Docket No. 0000--ER- Witness: Dana M. Ralston BEFORE THE WYOMING PUBLIC SERVICE COMMISSION ROCKY MOUNTAIN POWER Rebuttal Testimony of Dana M. Ralston September 0
1 1 1 0 1 Q. Please state your name, business address, and present position with PacifiCorp dba Rocky Mountain Power ( RMP or the Company ). A. My name is Dana M. Ralston. My business address is 0 West North Temple, Suite 0, Salt Lake City, Utah. My present position is Vice President of Coal Generation and Mining. I am responsible for the coal thermal generation resources and the coal mining operations owned by the Company. QUALIFICATIONS Q. Please describe your education and business experience. A. I have a Bachelor of Science Degree in Electrical Engineering from South Dakota State University. I have been the Vice President of Coal Generation and Mining for the Company since January 0. Prior to that, I held a number of positions of increasing responsibility with Berkshire Hathaway Energy for years within the generation organization including the plant manager position at the Neal Energy Center, a 1,00 megawatt generating complex. In my current role, I am responsible for operation and maintenance of the coal generation fleet, coal fuel supply, and mining. PURPOSE AND OVERVIEW OF TESTIMONY Q. What is the purpose of your testimony? A. The purpose of my testimony is to respond to proposed generation plant operations and maintenance ("O&M") expense adjustments recommended by Kevin Higgins in his testimony on behalf of the Wyoming Industrial Energy Consumers ("WIEC"). In doing so, I explain why the Company's projected generation plant O&M expense levels in the Company s filed test period results Page 1 Rebuttal Testimony of Dana M. Ralston
1 1 1 0 1 are just and reasonable. VARIANCES IN GENERATION PLANT O&M EXPENSES Q. Have you reviewed Mr. Higgins' testimony? A. Yes. Q. Please explain Mr. Higgins' proposed adjustment to incremental generation O&M expense. A. Mr. Higgins proposes to reduce the Company's incremental generation O&M expense by approximately $1. million (Wyoming-allocated) and claims that he is concerned with the accuracy of the Company's estimates. Q. Do you agree with Mr. Higgins' adjustment? A. No. Mr. Higgins bases his adjustment on a comparison of actuals to forecasts from prior periods and dockets and assumes it will happen again in the future. The difference between the Test Period projection and the actuals from the prior case is approximately $. million (total Company). Of the $. million, approximately $. million was under spend by the Company s operated coal plants, $1. million was over spend by the Company s operated gas plants, and approximately $. million under spend by the partner plants (all total Company). A majority of the costs that Mr. Higgins references as "under spend" are projected costs from the partner plants (all total Company). Although the Company works with its partners who operate partner-owned plants, the Company has less control of the operational budgets for those partner plants. The Company's actual costs for its own operated plants, on a net basis, are reasonably close to projections. Page Rebuttal Testimony of Dana M. Ralston
1 1 1 0 1 Q. What factors account for the differences at the Company s operated coal plants? A. The Company develops test period forecasts based on the best information available at that time. The forecast costs include a forecast for dispatch and fuels characteristics for each generation plant. When the plants are actually dispatched and fuel is consumed, the actual costs can be different from projections. Overall, in the case of the Company s operated coal plants, changes in dispatch and fuel quality were the main factors that resulted in a reduction of over $. million (total Company) for reagent used in environmental controls. Had load conditions and fuel quality occurred as projected, the Company would have actually spent more than what had been projected. In addition, over $0.1 million in reductions were the result of under spend at the Carbon plant during its last several months of operation. The Carbon plant closed in April of 0 and the Company only spent funds to keep the plant running until its April 0 closure date. These cost savings were a result of repairing things that failed and eliminating spending on preventive measures. Importantly, they were a one-time event due to the closure of the Carbon plant and should not be expected to occur again. Thus, an adjustment based on a one-time event should be rejected. Q. What factors account for the difference at the Company s partner plants? A. One factor is that partner plants have much different budgeting cycles than the Company, which can lead to a wider variance between actuals versus projections. The Company used the partner-approved information from 0 which was the most current information available at the time the forecasts were developed. Page Rebuttal Testimony of Dana M. Ralston
1 1 1 0 1 During this two to three year period, changes occurred that influenced actual costs. Q. Are there specific factors that caused changes in the projections for the partner plants? A. Yes. Some of the coal plants experienced reduced reagent use as a result of being dispatched less frequently than expected and projected. The reduced reagent use accounts for approximately $0.1 million (total Company) of the difference. In addition, for partner plants, all costs except overhaul costs are included in O&M expense, so labor costs can also impact these numbers. Consequently, the Company reduced labor costs by approximately $0. million (total Company) after receiving updates from one of the partner plants. Yet another factor impacting the under spend are unexpected one time insurance or litigation settlements that benefited our customers. The total of these were $0. million (total Company). Q. Are there other factors that impact these costs? A. Yes. The Company and the partner plants develop and track budgets based on a calendar year basis and the timing of the test period and the budget year is not always aligned. For example, the test period in the last general rate case did not match the calendar year used for budgeting purpose; it was months ending June 0. Thus, there are times when expenses will shift from one month to another but will remain within the budget year. Several factors cause these shifts including weather, material delivery, and projected loads and unit outages. While in some cases the projected test year may show a reduction compared to budget, Page Rebuttal Testimony of Dana M. Ralston
1 1 1 0 1 the calendar year budget compared to actuals does not show the same reduction. For example, this occurred at the Cholla plant in 0 and accounts for approximately $.0 million (total Company) of the variance related to the partner owned plants. Q. Does the Company believe these O&M generation costs included in this rate case are reasonable? A. Yes. For generation O&M costs, there will always be variances between the forecasts used in the rate case and the actual incurred costs irrespective of the test period used. Projected costs will be, by definition, different from actual costs. These variances can be higher or lower. Q. Do you agree with Mr. Higgins recommended adjustments? If not, why not? A. No. Mr. Higgins has the luxury of using hindsight to support his adjustments. The Company uses its experience and expertise to come up with the best estimates based on actual, reliable cost data to develop forecasts upon which the Commission can determine reasonable and prudent rates. Steven McDougal s rebuttal testimony provides additional details on the thorough process used by the Company. These projections use data that can and probably will change when actual conditions occur. As I discussed above, the Company s operated coal plants variance was tied to the use of reagent chemicals which is very dependent on loads. If loads had actually occurred as projected, actual costs would have been higher. In the case of the Company s operated gas plants, costs were actually $1. million higher than projected. The partner plants impacts are tied to a number of factors including lower utilization of the plants that reduced reagent use, lower Page Rebuttal Testimony of Dana M. Ralston
1 1 1 0 1 labor costs, one time insurance and litigations settlements, and timing of costs in the test year as compared to the budgeted calendar year, all of which are determined by the partner plant operator or our customers, not by the Company. The Company uses the best information available from the partner plants and does challenge the costs to ensure they are reasonable and for the benefit of our customers. In some cases the Company can reduce costs, but to assume that this will be a sustainable year-over-year event is not realistic. Q. Can O&M generation expense variability be reduced? A. Yes. Generation O&M expense includes chemicals that are directly tied to capacity factor and fuel quality. Both of these vary with actual conditions and projections will change with time. For the Company s operated plants, chemicals in 0 are projected to cost over $.0 million (total Company). This is a significant portion of the O&M expense budget. A solution to O&M expense volatility would be to treat these costs as part of net power costs that qualify for inclusion in the Energy Cost Adjustment Mechanism ( ECAM ). Due to their relative volatility compared to other plant O&M categories, I believe recovery of these costs through the ECAM is appropriate. If these costs are included in the ECAM, generation plant O&M levels included in base rates would not reflect the volatility of these cost categories. ECAM treatment would tie recovery of these costs more closely to the load and fuel factors that impact them, resulting in more balanced cost recovery from the perspective of both customers and the Company. Page Rebuttal Testimony of Dana M. Ralston
CONCLUSION 1 1 Q. What do you recommend? A. The Commission should reject Mr. Higgins' recommendation because I have offered reasonable explanations for the differences between the actuals and forecasts and have demonstrated that the Company uses its experience and expertise to develop reasonable and prudent forecasts. Doing a high level comparison after-the-fact and suggesting reductions without looking into the details for the differences and factoring the reasonableness of the differences is not prudent and not in the long-term best interests of our customers. Q. Do you have any other recommendations? A. Yes, as addressed above, the Commission should move recovery of chemical and startup fuel costs from O&M expense in the general rate case process to recovery through the ECAM. These costs vary with load and load factors that are beyond the control of the Company. This is a far better way to address the variability of these costs than making a reduction in expenses based on a limited comparison of forecasts and actuals. Q. Does this conclude your rebuttal testimony? A. Yes. Page Rebuttal Testimony of Dana M. Ralston