STATS OF >1INNESOTA. OFFICK OF THK A.TT(»RNKv GJ:NKUA. ST. PAUL ooioo. November 21, 1986

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1 (JT) # UBERT H. HUMPHREY. Ill ATTORNEY GENERAL STATS OF >1INNESOTA OFFICK OF THK A.TT(»RNKv GJ:NKUA ST. PAUL ooioo November 21, 1986 ADDRESS REPLY TO: 1100 BREMER TOWER SEVENTH PL. AND MINNESOTA ST. ST. PALL. MN TELEPHONE: (612) Honorable Judge Richard DeLong Administrative Law Judge Office of Administrative Hearings 400 Summit Bank Building 310 Fourth Avenue South Minneapolis, MN RECEIVED NOV 2 J 1986 Re: INTERSTATE POWER COMPANY Docket No. E 001 / GR Dear Judge DeLong: Enclosed and served upon you please find the Rebuttal Testimony and Exhibits of Judy Forstner Poferl on behalf of the Minnesota Department of Public Service. Also enclosed is an affidavit of service. Respectfully submitted, Q^^.SJ^A ANN M. SEHA ' Special Assistant Attorney General Telephone: (612) COUNSEL FOR THE MINNESOTA DEPARTMENT OF PUBLIC SERVICE /la Enc. c(w7 enc): All Parties of Record g\ V St. AN EQUAL OPPORTUNITY EMPLOYER

2 STATE OF MINNESOTA ) COUNTY OF RAMSEY ) AFFIDAVIT OF SERVICE I, Linda Anthony, being first duly sworn, deposes and says: That on the 2 1 s t day of November igaa, (s)he served the attached Rebuttal Testimony and Exhibits of Judy Forstner Poferl on behalf of the Minnesota Department of Public Service E 001 / GR Interstate Power Docket No. XX by depositing in the United States Mail at the City of St. Paul, a true and correct copy thereof, properly enveloped with postage prepaid. XX by personal service to all persons at the addresses indicated below or on the attached list: See attached list. Subscribed and sworn to before me r thisl^^thdayh af>/u&t*~*'#-4-^ "^^'ta! :? uqfrfc

3 (JX-S W V $ # In the Matter of the Petition of Interstate Power Company for Authority to Increase Rates for Electric Utility Service in Minnesota Docket No. E-001/GR Mary Ellen Hennen Executive Secretary MN Public Utilities Commission 780 American Center Building 150 East Kellogg Boulevard Allen Giles Special Assistant Attorney General 780 American Center Building 150 East Kellogg Boulevard Karen Kramer MN Public Utilities Commission 780 American Center Building 150 East Kellogg Boulevard Susan Mackenzie MN Public Utilities Commission 780 American Center Building 150 East Kellogg Boulevard Stuart Mitchell MN Public Utilities Commission 780 American Center Building 150 East Kellogg Boulevard Caroline Robinson MN Public Utilities Commission 780 American Center Building 150 East Kellogg Boulevard Linda Anthony Department of Public Service 790 American Center Building 160 E. Kellogg Blvd. Bruce Linscheid, Case Coordinator Department of Public Service 790 American Center Bldg. 160 E. Kellogg Blvd. Michael Bradley Assistant Attorney General 340 Bremer Tower 7th Place & Minnesota St. William Grant, Manager Energy Issues Coordination Office Department of Energy and Economic Development 9th Floor, American Center Building Ann M. Seha Special Assistant Attorney General 1100 Bremer Tower Building 7th Place and Minnesota Street Tony Perpich Department of Energy and Economic Development 9th Floor, American Center Building Thomas F. Pursell Special Assistant Attorney General 1100 Bremer Tower 7th Place and Minnesota Street Richard DeLong Office of Administrative Hearings 400 Summit Bank Building 310 South Fourth Avenue Minneapolis, MN Kurt S. Fischer, City Attorney City of Albert Lea 221 East Clark Street Albert Lea, MN Donald E. Hamill, Vice President Budgets and Regulatory Affairs Interstate Power Company 1000 Main Street Dubuque, Iowa Ralph H, Peterson, Esq. Peterson, Chesterman, Erickson, Anderson & Hareid 402 South Washington / Box 169 Albert Lea, MN Clement F. Springer Jr. Ms. Leslie Recht DEFREES & FISKE 72 W. Adams Street, Suite 1500 Chicago, Illinois 60603

4 REBUTTAL TESTIMONY AND EXHIBIT OF JUDY FORSTNER POFERL MINNESOTA DEPARTMENT OF PUBLIC SERVICE * «* BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION * a a INTERSTATE POWER COMPANY DOCKET NO. E001/GR a a a NOVEMBER 21, 1986

5 REBUTTAL TESTIMONY OF JUDY FORSTNER POFERL MINNESOTA DEPARTMENT OF PUBLIC SERVICE a a a BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION a a a INTERSTATE POWER COMPANY DOCKET NO. E001/GR a a a NOVEMBER 21, 1986

6 Q. Please state your name, occupation and business address. A. My name is Judy Forstner Poferl. I am a Senior Public Utility Rate Analyst with the Department of Public. Service. My business address is 790 American Center Building, 150 East Kellogg Boulevard, St. Paul, Minnesota Q. Have you previously filed testimony in this proceeding? A. Yes. I filed direct testimony on October 24, This testimony contained the Department's recommendations on 10 rate design issues. 1 1 Q. What is the purpose of your rebuttal testimony? 12 A. I am responding to the direct testimony of Dr. Burl W. Haar 13 of the Office of the Attorney General (0AG). My testimony 14 is organized in three sections. First, I will compare the 15 revenue apportionment proposals of Interstate Power Company 16 (IP), the DPS, and the OAG. Second, I will respond to Dr. 17 Haar's rate design proposal. Finally, I will summarize my 18 recommendations for the Commission to consider COMPARISON OF REVENUE APPORTIONMENTS 21 Q- Have you prepared a table that compares the proposals of 22 IP, the DPS, and the OAG? 23 A. Yes, I have. Schedule 1 of my rebuttal exhibit [DPS 24 Exhibit (JFP-2)] contains the proposed revenues and 25 percentage increases each party has assigned to IP's customer classes

7 ^ How do the proposals compare? AD Although the proposals are fairly similar, the parties are not In complete agreement on any of the classes. On a dollar hasls, the main differences between the parties are in the Large Power and Lighting (LP^L) and Residential classes. On a percentage basis, the main differences are In the proposals for the Oommerclal and Industrial Space Heating and Ooollng, StoredDHeat Space Heating, Controlled Water Heating, and Municipal Pumping rates ^ AD CRITIOUEOFOAG'SPROPOSEORATES What's your opinion of Or. Haar's testimony? Overaii, OrD Haar and I make similar recommendations on ^ many issues in this case. My main concern ^ith Or. Haar's ^ recommended revenue apportionment, however, is that i t is ^ hased on IP's cost of service study. As a result, Or. ^ Haar's proposals are not truly aligned with cost. In ^ addition, 1 have som^ concerns ahout Or. Haar's implied I 9 recommendation to accept IP's proposed customer charges. finally, 1 have some disagreement with Or. Haar over 21 declining hlock energy rates, although we hoth agree that 2^ they should he eventually replaced with flat rates. 23 Please discuss your first concern. 24 AD Or. Haar recommends adopting IP's class cost of service 25 study (00OSS) in this case, and he has used the results of 26 this study to develop the OAO's proposed rate design. 2

8 1 However, as Mr. Allen Krug of the OPS has testified, 2 Interstate's 00OSS does not reflect actual cost 3 relationships as accurately as Is possible. Consequently, 4 the OPS developed Its own cost study which Is superior to 5 IP's. Thus, while Or. Haar asserts that, for example, his 6 proposal brings the Residential class to cost (based on 7 IP's 000SS), his proposal actually keeps this class below 8 cost. 9 ^. Have you prepared an exhibit that demonstrates your point? 10 A. Yes, 1 have. Schedule 2 of my rebuttal exhibit compares 11 Or. Haar's proposed rate design with the OPS OOOSS. 12 According to the OPS 000SS, the Residential class needs an ^ eight percent Increase to reach costdbased rates^ In ^ contrast, Or. Haar assigns this class a 6.9 percent ^ Increase. As a result, Or. Haar's assertion that his 1^ proposal puts the Residential class at cost is erroneous. 1 7 ^. Please discuss Or. Haar's proposal for customer charges In 1 8 this cas^. 19 ^ or. Haar makes no specific recommendation on customer 20 charges In his testimony, ^hlch implies that he accepts the 21 Company's proposals. However, as 1 discussed In my direct ^ testimony, the Company proposes far too small of increases 23 In Its customer charges in fact, even the Company's cost 24 analysis of customer charges (Workpaper 11 of the Company's 25 filing) recognizes this point. While 1 have criticized the 2^ Company's proposal on customer charges, Or. Haar's proposal 3

9 1 is subject to even more orltlolsm slnoe he has also 2 proposed to eliminate declining hlook energy charges in 3 this rate case. 4 Why should Or. Haar's proposal to implement flat rate 5 energy charges affect his proposal on customer charges? 6 A. As 1 discussed In my direct testlmony^ellmlnatlon of 7 declining hlock energy charges D or even a reduction in 8 the existing differential between blocks will have the 9 greatest impact on large volume users. This is because the 10 last block of the energy charge, where large volume users 11 take most of their consumption, will receive a larger 12 increase than the initial blocks. Likewise, proposals to ^ set the customer charge below cost will affect large volume ^ users more than some volume users because the remaining l^ customer costs must be collected through the energy 16 charge. Without declining block rates, large volume users 17 will contribute more to the recovery of customer costs than 1^ small volume users. By implementing both of these ideas 19 very lo^ customer charges and flat energy rates Or. 20 Haar's proposal imposes very severe increases on large 21 volume users. For example, for the Residential class, Or. 22 Haar's proposal would impose a 27 percent increase on space 23 heating customers. In my opinion, only part of this 24 increase D that due to elimination of declining block 25 rates D can be justified. 26 4

10 ^ You've already begun discussing Or. Haar's proposal to eliminate declining block ratesd Please describe tbe rest of your concerns about bis proposal. A. 1 agree wltb Or. Haar tbat declining block energy rates should be eliminated and replaced with flat rates. The only remaining question, then, Is over what period of time this process should occur. Or. Haar proposes to Implement flat rates In this proceeding, ^hlle 1 propose to reduce the existing differential between price blocks In this case, then Implement flat rates over the next one or at most, two rate case(s). As 1 have said, my main concern about Or. Haar's proposal Is the Impact It ^ould have on large volume users. This concern would be lessened If higher customer charges were implemented In conjunction with the flat^rate energy charges. However, even if the Oommlsslon adopted my proposed customer charges, large users would face significant Increases under flat rates. Under my proposal for the Residential class, ^hlch Includes an 8.3 percent Increase overall, a ^4.50 customer charge, and one third of the existing differential In the declining block energy charge, the large space heating customers would face an 18 percent Increase. In my opinion, this is as high of an increase as Is reasonable, especially In light of the Company's 6D8 percent Increase overall. 5

11 Do you have any other comments on OrD Haar's testimony on declining hlock rates? AD Yes, 1 dod On pages 10 and 11 of his testimony, OrD Haar states that declining hlock rates were once justified on economic grounds because they reflected the scale economies the electric utilities could ohtalnd 1 disagree with OrD Haar's discussion of this polntd In my opinion, scale economies did not and do not justify declining block rates because the cost of providing a kwh of electricity does not vary with a customer's cumulative consumptions Therefore, 1 do not believe that declining block energy rates were ever justified on economic grounds- OrD Haar and 1 are In agreement, however, that declining block energy rates should be eliminated as quickly as Is practical SUMMARY ^- Please summarize your rebuttal testimony- A- Elrst, 1 believe that the Oommlsslon should not adopt 0r- Haar's proposed revenue apportionment because i t Is based on the results of an Inaccurate cost study- Second, 1 believe that Or- Haar's proposal for customer charges should not be adopted because It keeps the charges far below embedded cost and because It hinders the progress toward flat rate energy charges- Finally, 1 believe the Oommlsslon should seriously consider whether Or- Haar's proposal to implement flat rate energy charges Is 6

12 appropriate in this case given the high increases i t wiii assign to iarge volume users- The 0P8 proposal, which eliminates the declining hlock charges over the next one or two rate cases, is far more moderate and reasonable- ^- Ooes this conclude your rebuttal testimony? A- Yes, i t does- D 7 D

13 REBUTTAL EXHIBIT OF JUDY FORSTNER POFERL MINNESOTA DEPARTMENT OF PUBLIC SERVICE * ft a BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION ft ft ft INTERSTATE POWER COMPANY DOCKET NO. E001/GR a ft ft NOVEMBER 21, 1986

14 Docket No. E001/GR DPS Exhibit (JFP-2) Schedule 1 COMPARISON OF REVENUE APPORTIONMENTS IP PROPOSAL DPS PROPOSAL OAG PROPOSAL % % % Revenues Increase Revenues Increase Revenues Increase RESIDENTIAL TEMD Residential $ 383,845 15,602, % $ 379, ,602, % 8.3 $ 379,601 15,407, % 6.9% C&I General Serv. 9,384, ,325, ,390, LP&L 7,008, ,037, ,430, FARM Single Phase Three Phase 2,439, , ,467, , ,439, , MUNICIPAL Pumping Lighting 506, , , , , , MISCELLANEOUS C&I Heat/Cool 126, , , Stored Heat 10, , , Controlled Heat 566, , ,

15 Docket No. E001/GR DPS Exhibit (JFP-2) Schedule 2 COMPARISON OF OAG REVENUE APPORTIONMENTS WITH DPS CCOSS RESIDENTIAL TEMD Residential OAG Proposal 379,601 15,407,051 DPS CCOSS 393,693 15,562,195 Proposed/Cost 96.4% 99.0 C&I General LP&L Service 9,390,820 7,430,231 9,092,926 6,805, FARM Single Phase Three Phase 2,439, ,500 2,567, , MUNICIPAL Pumping Lighting 489, , , , MISCELLANEOUS C&I Heat/Cool Stored Heat Controlled Heat 128,939 11, , ,383 16,911 1,046,