REBUTTAL TESTIMONY OF JASON P. NIELSEN

REBUTTAL TESTIMONY OF JASON P. NIELSEN

BEFORE THE MINNESOTA OFFICE OF ADMINISTRATIVE HEARINGS FOR THE MINNESOTA PUBLIC UTILITIES COMMISSION IN THE MATTER OF INTERSTATE POWER AND LIGHT COMPANY S PETITION FOR APPROVAL OF ELIGIBILITY FOR INVESTMENT IN WHISPERING WILLOW EAST, RENEWABLE ENERGY RECOVERY ADJUSTMENT, AND 0 RATE MPUC DOCKET NO. E001/M-- OAH DOCKET NO. -00-01 REBUTTAL TESTIMONY OF JASON P. NIELSEN 1 1 1 1 Q. Please state your name and business address. A. My name is Jason P. Nielsen. My business address is 00 First Street SE, Cedar Rapids, Iowa 01. Q. Have you previously filed direct testimony in this proceeding on behalf of Interstate Power and Light Company (IPL)? A. Yes. Q. What is the purpose of your rebuttal testimony? A. The purpose of my rebuttal testimony is to provide clarification of the Whispering Willow East Wind Farm (WWE) cost recovery amounts that IPL is requesting and explain perceived discrepancies that Minnesota Department of Commerce (Department) witness Mr. Mark Johnson points out in his April, 01, revised corrected direct testimony. I will also address Mr. Johnson s recommendation that IPL s cost recovery for WWE should be based on actual generation output from WWE, which would be unlike any other Minnesota utility-owned wind generation facility. Finally, I will discuss IPL s alternative proposal for WWE cost 1

recovery. Q. Please summarize your rebuttal testimony. A. My testimony provides: 1 1 1 1 1 1 1 (i) (ii) (iii) (iv) (v) clarification of the differences in IPL s calculation of its annual revenue requirement in some filings; clarification of IPL s actual 0 through 0 annual revenue requirements in relation to IPL s estimated 0 through 0 annual revenue requirements that were based on levelized costs of $. per megawatt hour (MWh) and $0.1 per MWh, respectively; clarification on how IPL s annual revenue requirements are being calculated for WWE and why neither WWE s actual or estimated net capacity factor (NCF) is relevant to that calculation; explanation of how using an actual NCF to establish and adjust rate recovery for a utility-owned wind generation facility would violate traditional rate making practices; explanation of the cost recovery alternative presented by IPL with a summary of the annual revenue requirement amounts IPL proposes to collect for 0 through 01. 0 1 Q. Are you sponsoring any exhibits in the filing? A. Yes. I am sponsoring Exhibit (JPN-), which includes the following schedules: 01 Revenue Requirement: A; B; B-1; B-; C; C-1; D; E Alternative Levelized Cost Model: F. Q. What is the order of your testimony? A. I have included the following subsections: Clarifications;

1 1 1 1 1 1 1 0 1 Output-based Recovery is Not Appropriate; and Alternative Cost Recovery Method. CLARIFICATIONS Q. Please start by addressing Mr. Johnson s request for clarification of some slight differences in IPL s Compliance Filing in IPL s 0 Minnesota Rate Case - Docket No. E-001/GR--. A. On page of Mr. Johnson s revised corrected direct testimony, he requests that IPL explain why the calculation of its annual revenue requirement for years 0 through 0 is not completely consistent with IPL s Compliance Filing made on December, 0, in Docket No. E-001/GR-- (Compliance Filing). Mr. Johnson acknowledges that the differences are relatively small in magnitude. Q. Please explain these differences. A. The amounts shown in IPL s Compliance Filing at Section V, Schedule A-, Line 1, ($1,,000), and Section V, Schedule A-, Page of ($1,1,01), are the Minnesota revenue requirement calculation that equates to levelized cost of $1 per MWh. The difference in these two amounts is related to rounding. IPL makes this calculation by determining the capital disallowance that would equate to a levelized cost of $1 per MWh. IPL used a rounded number on Section V, Schedule A-, Line 1 of the Compliance Filing. Q. Please explain the difference between the 0 through 0 revenue requirements proposed by IPL and levelized cost calculations for those years as shown on IPL Exhibit (DV-1), Schedule B.

1 1 1 1 1 1 1 0 1 A. In his revised corrected direct testimony on pages to, Mr. Johnson states that IPL s proposed recovery of actual 0 through 0 annual revenue requirements totals $,,0, while the estimated 0 through 0 annual revenue requirements included in the levelized cost calculations of $. per MWh and $0.1 per MWh total $,,1 and $,,, respectively. Mr. Johnson indicated that these differences were not explained by IPL. As I will explain below, the difference is based on IPL s proposal to credit Production Tax Credits (PTCs) as a separate adjustment, while Mr. Johnson s levelized cost calculations include PTCs in the basic revenue requirement. Q. Please explain the different approaches to PTCs and the effect. A. As shown on DOC Ex. MJ-, Line, that information came from IPL Exhibit (DV-1), Schedule B, in Docket No. E001/M--. IPL Exhibit (DV- 1), Schedule B, shows the revenue requirement calculations for years 0 through 0, and states (in parenthesis) that the final annual revenue requirement numbers do not include PTCs. By contrast, the 0 through 0 annual revenue requirements that are included in the levelized cost calculations of $. per MWh and $0.1 per MWh include an assumed level of PTCs. In short, Mr. Johnson is comparing annual revenue requirements using numbers that include PTCs versus numbers that do not include PTCs. Q. Does this mean that IPL s proposal would not provide to customers the reduction in costs resulting from PTCs?

1 1 1 1 1 1 1 0 1 A. No. Under IPL s proposal, customers get full benefit of the PTCs that are generated by WWE. These amounts would be calculated and tracked separately from other cost components. Q. Are the actual 0 through 0 revenue requirement amounts higher than what IPL is currently recovering? A. Yes. IPL has under-recovered its actual revenue requirements from 0 through 0. In the Findings of Fact, Conclusions, and Order issued on August, 0, in Docket No. E-001/GR--, the Commission ordered that the costs associated with WWE be removed from base rates and recovered through a renewable rider at a temporary rate of $1 per MWh, which IPL calculated as an annual revenue requirement of $1,,000 for WWE, which include PTCs. Actual WWE annual revenue requirements, after accounting for PTCs, for 0 ($,,0), 0 ($,,), and 0 ($,,) are higher than the temporary $1,,000 annual recovery level established in the IPL 0 Minnesota Rate Case. Q. Is there anything else that you would like to clarify? A. Yes. On page of his revised corrected direct testimony, Mr. Johnson recommends that IPL confirm his understanding that WWE s annual revenue requirements are still being calculated using the standard revenue requirement calculation assuming a capacity factor of. percent, rather than based on actual output. Q. How have you determined the IPL revenue requirements for various years?

1 1 1 1 1 1 1 0 1 A. IPL is using the standard revenue requirement calculation (rate base multiplied by authorized rate of return plus depreciation expense, operating and maintenance expense, etc.). The standard revenue requirement calculation, which has been used for all Minnesota utility-owned wind generation facilities included in riders, does not use or consider the NCF, either actual or assumed. In other words, the NCF has no bearing on the revenue requirement development for all other Minnesota utility-owned wind generation. Thus, neither of Mr. Johnson s alternatives (actual or assumed NCFs) is relevant or related to the traditional revenue requirement calculation. OUTPUT-BASED RECOVERY IS NOT APPROPRIATE Q. Do you agree with Mr. Johnson s approach that would apply recent actual NCFs to determine the annual revenue requirement? A. No. I am not aware of any other Minnesota utility limited in its cost recovery for a wind generation investment to the actual NCF. Further, that approach would also be inconsistent with the approach to cost recovery for other utility-owned generation facilities. I also note that IPL witness Randy D. Bauer provides some energy output comparisons between WWE and the other utility projects identified by the Department and he concludes that the WWE experience is comparable. Q. Please explain how the Department s approach is inconsistent with cost recovery for other utility-owned generation facilities. A. Most utilities, including IPL, have several different resources in its portfolio including coal-fired power plants, gas-fired power plants, flexible fuel peaking

power plants (ex. combustion turbines) and renewable resources like wind turbine-generators. Each of these types of facilities have different output levels. To establish a recovery level for each of these types of resources based on actual output would be contrary to long standing practice and completely unreasonable. Setting a revenue requirement level for wind generation should be treated no differently than any other type of generation resource required to provide regulated utility service, and that is the approach that the Commission has followed. The recovery of this renewable resource should follow the 1 1 1 1 1 1 1 0 1 Commission s traditional ratemaking principles that have been used to establish rate recovery of other fixed utility investments in generation. Traditional ratemaking is the most acceptable and fair way for the utility and its customers to benefit from the investment that a utility makes to serve its customers. Basing recovery on output would be inconsistent with traditional regulatory ratemaking. ALTERNATIVE COST RECOVERY METHOD Q. Please explain IPL s alternative if the Commission does not provide full cost recovery for WWE that you mentioned earlier. A. As indicated in the rebuttal testimony of IPL witness Erik C. Madsen, IPL is providing a potential alternative for cost recovery if the Commission does not believe that IPL should receive full cost recovery for WWE. This alternative provides less than full cost recovery for WWE during the period up to January 1, 01, and indirectly reflects concerns raised by the Department regarding NCF limitations during the early years of WWE s

1 1 1 1 1 1 1 0 1 operations, while maintaining traditional ratemaking policies in Minnesota. The alternative option also includes a lower revenue requirement amount (starting January 1, 01) than IPL initially proposed, and this is reflective of lower operations and maintenance (O&M) costs that have been achieved. My rebuttal testimony specifically supports the revenue requirement development and implementation for this alternative recovery method. Mr. Madsen also will provide the rationale behind the alternative. Q. Please describe the revenue requirement associated with IPL s alternative. A. The IPL alternative would establish the cost recovery level for WWE consistent with traditional ratemaking principles and Minn. Stat. 1B.1 Subd. a (the Renewable Cost Recovery Statute). The 01 revenue requirement under this alternative would be based on a 0 historical test year (01 Revenue Requirement). The 0 historical test year costs would be adjusted for lower cost of the new service and maintenance agreement with the Original Equipment Manufacturer (OEM), as explained by IPL witness Michelle L. Arenson in her rebuttal testimony. That adjustment would be included as a known and measurable change, since it took effect January 1, 01. (This calculation of the 01 revenue requirement also provides information as to the actual revenue requirement for 0.) The 01 Revenue Requirement developed under IPL s alternative would not include PTCs. However, customers would continue to receive the benefit of the PTCs because the PTCs would continue to flow through the Renewable Energy Rider, as described by Mr. Madsen in his rebuttal testimony, and the

1 1 1 1 1 1 1 0 1 PTCs would be reconciled annually. This PTC recovery treatment is also consistent with how IPL has proposed to handle PTCs in its proposal for full WWE cost recovery in its direct testimony. Under IPL s alternative proposal, all costs and credits would be handled through the rider until the next rate case, but only PTCs would be reconciled. The base revenue requirement (before PTCs) would be fixed for purposes of developing the annual rate to be charged to customers. Q. Why is IPL proposing to develop the revenue requirement for its alternative based on a calendar year 0? A. There are two primary reasons. First, IPL believes that it is important to establish rates consistent with traditional, cost-based ratemaking principles. The use of an average of estimated levelized costs of other utilities and an output-based recovery mechanism both violate long-standing Minnesota regulatory practices for utility owned generation facilities and is not a fair and reasonable method to set rates. Second, IPL continues to believe that the full costs of WWE were reasonable and prudently incurred, and this is documented in the testimonies of IPL witnesses Madsen, Bauer and Arenson. However, over three years have passed since WWE was initially placed into service and there is now a record for operational costs and performance that can be relied on for setting rates on a going forward basis. Also, as indicated by Ms. Arenson in her rebuttal testimony, O&M costs have been reduced in 01 as a result of changes to the service and maintenance agreement with the OEM, which is important to incorporate as a

1 1 1 1 1 1 1 0 1 known and measurable change. These facts should be reflected in the rates for WWE beginning as of January 1, 01, as all the costs have been proven by IPL to be prudently incurred. Q. Please explain how the 01 Revenue Requirement was developed. A. The 01 WWE Revenue Requirement was developed based on actual, historic 0 information, using the same approach that is reflected in my direct testimony for 0 and 0, subject to the known and measureable change for O&M costs. The 01 WWE Revenue Requirement is approximately $. million (before consideration of approximately $1. million in PTCs). I will discuss the impact of PTCs later in my rebuttal testimony. The following costs are included in the 01 Revenue Requirement: a. Return on Investment IPL calculated the 01 Revenue Requirement using a rate of return on investment of. percent for WWE. IPL applied that return on 1-month average utility plant in service balance for WWE, which is approximately $ million, including allowance for funds used during construction (AFUDC). The Minnesota portion is approximately $ million. The capital structure used to determine the rate of return was developed from the balances for short-term, long-term debt, preferred stock and common equity as of November 0, 0. A. percent return on equity (ROE) used to determine the rate of return is the same ROE approved by the Commission in Docket No. E-001/GR--. The development of the capital structure and resulting rate of return is shown on Exhibit (JPN-), Schedule E.

1 1 1 1 1 b. Depreciation Depreciation expense was determined based upon the capital expenditures for WWE, using the straight-line method and a depreciable life of years. A full year of depreciation was booked in 0. The Minnesota portion was determined using the standard allocation method. Rebuttal Workpaper A- shows the detailed depreciation calculation for WWE in total, and the allocation to Minnesota. c. O&M Expenses The total O&M expenses for WWE were $. million in 0 (before allocation to the Minnesota jurisdiction). The Minnesota portion of O&M expenses for 0 is $0,. These O&M expenses represent actual annual expenses to operate and maintain WWE, including labor costs, equipment costs, service agreement costs, replacement part costs, and maintenance materials. The calculation of the total IPL 0 O&M expenses and the allocation to Minnesota is shown on Rebuttal Workpaper A-1. The test year O&M expenses were reduced by $,0 to account for a pro forma adjustment for the known and measurable change related to the new 1 service and maintenance agreement. This calculation of the pro forma 1 0 1 adjustment for the new service and maintenance agreement and the allocation to Minnesota is shown on Rebuttal Workpaper B-1. d. Taxes Property taxes were determined based on the eligibility of WWE for reductions in assessed value at decreasing percentages over the first six years

1 1 1 1 1 1 1 0 1 of operation under Iowa Code B.. As shown on Rebuttal Workpaper A-, the property taxes associated with WWE for 0 was $, (before allocation to the Minnesota jurisdiction). The Minnesota portion of property taxes for 0 is $,0. Income tax expense was determined in the same manner as used in the Docket No. E-001/GR--. Taxable income is determined by taking deductions for O&M expenses, property taxes, interest expense (calculated using the interest synchronization method), and miscellaneous taxes. Additionally, an adjustment was made for book-tax temporary differences related to depreciation. The calculation of Minnesota income taxes is shown on Rebuttal Workpaper A-. e. Interconnection Costs The 01 WWE Revenue Requirement includes direct costs that are incurred at or before WWE s point of interconnection to the transmission system (Interconnection facilities), but no other transmission costs. f. AFUDC IPL has accrued AFUDC during the construction of WWE in the traditional manner. When WWE was placed in service, the AFUDC that was capitalized was added to the rate base. The AFUDC interest costs for WWE were capitalized using the appropriate monthly AFUDC rates in effect during the construction period, but substituting an ROE of.0 percent, which is the ROE approved by the Iowa Utilities Board (IUB) for WWE in IUB Docket No. RPU-0-. The Minnesota portion of the AFUDC was determined using the standard allocator.

1 1 1 1 1 1 1 0 1 g. Other Expenses, Including Expenses for Energy Storage IPL is not proposing any additional costs, such as energy storage. Q. Please explain how IPL s alternative is consistent with the Renewable Cost Recovery Statute and traditional ratemaking principles. A. In determining the 01 Revenue Requirement, I applied the following traditional ratemaking principles that are also applied under the Renewable Cost Recovery Statute: General Assumptions: The 01 Revenue Requirement is based upon 0 test year costs; All jurisdictional allocation factors are the same as those contained in Docket No. E-001/GR--, but updated to 0; Rate Base: 1-month average historical balances; Components include: 1. utility plant in service (UPIS);. accumulated depreciation and amortization (AD);. accumulated deferred income taxes (ADIT) and;. working capital that includes materials and supplies and cash working capital (CWC). CWC was determined using the lead-lag study as approved in Docket No. E-001/GR--. Income Statement: Expenses were based upon historical calendar year; Depreciation expense was based upon the capital expenditures for WWE, using the straight-line method and a depreciable life of years; 1

1 1 1 1 1 1 1 0 1 Income taxes were determined by applying statutory tax rates to taxable income. Cost of Capital: Capital structure was developed using the capital structure from Docket No. E-001/GR--. Q. Which of the above cost components of the revenue requirement will change over time? A. All the above cost components will change except for the cost of the original investment that was placed into service. As time goes by, the O&M expense, cost of capital, and other various cost items will change. Q. How is this different than what is used in calculating a levelized cost? A. The costs will reflect what was actually experienced and not just estimates. When calculating a levelized cost, the company uses estimates based on the best available information at a particular point in time. As time goes by, those costs could change for various reasons. Q. How were costs allocated to other jurisdictions? A. The approach to cost allocation is the same as I presented in my direct testimony. The proposed 01 Revenue Requirement includes only those costs that are related to Minnesota s share. The jurisdictional allocator is the standard allocator and excludes the portion of Company costs not related to serving Minnesota customers by multiplying the Company total by the System Coincident Peak (SCP) allocation factor for 0. This step allocates a share of the costs to the Iowa jurisdiction as well as the Minnesota jurisdiction based on SCP. Minnesota s allocated portion of the WWE costs is approximately percent of the 1

1 1 1 1 1 1 1 0 1 total costs. By applying the SCP allocator, the Company ensures that the Iowa jurisdiction is allocated its share of the costs. Q. Please further explain how you developed 0 operating expenses. A. The approach to developing operating expenses is the same as I presented in my direct testimony. Lines - of Exhibit (JPN-), Schedule A, column (a) show operating expenses related to WWE for 0. The operating expenses are O&M, depreciation, property taxes, and miscellaneous taxes as shown on lines,,,, and, respectively. O&M expenses represent annual expenses to operate and maintain WWE, including labor costs, equipment costs, service agreement costs, replacement part costs, and maintenance materials such as oils and lubricants and other incidentals. All operating expenses, except miscellaneous taxes, were allocated to the Minnesota electric jurisdiction on the basis of SCP. Miscellaneous taxes are comprised of payroll-related taxes and, accordingly, were allocated to the Minnesota electric operations on the basis of direct payroll. This is reasonable because there is a direct relationship between payroll taxes and direct payroll. Q. Please explain the cost of service adjustments that were made. A. The adjustments were comparable to those presented in my direct testimony, except for the new service and maintenance agreement. The purpose of Exhibit (JPN-), Schedule B is to itemize the cost of service adjustments made to the actual test year results that were summarized in column (b) of Exhibit (JPN-), Schedule A. More specifically, Exhibit (JPN-), Schedule B provides a reference to the underlying schedule that supports each adjustment, 1

1 1 1 1 1 1 1 0 1 along with the amount, the cost of service category it impacts, the related income tax effects, and the resulting effect on operating income. Column (f), of Exhibit (JPN-), Schedule B shows the pro forma adjustments, by cost of service category, which supports column (b) of Exhibit (JPN-), Schedule A, lines 1-. The significant adjustment made to cost of service relates to the new service and maintenance agreement. Q. Please explain the calculation of the WWE rate base. A. The approach to rate base is the same as I presented in my direct testimony. Exhibit (JPN-), Schedule C summarizes the Minnesota WWE rate base. This was allocated to the Minnesota electric jurisdiction by taking the total IPL WWE UPIS and AD and allocating it to Minnesota based on the SCP allocator. The other rate base components are ADIT and working capital (material and supplies and CWC). These were allocated based on the same allocation method used above for UPIS and AD. Column (b) of Exhibit (JPN-), Schedule C reflects the actual unadjusted 0 calendar year 1-month average balances. Column (c) presents adjustments for known and measurable changes, and Column (d) presents the proposed rate base for this proceeding. The total WWE Minnesota rate base proposed for the test year is $1. million, as shown on line 0, column (d). Q. Please explain how the CWC requirement was determined. A. The approach to CWC is the same as I presented in my direct testimony. The determination was made consistent with the approach used in Docket No. E- 001/GR--. Exhibit (JPN-), Schedule C-1 presents the expenses 1

1 1 1 1 1 1 1 0 1 incurred during the year-ending December 1, 0, for the allocated portion of Minnesota s WWE operations. Q. Please explain the adjustments to rate base and CWC. A. The approach to adjustments and CWC is the same as I presented in my direct testimony. Exhibit (JPN-), Schedule D is a summary of adjustments that have been made to the rate base. The Schedule contains the same categories as the rate base shown on Exhibit (JPN-), Schedule C. Q. How did you calculate the income taxes for 0? A. The approach to calculation of income taxes is the same as I presented in my direct testimony. Income tax expense was determined in the same manner as used in Docket No. E-001/GR--. Taxable income is determined by taking deductions for O&M expenses, property taxes, interest expense (calculated using the interest synchronization method), and miscellaneous taxes. Additionally, an adjustment was made for book-tax temporary differences related to depreciation. The taxable income was then used to calculate current federal and state income taxes at the current effective rates of 1. percent and. percent, respectively. Federal deferred income taxes were calculated on the book-tax temporary differences using the statutory percent federal tax rate. Q. Does your revenue requirement include PTCs in the income tax calculation? A. No. As mentioned previously, IPL proposes to pass the federal PTCs to customers through the Renewable Energy Rider instead of including them in the basic rider rates for WWE. The credit will be taken for years as currently 1

1 1 1 1 1 1 1 0 1 permitted by the Internal Revenue Service. Q. What is the 01 Revenue Requirement for WWE that IPL is proposing for its alternative? A. The 01 Revenue Requirement is $,0, (before PTCs). Q. What is the process that IPL uses to ensure that costs associated with only WWE are not being accounted for elsewhere? A. The approach to this issue is the same as I presented in my direct testimony. Costs associated with WWE are directly charged to the project and are captured in a unique operating unit. The calculated 01 Revenue Requirement is incremental costs and is not recovered elsewhere in rates. Q. When would the 01 Revenue Requirement under the potential alternative become effective? A. IPL suggests that this alternative would become effective to determine the revenue requirement beginning January 1, 01. Q. For how long would the 01 Revenue Requirement under the potential alternative last? A. IPL suggests that this treatment cease with IPL s next Minnesota retail electric rate case, specifically with the implementation of interim rates in that future rate case. Q. Under IPL s potential alternative for cost recovery, does IPL continue to propose a true-up or reconciliation of the actual revenue requirements to the temporary rate levels recovered between July, 0, and December 1, 0? 1

1 1 A. No. Under this alternative, IPL includes no true-up rate recovery for the entire duration of temporary rate levels, which would be effective from July, 0 through December 1, 0. This also means that IPL would forgo cost recovery back to the start of its original filing in this docket, which was April, 0. Therefore, IPL would under recover its WWE costs for almost three years. Q. What is the financial impact to IPL by foregoing a reconciliation of the temporary rate level under the alternative? A. IPL would under collect a total of $1.0 million in revenues associated with WWE under its alternative if it did not reconcile revenue requirements prior to January 1, 01. Below is a table that shows the calculation of the revenue undercollection by IPL. This table only shows the under-collection amounts between the 01 Revenue Requirement calculation and the current rate level. If I were to use the actual costs in the revenue requirements for prior years, as proposed in IPL s direct testimony, the differences would be larger. 1

Table 1: IPL Revenue Under-Collection By Foregoing Reconciliation of Temporary Rate Levels Year 01 Revenue Requirement () Temporary Recovery Difference 0 (1) $1,, $, $0, 0 $,,1 $1,,000 $,1 0 $,1,0 $1,,000 $,0 Total $,0, $,1, $1,0, 1 1 1 1 1 1 1 0 1 (1) Recovery for 0 begins with the effective date of interim rates in Docket No. E-001/GR--, which is July, 0. () Each calendar year s specific revenue requirement is based on the 01 Revenue Requirement ($,0,) adjusted for actual PTC amounts experienced. The actual PTC amounts by year, after a tax gross-up for ratemaking, are as follows: 0 - $,1; 0 - $1,01,; and 0 - $1,0,11. Q. How does this alternative affect a levelized cost-equivalent analysis of WWE cost recovery? A. Since IPL would be recovering a lower amount of costs through the Renewable Energy Rider for the first several years of WWE s life (0 through 0), the levelized cost equivalent of cost recovery for WWE would be significantly reduced from IPL s primary position of full cost recovery. If the January 1, 01 effective date for commencement of the 01 Revenue Requirement is accepted by the Commission, the equivalent levelized cost for WWE becomes $.0 per MWh. I have included Exhibit (JPN-), Schedule F, which contains IPL s levelized cost calculation for the IPL alternative recovery method. This reflects rate levels for years 0 through 0 set at IPL s current temporary rate in its Renewable Energy Rider ($1,,000 annually). 0

1 1 1 1 1 1 1 0 1 I would like to note that the calculation of this levelized cost was developed solely to compare IPL s alternative recovery method to the other facilities that the Department used. As we have explained, IPL does not support the use of levelized costs of energy for setting regulated utility rates and recognizes that this calculation is still based on estimated information. Q. How was the new levelized cost model shown on Exhibit (JPN-), Schedule F developed? A. I started with the levelized cost model that I included in my direct testimony as Exhibit (JPN-1), Schedule K. Two adjustments were made to that levelized cost model in order to reflect IPL s alternative recovery method. An adjustment was made to reduce O&M levels for the new service and maintenance agreement for the future years 01 through 0. The other adjustment was to reflect revenues for the first three years of the project at the temporary recovery level of $1,,000 annually as IPL would forgo a reconciliation of temporary rate levels in its alternative recovery. I would like to provide one clarification. The revenue requirement for 01 represented in the levelized cost model shown in Exhibit (JPN-), Schedule F ($1,0,1) closely approximates the 01 Revenue Requirement in IPL s alternative recovery method ($1,,) but does not match because of differences in the calculation methods used. This difference does not materially change the results of the levelized cost calculation. Q. Please summarize the annual revenue recovery IPL proposes under its alternative recovery method. 1

A. Below is a table showing the summary of annual revenue recovery under IPL s alternative proposal. The difference between the $. million revenue requirement for 01 and the $1. million revenue recovery shown below is due to the application of PTCs. Table : WWE Annual Revenue Recovery Under IPL s Alternative Recovery Method Year Annualized Revenue Requirement 0 $1,,000 0 $1,,000 0 $1,,000 01 (1) $1,, 1 1 1 1 1 1 1 (1) Starting in 01 under IPL s alternative recovery, PTCs are assumed in this number but are proposed to be reconciled separately. Estimated PTCs for 01 are based on. percent NCF. After a tax gross-up for ratemaking, the estimated PTCs for 01 are $1,,. Q. Have you determined the effect if the Commission were to decide to limit WWE cost recovery to the same level that the IUB has approved? A. Yes. As IPL explained in Docket No. E-001/GR--, the IUB made a decision in IPL s last Iowa rate case (IUB Docket No. RPU-0-0001) to limit the recovery of capital costs for WWE. If the Commission made a similar decision in this case, the equivalent levelized cost would be a $. per MWh. IPL s alternative recovery method clearly recognizes a significantly lower level of WWE cost recovery when compared to the recovery level granted by the IUB. Q. Does this conclude your prepared rebuttal testimony? A. Yes.