain volumes of Luning Solar Project solar generation will displace generation that Liberty Utilities would have otherwise purchased pursuant to the 2016 NV Energy Services Agreement. As will be further explained in my response to the next question, pursuant to the Luning Approval Decision, Liberty Utilities will seek rate recovery for the costs associated with the solar generation it shall obtain during 2017 from the Luning Solar Project primarily through the Post-Test Year Adjustment Mechanism ( PTAM ) advice letter it shall submit in October 2016. The October 2016 PTAM advice letter shall request the rate increases requested become 11 See Luning Approval Decision, mimeo at 33-35. DWT 29966196v1 0089731-000050 Chapter 1 1-7

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 effective as January 1, 2017 and concurrently with the ECAC rate reductions requested in this ECAC application. 12 3. Q: Describe the other Commission Rulings Related to the Luning Solar Project that Have Additional Consequences for this ECAC Application. A: In the Luning Approval Decision, the Commission determined that the ratemaking treatments for all expenses related to the acquisition and operation of the Luning facility described in the [Luning] Settlement Agreement should result in just and reasonable 8 rates. 13 It accordingly authorized Liberty Utilities to seek rate recovery of authorized capital 9 10 11 12 13 expenses and other costs related to [the] acquisition and initial operation of the Luning project through its PTAM submissions to be made in October 2016 and October 2017. 14 The Luning Settlement Agreement also provided that Liberty Utilities could record the costs it will incur resulting from certain payments that the Solar Project Company will make to the Tax Equity Partner during the initial years of the Solar Projects operations ( Tax 12 Liberty Utilities will calculate the portion of the revenue requirement attributable to the Luning Solar Project in its October 2016 PTAM based on the then most current forecast of the project s anticipated Commercial Operation Date. Liberty Utilities will seek rate recovery only for the portion of 2017 in which the Luning Solar Project is actually generating solar power. Thus, for instance, if the October 2016 PTAM continues to project that the Luning Solar Project will achieve Commercial Operation as of February 1, 2017 (i.e., the same date this Application assumes), Liberty Utilities will base its rate request to recover the costs attributable to the Luning Solar Project on the latter eleven months of 2017 (i.e. the 2017 Luning Solar Project PTAM revenue requirement will be set at a level equal to 11/12 of the annual Luning Solar Project revenue requirement). 13 Luning Approval Decision, mimeo at 42 (Conclusions of Law No. 2). 14 See Luning Approval Decision, mimeo at 44 (Ordering Paragraph No. 2). DWT 29966196v1 0089731-000050 Chapter 1 1-8

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 Equity Partner Distribution ) 15 in its ECAC account and to recover such Tax Equity Partner 2 Distribution costs in in accordance with its ECAC tariff. 16 Accordingly, Liberty Utilities 3 4 5 6 forecast of ECAC-recoverable 2017 costs projects total 2017 payments to the Tax Equity Partner as Tax Equity Partner Distribution payments of For purposes of this Application, Liberty Utilities is projecting that it will record the Tax Equity Partner Distribution payments it will make for 2017 in twelve equal monthly payments. 7 8 9 III. FORECASTS 1. Q: Identify the components of the Purchased Power Cost forecast. A: Liberty Utilities developed its Purchased Power Cost forecast for the 10 11 12 13 14 15 16 calendar year 2017 utilizing the 2016 NV Energy Services Agreement billing rates, NV Energy s forecasted energy costs and demand forecasts, the projected output of the Luning Solar Project, and Liberty Utilities kwh usage forecast. Ken Parris of Business Economic Analysis and Research prepared the load forecast. 2. Q: Describe the kwh usage forecast. A: We separated the retail usage forecasts into individual sales categorized by customer class. We prepared sales forecasts for each customer class: residential, commercial, 15 See Luning Approval Decision, mimeo at 22-23. 16 The Luning Settlement Agreement also provides that Liberty Utilities shall recover the payment Liberty Utilities expects to make to purchase the Tax Equity Partner s ownership interest in the Solar Project Company, referenced as a Buy-Out Payment, through ECAC. However, any such Buy-Out Payment would be incurred beyond the 2017 forecast period and is thus not reflected in this Application. DWT 29966196v1 0089731-000050 Chapter 1 1-9

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 industrial, irrigation, highway, street lighting, and sales for resale (i.e., wholesale). The usage forecast separates residential customer classes into California Alternative Rates for Energy ( CARE ) and Non-CARE classes, and separates the large commercial customer class between ski resorts and other large customers. 3. Q: Explain how you used the kwh usage forecast to develop the Purchased Power Cost forecast. A: The 2016 NV Energy Services Agreement obligates Liberty Utilities each month to pay NV Energy an amount equal to the Monthly Charge. Section 11 of the Agreement describes the Monthly Charge as equal to the sum of the monthly Energy Charge, the Demand Charge, the Transmission Charge, the Distribution Charge and any Energy Charge Adjustment. 17 We derived the monthly kwh forecasts to be used for the Purchased Power Cost forecast by first taking the kwh retail usage forecast for all customer classes and applying the Line Loss factor of 7.95 percent derived from the last 24 months of actual Line Losses. We then calculated a forecast of the monthly Energy Charge by multiplying the monthly energy kwh forecast by NV Energy s forecasted Energy Rate. 17 Section 11 and Exhibit D to the 2016 NV Energy Services Agreement describe these components which add up to the Monthly Charge. DWT 29966196v1 0089731-000050 Chapter 1 1-10

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 To determine its forecast of monthly Demand Charges, Liberty Utilities multiplied the Demand Charge 18 by the monthly billing demand (kw) forecast NV Energy provided. To develop the forecast of monthly Transmission Charges, Liberty Utilities multiplied the Transmission Rate from the 2016 NV Energy Services Agreement by the 6 Transmission Demand (kw) NV Energy forecasted. 19 Liberty Utilities forecast of its monthly 7 8 9 10 11 12 13 14 15 Distribution Charge is based on the reduced monthly Distribution Charge in the 2016 NV Energy Services Agreement of $19,240 (a reduction from the $22,700 charge in the Prior NV Energy Services Agreement ). 20 As explained above, the volumes of Purchased Power that Liberty Utilities is forecasting for 2017 are less than in prior forecasts to reflect the displacement by solar generation from the Luning Solar Project of energy that Liberty Utilities would otherwise be purchasing pursuant to the 2016 NV Energy Services Agreement. The total of these charges provides the 2017 projected Purchased Power Costs of $27.249 million. 18 The 2016 NV Energy Services Agreement reduces the Demand Charge from $12.02/kW-month in the Prior NV Energy Services Agreement to $9.37/kW-month. D. 15-12-021, mimeo at 8; see also 2016 NV Energy Services Agreement, at Section 11.1. 19 2016 NV Energy Services Agreement, at Section 11.2. The 2016 NV Energy Services Agreement reduces the transmission line loss factor from 1.0234 percent to 1.0157 percent which serves to reduce the Transmission Charge. See D.15-12-021, mimeo at 8-9. 20 D. 15-12-021, mimeo at 9; see also 2016 NV Energy Services Agreement, at Section 11.5. DWT 29966196v1 0089731-000050 Chapter 1 1-11

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 4. Q: Describe the manner in which Liberty Utilities prepared its projection of Fuel Usage costs for the 2017 forecast period? A: Liberty Utilities derives its Fuel Usage forecast by averaging the actual fuel costs Liberty Utilities incurred each year in 2012, 2013, 2014, and 2015. Accordingly, Liberty Utilities projects fuel usage of $74,242 for 2017. 6 7 8 IV. ENERGY COST ADJUSTEMENT CLAUSE REVENUE REQUIREMENTS 1. Q: Describe Liberty Utilities proposals for the ECAC Offset Rate. A: With respect to the Offset Rate, Liberty Utilities is projecting an 9 10 11 12 13 14 15 16 17 18 approximate annual $4.680 million decrease in revenue associated with changes to the Offset Rate. As discussed above, the decrease related to the Offset Rate is driven primarily by the forecast of a decrease in the quantity of energy purchased. 2. Q: Describe Liberty Utilities proposals for the ECAC Balancing Rate. A: With respect to the Balancing Rate, we are projecting a December 31, 2016 overcollection in the ECAC Balancing Account of $ 3.733 million. This forecast assumes current ECAC rates will remain effective through September 30, 2016 and that as of October 1, 2016 the ECAC rates agreed to in the GRC Settlement will become effective. The overcollection projected is less than the overcollection that was forecasted as of December 31, 2016, for purposes of the GRC Settlement. DWT 29966196v1 0089731-000050 Chapter 1 1-12

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 We are proposing to amortize this now projected overcollection of $3.733 million, over a period of 24 months. Due to the now smaller overcollection projected, the amount of the credit that the Balancing Rate effectively provides customers is reduced and equates to annual increase of $1.074 million in the Balancing Rate revenue. 3. Q: Describe the combination of the changes you are proposing to the Offset Rate and to the Balancing Rate. A: As explained in the prior sections and illustrated in Appendix B, compared to the GRC/ECAC Settlement Rates, Liberty Utilities is proposing a decrease of $4.680 million to the Offset Rate annual revenue requirement and an increase of $1.074 million to the ECAC Balancing Rate revenue as compared to the levels agreed to in the GRC Settlement. The combination of these two requests yield a 2017 ECAC revenue requirement of $26.297 million, representing a reduction of 12.06 percent from the total ECAC revenue requirement submitted in the GRC Settlement of $29.903 million. V. REVENUE ALLOCATION AND RATE DESIGN 1. Q: Describe the revenue allocation and rate design that Liberty Utilities proposes in this Application. A: For purposes of revenue allocation and rate design, Liberty Utilities is assuming that the GRC/ECAC Settlement Rates and associated revenue allocation and rate DWT 29966196v1 0089731-000050 Chapter 1 1-13

PUBLIC VERSION - REDACTED Liberty Utilities (CalPeco Electric) LLC Energy Cost Adjustment Clause Application Direct Testimony Chapter 1 2017 Fuel and Purchased Power Forecast and Energy Cost Adjustment Clause Alain R. Blunier 1 2 3 4 5 6 7 8 9 10 11 12 13 14 design will be approved and become effective as of October 1, 2016. Liberty Utilities is accordingly proposing in this Application to continue the same revenue allocation and rate design concepts agreed to in the GRC Settlement. 2. Q: Describe the consequences of Liberty Utilities maintaining in this Application the same revenue allocation and rate design as reflected in the GRC Settlement. A: Liberty Utilities proposed ECAC decrease will be allocated among the customer classes as follows: (1) the Offset Rate revenues will be reduced for each customer class by 14.24 percent from the Offset Rate revenues for each customer class agreed to in the GRC Settlement; and (2) the change in the Balancing Rate will be on an equal cent per kwh basis and will increase the Balancing Rate by reducing the current credit of $0.00500 per kwh to a credit of $0.00308 per kwh. The combination of the proposed decrease in the Offset Rate and increase in the Balancing Rate results in an overall decrease in the average ECAC rate across customer classes from $0.05037 per kwh to $0.04283 per kwh. 15 16 17 VI. CONCLUSION 1. Q: Does this conclude your direct testimony? A: Yes, it does. DWT 29966196v1 0089731-000050 Chapter 1 1-14