nevada power company d/b/a nv energy€¦ · transmittal letter 2 table of contents 3 certificate...

NEVADA POWER COMPANY d/b/a

NV Energy

BEFORE THE

PUBLIC UTILITIES COMMISSION OF NEVADA

) IN THE MATTER of the Application of NEVADA POWER COMPANY d/b/a NV Energy for approval of new and revised Depreciation rates for its Electric and Common Accounts

) ) ) ) ) )

Docket No. 17- 06____

___________________________________ )

Volume 1 of 2 Depreciation

Transmittal Letter Table of Contents

Certificate of Service Application

Draft Notice Testimony

Ellen Y. Fincher Kevin C. Geraghty

Ned W. Allis Statement A Statement B

As of December 31, 2016

June 5, 2017

Ms. Trisha Osborne, Assistant Commission Secretary Public Utilities Commission of Nevada Capitol Plaza 1150 East William Street Carson City, Nevada 89701-3109

RE: Nevada Power Company d/b/a NV Energy’s Application for approval of new and revised depreciation rates for its electric and common accounts.

Dear Ms. Osborne:

Enclosed for filing please find Nevada Power Company d/b/a NV Energy’s Application for approval of new and revised Depreciation rates for its Electric and Common Accounts. The filing contains two volumes and is organized as follows:

• Volume 1 – Transmittal Letter, Table of Contents, Certificate of Service, Application, Draft Notice, Testimony, and Statements A and B

• Volume 2 – Statement C

Consistent with the Commission’s electronic filing regulations as adopted in Docket No. 0703015, following this cover letter please find a table of contents for the complete filing which provides the page reference for each item in the volume.

Should you have any questions regarding this filing, please contact me at (775) 834-5678 or [email protected].

Respectfully submitted,

/s/Tim Clausen Tim Clausen Senior Attorney

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mailto:[email protected]

Table of Contents

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Nevada Power Company d/b/a NV Energy

Electric Department

Depreciation

Table of Contents

Volume 1 of 2 Description Page No.

Transmittal Letter 2 Table of Contents 3 Certificate of Service 5

Application 7 Draft Notice 12 Prepared Direct Testimony Ellen Fincher 15 Kevin C. Geraghty 27 Ned W. Allis 35

Statement A 67 Statement A1(a) - A summary for each account and the factors used 68 to compute the proposed rates Statement A1(b) - The depreciable utility plant in place on the date of the study and the annual accrued depreciation using the preceding rates 77 Statement A1(c) - The depreciable utility plant in place on the date of the study and the annual accrued depreciation using the present rates 84 Statement A1(d) - The change in accrued depreciation which will result from the application of proposed rates 93

Statement B 97 Part I - Introduction 105 Part II Estimation of Survivor Curves 110 Part III – Service Life Considerations 131 Part IV – Net Salvage Considerations 136 Part V – Calculation of Annual and Accrued Depreciation 139

Volume 2 of 2 Description Page No.

Statement C Part VI – Results of Study 3 Part VII – Service Life Statistics 15 Part VIII – Net Salvage Statistics 137 Part IX – Detailed Depreciation Calculations 201 Part X – Description of Service Life and Net Salvage Estimates 311

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Certificate of Service

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CERTIFICATE OF SERVICE

I hereby certify that I have served the foregoing NEVADA POWER COMPANY

D/B/A NV ENERGY’S 2017 APPLICATION FOR APPROVAL OF NEW AND

REVISED DEPRECIATION RATES in Docket No. 17-06___ upon all parties of record in

this proceeding by electronic service to the following:

FEDERAL EXPRESS: HAND DELIVERED:

Tammy Cordova Staff Counsel Division Public Utilities Comm. of Nevada Public Utilities Comm. of Nevada 9075 West Diablo Drive Suite 250 1150 E. William Street Las Vegas, NV 89148 Carson City, NV 89701-3109

[email protected] [email protected]

FEDERAL EXPRESS: HAND DELIVERED:

Michael Saunders Attorney General’s OfficeSenior Deputy Attorney General Bureau of Consumer Protection Attorney General’s Office 100 N. Carson St. Bureau of Consumer Protection Carson City, NV 89701 10791 W. Twain Ave., Ste. 100 [email protected] Las Vegas, NV 89135-3022 [email protected]

Filing will be available on the following SFTP site:

Host IP Address: 192.206.180.206

User ID: legalpub

Password: E9*F2pKY

DATED this 5th day of June 2017.

/s/ Connie Silveira Connie Silveira Legal Assistant Sierra Pacific Power Company

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mailto:[email protected]:[email protected]:[email protected]:[email protected]

Application

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BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA

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IN THE MATTER of the Application of ) NEVADA POWER COMPANY, d/b/a ) NV ENERGY for approval of new and revised ) Depreciation rates for its Electric and Common ) Docket No. 17-06____ Accounts ) __________________________________________ )

APPLICATION FOR APPROVAL OF NEW AND REVISED DEPRECIATION RATES

Nevada Power Company (“Nevada Power” or “Company”) d/b/a NV Energy pursuant to

NAC § 703.2715, et seq., submits its Application to the Public Utilities Commission of Nevada

(“Commission”) for approval of new and revised depreciation rates for its electric and common

accounts (the “Application”). Coincident with the filing of this Application and in accordance

with NRS § 704.110, Nevada Power has submitted an application to address its revenue

requirement for general rates for its electric operations. The general rate case application includes

the new and revised depreciation rates that are the subject of this Application. Nevada Power

requests that these matters be consolidated so that the new and revised depreciation rates

established pursuant to this Application may properly be reflected in Nevada Power’s revenue

requirement for its electric and common accounts.

In support of its Application, Nevada Power submits the following:

1. Nevada Power is a Nevada corporation and wholly-owned subsidiary of NV

Energy Inc., a Nevada corporation. Nevada Power is engaged in providing electric service to the

public in portions of Nye and Clark Counties pursuant to a certificate of public convenience and

necessity issued by this Commission. Nevada Power is a “public utility” as that term is defined

and used in Chapter 704 of the Nevada Revised Statutes.

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2. Nevada Power’s primary business office is located at 6226 W. Sahara Avenue,

Las Vegas, Nevada. All correspondence related to this Application, including a copy of all

pleadings, notices, orders and discovery requests, should be emailed to

[email protected] and also sent to the undersigned counsel and to the manager of

Regulatory Services, whose names and addresses are set forth below:

Tim Clausen Trevor Dillard Senior Attorney Manager, Regulatory Services 6100 Neil Road 6100 Neil Road Reno, NV 89511 Reno, NV 89511 775-834-5678 775-834-5823 [email protected] [email protected]

3. This Application is made pursuant to and in compliance with NRS § 704.100 et

seq., (governing the contents of the filing of general rate cases, etc.), the provisions of NAC §§

703.2715 through 703.278 (relating to depreciation rates), and NAC § 703.535 (relating to

applications). This Application, together with the attached Statements, Depreciation Study and

testimony, sets forth all material facts, which Nevada Power is prepared to prove and upon which

the Commission may base its decision granting the relief requested.

4. The depreciation and amortization rates for most categories of electric plant in

service currently utilized by Nevada Power were established in 2011 (see, Commission Docket

No. 11-06007, Order issued December 23, 2011).

5. This Application contains updated depreciation and amortization rates based on

a complete study of electric and common plant in service as of December 31, 2016

(“Depreciation Study”). Based on the information and data accompanying this Application, full

implementation of the findings of the study will result in an increase to current annual

depreciation and amortization expense of approximately $18 million for electric common plant.

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mailto:[email protected]:[email protected]:[email protected]

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6. The accompanying Depreciation Study was finalized in April 2017 and utilizes

plant balances as of December 31, 2016. The Depreciation Study is incorporated in this

Application by this reference and includes a table of contents which provides an index of

statements and supporting documentation and worksheets that are prescribed under the

regulation.

a. Statement A sets forth schedules summarizing present and accrued depreciation

rates and charges and the changes in depreciation expense which will result from

the application of the proposed rates, along with other information as required by

NAC § 703.2765;

b. Statement B, the Depreciation Study report, sets forth the methods and

procedures used in the study and the basis for the final selection of the parameters

utilized, and such other information as required by NAC § 703.277;

c. Statement C includes workpapers supporting the analysis of the life of each

category of plant and the value to be gained from salvage for each plant account,

and such other information as required by NAC § 703.277.

Also included with the Depreciation Study and incorporated herein by reference are the

prepared direct testimony and testimony exhibits of depreciation expert Mr. Ned Allis, and

Company witnesses Ms. Ellen Fincher and Mr. Kevin Geraghty.

PRAYER FOR RELIEF

WHEREFORE, Nevada Power respectfully requests that the Commission:

1. Accept Nevada Power’s Application herein as being in compliance with NAC §

703.2715 et seq.;

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2. Consolidate this Application with Nevada Power’s application to review its

revenue requirement filed contemporaneously with this Application;

3. Issue an order approving the new and revised depreciation and amortization rates

reflected herein to be properly reflected in Nevada Power’s new revenue requirement for electric

and common accounts;

4. Grant any specific waivers of Commission rules or regulations as are necessary

to grant Nevada Power’s requests as contained in this Application; and

5. Provide such other and further relief as the Commission may find appropriate and

necessary.

Dated this 5th day of June, 2017.

Respectfully submitted,

NEVADA POWER PACIFIC POWER COMPANY D/B/A NV ENERGY

By: /s/ Tim Clausen Tim Clausen Senior Attorney 6100 Neil Road P.O. Box 10100 Reno, Nevada 89520 Tel: 775-834-5678 Fax: 775-834-4098 Email: [email protected]

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Draft Notice

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Draft Notice Application for Applications, Petitions and Complaints

The Commission requires a draft notice be included with all applications, petitions and

complaints. See Nevada Administrative Code 703.162. Please include one copy of this form with

all the above filings.

I. Include a title that describes the relief requested, or proceeding scheduled pursuant to Nevada Administrative Code (“NAC”) 703.160(4)(a.)

IN THE MATTER of the Application by NEVADA POWER COMPANY d/b/a NV ENERGY for approval of new and revised depreciation rates for its Electric and Common Accounts

II. Include the name of the applicant, complainant, petitioner, or the name of the agent for same pursuant to NAC § 703.160(4)(b).

Nevada Power Company d/b/a NV Energy.

III. Include a paragraph with a brief description of the purpose of the filing or proceeding with an introductory statement in plain English understandable to a person of average knowledge and intelligence, that summarizes the relief requested or proceeding scheduled, AND its impact upon consumers, pursuant to NAC § 704.160(4)(c).

Nevada Power Company (“Nevada Power”) is filing its new and revised depreciation rates. The new and revised depreciation rates are reflected in a complete study of depreciation and amortization rates, which was completed in April 2017 using plant in service information through December 31, 2016. Based on the information and data accompanying this Application, full implementation of the findings of the depreciation study will result in an increase to current annual depreciation and amortization expense of approximately $18 million.

Coincident with the filing of this Application and in accordance with Nevada Revised Statutes (“NRS”) § 704.110, Nevada Power has submitted an Application to maintain its current revenue requirement for general rates for its electric and common accounts. Nevada Power requests that these matters be consolidated.

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IV. A declaration by the applicant, petitioner, or complainant whether a consumer session is required by NRS 704.069 (1).1

A consumer session is not required for this Application.

V. If the draft notice pertains to a tariff filing, please include the tariff number and the section number(s) or schedule number(s) being revised.

Not applicable.

1 NRS 704.069 Commission required to conduct consumer session for certain rate cases; Commission required to conduct general consumer session annually in certain counties.

1. The Commission shall conduct a consumer session to solicit comments from the public in any matter pending before the Commission pursuant to NRS 704.061 to 704.110, inclusive, in which:

(a) A public utility has filed a general rate application, an application to recover the increased cost of purchased fuel, purchased power, or natural gas purchased for resale or an application to clear its deferred accounts; and

(b) The changes proposed in the application will result in an increase in annual gross operating revenue, as certified by the applicant, in an amount that will exceed $50,000 or 10 percent of the applicant’s annual gross operating revenue, whichever is less.

2. In addition to the case-specific consumer sessions required by subsection 1, the Commission shall, during each calendar year, conduct at least one general consumer session in the county with the largest population in this state and at least one general consumer session in the county with the second largest population in this state. At each general consumer session, the Commission shall solicit comments from the public on issues concerning public utilities. Not later than 60 days after each general consumer session, the Commission shall submit the record from the general consumer session to the Legislative Commission.

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http://www.leg.state.nv.us/NRS/NRS-704.html#NRS704Sec069http://www.leg.state.nv.us/NRS/NRS-704.html#NRS704Sec061http://www.leg.state.nv.us/NRS/NRS-704.html#NRS704Sec110

ELLEN Y. FINCHER

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BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA Nevada Power Company d/b/a NV Energy

2017 Depreciation Study Docket No. 17-06___

PREPARED DIRECT TESTIMONY OF

Ellen Y. Fincher

I. INTRODUCTION

1. Q. PLEASE STATE YOUR NAME, OCCUPATION, BUSINESS ADDRESS,

AND PARTY FOR WHOM YOU ARE FILING TESTIMONY.

A. My name is Ellen Fincher. I am the Manager of Plant Accounting for NV Energy,

Inc. (“NV Energy”), Nevada Power Company d/b/a NV Energy (“Nevada

Power”), and Sierra Pacific Power Company d/b/a NV Energy (“Sierra” and,

together with Nevada Power, the “Companies”). I work primarily out of NV

Energy’s office located at 6100 Neil Road in Reno, Nevada. I am filing testimony

in this proceeding on behalf of Nevada Power.

2. Q. PLEASE BRIEFLY DESCRIBE YOUR PROFESSIONAL

BACKGROUND AND EXPERIENCE.

A. I joined NV Energy in June 1982. I have a Bachelor of Science degree in finance.

I have 30 years of experience in the electric and gas utility industry, primarily in

the accounting division at NV Energy. As Manager, Plant Accounting, my

responsibilities include ensuring that proper accounting and controls exist with

all property, plant and equipment acquired by the Companies. As such, I am also

responsible for providing testimony in regulatory filings dealing with plant in

Fincher – DIRECT 1

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service and depreciation. More details regarding my professional background and

qualifications are set forth in Exhibit Fincher-Direct-1.

3. Q. HAVE YOU SUBMITTED PREPARED TESTIMONY IN A PREVIOUS

REGULATORY PROCEEDING?

A. Yes. My most recent testimony was filed in Sierra’s 2016 electric depreciation

case (Docket No. 16-06008) and gas depreciation case (Docket No. 16-06009).

4. Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?

A. The purpose of my testimony is to address the following:

a) Nevada Power’s continued improvements in processes and procedures.

b) Development of site-specific decommissioning costs for Nevada Power’s

production plant assets that were provided to Gannett Fleming for developing

Nevada Power’s 2017 Electric Depreciation Study (“2017 Study).

5. Q. ARE YOU SPONSORING ANY EXHIBITS TO YOUR PREPARED

DIRECT TESTIMONY?

A. Yes, I am sponsoring two exhibits:

Exhibit Fincher-Direct-1 – Statement of Qualifications and

Exhibit Fincher-Direct-2 – Production Plant and Pond Decommissioning Study

Estimates

6. Q. ARE ANY OF THE MATERIALS YOU ARE SPONSORING

CONFIDENTIAL?


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II. TESTIMONY SUPPORTING STATEMENTS

A. Continued Improvements in Processes and Procedures

7. Q. PLEASE DESCRIBE THE ONGOING IMPROVEMENTS NEVADA

POWER HAS MADE IN REGARDS TO ASSET RECORDS.

A. Nevada Power continued to make improvements in its processes and procedures

to maintain accurate continuous property records. These include:

• Monthly reports provided to executives listing all work orders eligible for

unitization, along with comments that provide additional information needed

from the business to process, including information on retirements and cost

of removal in order to properly account for the final unitization of a work

order.

• The implementation of a quarterly management review process. As part of

NV Energy’s internal control processes, executives meet quarterly to review

suspended projects, current estimates of asset retirement obligations, balance

of plant held for future use, and other assets to insure continued proper

accounting treatment.

• Retirement and cost of removal process improvements have been

implemented, with continued attention given to the work management system

for all distribution and new business work orders.


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8. Q. PLEASE DESCRIBE THE RESULTS/BENEFITS OF THE

IMPROVEMENTS NEVADA POWER HAS MADE IN REGARDS TO

ASSET RECORDS.

A. The results/benefits of the improvements Nevada Power has made in regards to

asset records is 1) more accurate and reliable data provided to Gannett Fleming

to prepare the deprecation study, 2) improved retirement information, 3) timely

and accurate cost of removal reported and 4) timely final unitizations.

B. Decommissioning Costs

9. Q. HAVE THE UPDATED PRODUCTION PLANT AND POND

DECOMMISSIONING COSTS BEEN PROVIDED IN THIS DOCKET?

A. Yes. The updated decommissioning costs for production plant and pond have

been provided as Exhibit Fincher-Direct-2.

10. Q. ARE THE DECOMMISSIONING COSTS RELIED UPON IN THE 2017

STUDY THE SAME COSTS USED IN THE 2011 DEPRECIATION

STUDY?

A. No. While the decommissioning costs prepared by URS Corporation (“URS”)

and approved in Docket No. 11-06007 form the basis of the decommissioning

costs for the 2017 Study, the approved decommissioning costs were based on

2011 price levels. These costs were escalated to 2016 dollars for the 2017 Study.

The Company used the same approach for Nevada Power as was approved by the

Commission in the Sierra general rate case stipulated agreement in Docket No.

16-06008. Also, newly acquired plants since the last prepared decommissioning


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study (Las Vegas Gen Block 1, Las Vegas Gen Block 2, Las Vegas Gen Block 3,

Nellis Solar, SunPeak 3, SunPeak 4 and SunPeak 5) were incorporated into the

costs, while the units that were retired since the last prepared decommissioning

study (Sunrise 1 and 2 and Reid Gardner 1-4) were removed.

For the newly acquired plants, the decommissioning costs were calculated using

similar units in Nevada Power’s generation fleet. For example, Las Vegas Gen 1,

which is a 1 x 1 combined cycle unit, was calculated using Clark 5 plus one-half

of Clark 9. Las Vegas Gen 2 and 3, which are 2x1 combined cycles, were

calculated using Clark 5 plus Clark 6 plus Clark 9. SunPeak 3-5, were calculated

using the similar units of Harry Allen 3 and 4 and Clark Mt. 3 and 4. The approach

of using similar units was preferred to incurring the costs of a new

decommissioning study. The escalated decommissioning cost estimates were

then incorporated into unit-specific work papers that depreciation expert Mr. Ned

Allis, of Gannett Fleming, used in developing terminal net salvage rates in the

2017 Study. The work paper comparing the currently approved decommissioning

cost estimates and the new cost estimates are provided in Exhibit Fincher

Direct-2 attached to my testimony.

11. Q. HOW DO THE NEW DECOMMISSIONING COSTS COMPARE TO THE

CURRENTLY APPROVED DECOMMISSIONING COSTS?

A. The decommissioning costs for Nevada Power have increased approximately

$11.8 million after incorporating the cost escalation described above.


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12. Q. DO THE CALCULATIONS PROVIDED TO GANNETT FLEMING

TAKE INTO ACCOUNT PRODUCTION PLANT WITH JOINT

OWNERSHIP?

A. Yes. Three of the plants in Nevada Power’s generation fleet are jointly owned

and share costs with its partners. The jointly owned units are Navajo Units 1, 2

and 3. The amounts developed by URS in the decommissioning study reflect 100

percent of the dismantling costs. The Navajo amounts presented in URS’s

decommissioning study were provided by Salt River project and were from a

2008 Sargent & Lundy estimate. The 100 percent decommissioning cost

estimates were multiplied by Nevada Power’s percentage (85%) of the 750 MW

plant capacity, to establish Nevada Power’s share and the amounts used by

Gannett Fleming. The results of this calculation are reflected in Exhibit Fincher

Direct-2.

13. Q. DID THE DECOMMISSIONING STUDY INCLUDE A NEW COST

ESTIMATE FOR THE JOINTLY OWNED NAVAJO UNITS?

A. No. Nevada Power is a partner in the Navajo units with Salt River Project and is

not the operating agent for this facility. As discussed above, the decommission

costs were provided by Salt River Project from a 2008 Sargent & Lundy estimate.

Accordingly, the decommissioning study performed by URS for Nevada Power

did not include a different estimate for Navajo Units 1, 2 and 3.

14. Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?

A. Yes.


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Exhibit Fincher-Direct-1 Page 1 of 2

Statement of Qualifications of ELLEN Y. FINCHER

NV Energy 6100 Neil Road

Reno, NV 89511 (775) 834-6282

[email protected]

Mrs. Fincher has over 30 years of experience in various capacities at NV Energy including credit, customer accounting, budgeting, gas pipeline, business services & controls, project management & reporting, process improvement, and general management and supervision. Mrs. Fincher has prepared numerous statements, reports, data responses and studies on plant in service for regulators and interveners.

PROFESSIONAL EXPERIENCE

2015 to present NV Energy Manager, Plant Accounting In March, 2015, I assumed leadership responsibility of the Plant Accounting department with a staff of nine. In this role, I have the responsibility for ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Company. I am the expert witness in all regulatory filings dealing with plant in service.

2013 to 2015 NV Energy Team Leader/Supervisor, Plant Accounting Primary responsibilities included ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Company.

2005 to 2013 NV Energy Accountant/Staff Accountant Plant Accounting Primary responsibilities included ensuring that proper accounting and controls exist with all property, plant and equipment acquired by the Company.

2002 to 2005 Sierra Pacific Power Company Senior Consultant, Business Services Primary responsibilities included customer support, budget vs. actual variance analysis and management reporting to assist my customers in management of their business. My focus was directed toward fiscal responsibility and meeting budget commitments where operating and capital resources were required.

1997 to 2002 Sierra Pacific Power Company Pipeline Business Analyst/Scheduler Primary responsibilities included processing of daily shipper nominations, pipeline transportation, FERC filings, property sales and use tax filings, invoice processing, budget vs. actual variance analysis, rate case filings.

1992 to 1997 Sierra Pacific Power Company Scheduler

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Exhibit Fincher-Direct-1 Page 2 of 2

Primary responsibilities included budget and cost control function for Generation Division, worked with partner in Valmy plant in providing all budget vs. actual reports

1984 to 1992 Sierra Pacific Power Company Budget Analyst/Senior Budget Analyst, Corporate Budgets Primary responsibilities included customer support, budget vs. actual variance analysis and management reporting to assist customers in management of their business.

1982 to 1984 Sierra Pacific Power Company Student Intern, Credit and Collections and Customer Accounting

REGULATORY EXPERIENCE

I have prepared numerous statements, reports, data responses and studies on plant in service for regulators and interveners, and prepared and defended testimony in proceedings before the Public Utilities Commission of Nevada.

EDUCATION

1984 University of Nevada, Reno Bachelor of Science Degree in Finance

PROFESSIONAL CERTIFICATIONS, LICENSES, AND MEMBERSHIPS

Edison Electric Institute – Property Accounting and Valuation Committee Society of Depreciation Professionals

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EXHIBIT FINCHER-DIRECT-2

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NEVADA POWER COMPANY d/b/a NV Energy

PRODUCTION PLANT AND POND DECOMMISSIONING STUDY ESTIMATES URS CORPORATION - CLEVELAND WRECKING COMPANY

DECOMMISSIONING STUDY - 2010 PER COMMISSION ORDER 11-06007

PROPOSED ESCALATION FOR DOCKET 17-06XXX

Capacity Capacity Estimated Estimated CPI CPI Decom Cost MW MW Decom. Cost Decom. Cost Escalation Escalation as Proposed

Production Unit Unit Type 100% NPC Share 100% NPC Share 100% NPC Share NPC Share*Escalation Steam Production Plant Clark #9 CC Steam Turbine/Gas 84 5,823,216 5,823,216 560,816 560,816 6,384,032 Clark #10 CC Steam Turbine/Gas 84 5,823,216 5,823,216 560,816 560,816 6,384,032

11,646,432 11,646,432 1,121,632 1,121,632 12,768,064

Navajo #1 Steam Turbine/Coal 750 85 31,020,333 3,515,638 2,987,473 338,580 3,854,218 (1) Navajo #2 Steam Turbine/Coal 750 85 31,020,333 3,515,638 2,987,473 338,580 3,854,218 (1) Navajo #3 Steam Turbine/Coal 750 85 31,020,333 3,515,638 2,987,473 338,580 3,854,218 (1)

subtotal Steam Production - S & L 2008 estimate 93,061,000 10,546,913 8,962,419 1,015,741 11,562,654

Total Steam Production Plant 104,707,432 22,193,345 10,084,051 2,137,373 24,330,718

Other Production Plant Clark #4 Gas Turbine/Gas 55 278,046 278,046 26,778 26,778 304,824 Clark #5 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060,652 487,376 487,376 5,548,028 Clark #6 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060,652 487,376 487,376 5,548,028 Clark #7 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060,652 487,376 487,376 5,548,028 Clark #8 CC Gas Turbine/Gas & HRSG 73 5,060,652 5,060,652 487,376 487,376 5,548,028 Clark #11 to #22 Gas Turbine/Gas 624 4,300,143 4,300,143 414,134 414,134 4,714,277 Goodsprings Waste Heat Generator 7.5 805,102 805,102 77,537 77,537 882,639 Harry Allen #3 Gas Turbine/Gas 74 1,053,858 1,053,858 101,494 101,494 1,155,352 Harry Allen #4 Gas Turbine/Gas 74 1,053,858 1,053,858 101,494 101,494 1,155,352 Harry Allen #5, #6, #7 CC Gas/Steam Turbine/Gas 483 8,825,426 8,825,426 849,950 849,950 9,675,376 Higgins CC Gas/Steam Turbine/Gas 550 11,286,990 11,286,990 1,087,015 1,087,015 12,374,005 Las Vegas Gen Block 1 CC Gas/Steam Turbine/Gas 51 7,972,260 7,972,260 767,784 767,784 8,740,044 Las Vegas Gen Block 2 CC Gas/Steam Turbine/Gas 115 15,944,520 15,944,520 1,535,568 1,535,568 17,480,087 Las Vegas Gen Block 3 CC Gas/Steam Turbine/Gas 115 15,944,520 15,944,520 1,535,568 1,535,568 17,480,087 Lenzie Block #1 CC Gas/Steam Turbine/Gas 585 6,959,312 6,959,312 670,230 670,230 7,629,542 Lenzie Block #2 CC Gas/Steam Turbine/Gas 585 6,959,312 6,959,312 670,230 670,230 7,629,542 Nellis Solar PV II Solar PV 15 4,300,000 4,300,000 89,010 89,010 4,389,010 Silverhawk CC Gas/Steam Turbine/Gas 560 4,815,481 4,815,481 463,764 463,764 5,279,245 SunPeak 3 GTG/Gas 74 1,053,858 1,053,858 101,494 101,494 1,155,352 SunPeak 4 GTG/Gas 74 1,053,858 1,053,858 101,494 101,494 1,155,352 SunPeak 5 GTG/Gas 74 1,053,858 1,053,858 101,494 101,494 1,155,352

Total Other Production Plant 113,903,008 113,903,008 10,644,539 10,644,539 124,547,547

Subtotal production plant (without Navajo) 125,549,440 125,549,440 11,766,171 11,766,171 137,315,610

Total Production Plant 218,610,440 136,096,353 20,728,590 12,781,912 148,878,265

CPI All Urban 2011 1.0000 2016 1.0963

Increase 0.0963

CPI All Urban 2015 1.0000 2016 1.0207

Increase 0.0207

(1) Navajo Generation Station estimate prepared by Sargent & Lundy for Salt River Project in March, 2008.

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KEVIN C. GERAGHTY

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2017 Depreciation Study

Docket No. 17-06____


Kevin C. Geraghty

1. Q. PLEASE STATE YOUR NAME, JOB TITLE, EMPLOYER AND BUSINESS

ADDRESS.

A. My name is Kevin C. Geraghty. I am the Senior Vice President of Energy Supply

for Nevada Power Company d/b/a NV Energy (“Nevada Power” or the

“Company”) and Sierra Pacific Power Company d/b/a NV Energy (“Sierra,” and

together with Nevada Power, the “Companies”). My work address is 6226 West

Sahara Avenue, Las Vegas Nevada, 89146. I am filing testimony in this proceeding

on behalf of Nevada Power.

2. Q. WHAT ARE YOUR PRIMARY RESPONSIBILITIES AS SENIOR VICE

PRESIDENT, ENERGY SUPPLY, FOR THE COMPANIES?

A. I am responsible for managing Nevada Power’s and Sierra’s generation fleet and

resource optimization.

3. Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND

EMPLOYMENT EXPERIENCE.

A. I hold a Bachelor of Science Degree in Electrical Engineering. I have worked in

diverse areas of energy supply since 1987. I joined the Companies in 2008.

Geraghty-DIRECT 1

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4. Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE THE PUBLIC

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UTILITIES COMMISSION OF NEVADA (“COMMISSION”)?

A. Yes, I have testified in numerous proceedings before the Commission. My most

recent appearance in a general rate case was in Sierra’s 2016 general rate case,

Docket No. 16-06006.

5. Q. ARE YOU SPONSORING ANY EXHIBITS WITH YOUR TESTIMONY?

A. Yes. I sponsor Exhibit Geraghty-Direct-1, my Statement of Qualifications.

6. Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS

PROCEEDING?

A. I am supporting Nevada Power’s request to change the depreciation expense

associated with the Navajo Generating Station. Specifically, I address the planned

retirement date for the Navajo Generating Station.

7. Q. PLEASE PROVIDE SOME BACKGROUND ON THE NAVAJO

GENERATING STATION?

A. The Navajo Generating Station is a 2,250 megawatt coal-fired facility located near

Page, Arizona and is situated on Navajo Nation Land. It is part of the Navajo

Project, which also includes transmission to Nevada and Arizona.

8. Q. ARE THERE OTHER OWNERS OF THE NAVAJO PROJECT?

A. Yes. In addition to Nevada Power, the remaining owners of the Navajo Generating

Station include Salt River Project for itself and on behalf of the United States,

Arizona Public Service, and Tucson Electric Power. Nevada Power has an 11.3

percent undivided interest (255 megawatts) in the Navajo Generating Station. The

Geraghty-DIRECT 2

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Salt River Project purchased the plant-only ownership interest of Los Angeles

Department of Water and Power (“LADWP”), but LADWP still retains ownership

in the transmission for the Navajo Project.

9. Q. WHEN DOES NEVADA POWER PLAN TO RETIRE OR ELIMINATE ITS

INTEREST IN THE NAVAJO GENERATING STATION?

A. The Navajo Generating Station will be retired, and Nevada Power will cease

receiving power from the plant, on or before December 22, 2019.

10. Q. HOW WAS THIS RETIREMENT DATE DETERMINED?

A. The current ownership agreement as well as the lease associated with the project

expire December 22, 2019. Additionally, the Nevada Legislature passed law

(Senate Bill 123) in 2013 that required Nevada Power to create and receive

Commission approval for an emission reduction and capacity replacement plan

(“ERCR Plan”) to retire or eliminate its interest in coal-fired plants – a minimum

of 800 megawatts – by December 31, 2019.1

11. Q. HAS NEVADA POWER CREATED AND RECEIVED APPROVAL FOR

THIS ERCR PLAN?

A. Yes. Nevada Power submitted its ERCR Plan in Docket No. 14-05003 and the

Commission issued an order approving the ERCR Plan on December 18, 2014.

1 Senate Bill 123 is codified in Nevada Revised Statutes sections 704.7311 – 7322.

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12. Q. WAS A PLANNED RETIREMENT DATE FOR THE NAVAJO

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GENERATING STATION INCLUDED IN THAT ERCR PLAN?

A. Yes. Nevada Power requested to retire or eliminate its interest in the Navajo

Generating Station by December 31, 2019.

13. Q. CAN NEVADA POWER COMPLY WITH SENATE BILL 123 OR WITH

ITS APPROVED ERCR PLAN WITHOUT RETIRING OR ELIMINATING

ITS INTEREST IN THE NAVAJO GENERATING STATION?

A. No. Retiring or eliminating the 255 megawatts represented by Nevada Power’s

ownership in the Navajo Generating Station is the only means to comply with

Senate Bill 123 and the approved ERCR Plan.

14. Q. WILL NEVADA POWER CONTINUE TO OWN TRANSMISSION

ASSOCIATED WITH THE NAVAJO GENERATING STATION AFTER IT

IS RETIRED?

A. Nevada Power will maintain ownership of transmission facilities that are located

off the Navajo Nation land. If a new lease or lease extension is reached with the

Navajo Nation that allows for these transmission facilities to remain on Navajo

Nation land, then Nevada Power may continue to own facilities on Navajo Nation

land as well.

15. Q. DOES THIS CONCLUDE YOUR TESTIMONY?

A. Yes it does.

Geraghty-DIRECT 4

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Exhibit Geraghty-Direct-1 Page 1 of 2

KEVIN C. GERAGHTY SVP, Energy Supply

NV Energy, Inc 6226 West Sahara Avenue

Las Vegas, NV 89146

(702) 402-5662

Mr. Geraghty joined NV Energy, Inc (“NVE”) in June 2008 as Executive, Power Generation and currently serves as the company’s Senior Vice President for Energy Supply. He has 30 years of experience in power generation with extensive knowledge of operations, maintenance, construction and management of coal, gas and hydro facilities. Mr. Geraghty has prepared and /or directed the preparation of various reports and analyses for submission to multiple state jurisdictions, EPA, NERC and FERC. Mr. Geraghty has also sponsored testimony before the Arizona Corporation Commission.

EMPLOYMENT HISTORY

NV Energy, Inc. 6/08 to Present

SVP, Energy Supply Responsible for managing all of NV Energy’s power generation assets,interests in jointly-owned assets, resource optimization and the gas local distribution company in northern Nevada . Responsibilities include resource optimization, coal procurement, operations, maintenance, construction, strategic planning, capital management and financial functions associated with gas operations, power production and procurement.

Allegheny Energy 12/87 to 6/08

Director Level Assignments: Smith, Western, Fort Martin and Harrison Regions 5/99 to 12/07

Managed all aspects of six (6) coal plants, seven (7) small hydro plants and multiple peaking combustion turbine sites. Managed the development and siting of a 1,080 MW combined cycle facility in La Paz County, Arizona. Managed the company’s interest in several other energy projects and/or contracts in Nevada, Arizona and California.

Manager Level Assignments: Operations, Maintenance and Engineering –

Hatfield’s Ferry and Harrison Power Stations 4/93 to 5/99 Managed all departmental-specific functions at two (2) large, coal-fired facilities; each facility had three (3) large (555-665) supercritical units.

Page 32 of 143

Exhibit Geraghty-Direct-1 Page 2 of 2

Engineering Level Assignments: Plant (Hatfield’s Ferry) and Construction 12/87 to 4/93 Performed plant engineering assignments in support of production, reliability and performance at the 1,665 MW coal-fired Hatfield’s Ferry Power Station. Performed construction engineering assignments in support of large O&M and CAPEX projects at every facility in the fleet (including coal, gas, hydro and oil facilities).

EDUCATION

University of Pittsburgh, Pittsburgh, PA Bachelor of Science in Electrical Engineering

ASSOCIATIONS AND MEMBERSHIPS • Board Member, Las Vegas Natural History Museum • Board Member, FIRST Nevada •

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NED W. ALLIS

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2017 Depreciation Study

Docket No. 17-06____


Ned W. Allis

I. INTRODUCTION AND PURPOSE

1. Q. WOULD YOU PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND

IDENTIFY THE PARTY FOR WHOM YOU ARE FILING TESTIMONY.

A. My name is Ned Allis. I am filing testimony on behalf of Nevada Power Company

d/b/a NV Energy (“Nevada Power” or the “Company”). My business address is 209

Senate Avenue, Camp Hill, PA 17011.

2. Q. BY WHOM AND IN WHAT CAPACITY ARE YOU EMPLOYED?

A. I am Project Manager, Depreciation and Technical Development for Gannett

Fleming Valuation and Rate Consultants, LLC (“Gannett Fleming”). Gannett

Fleming provides depreciation consulting services to utility companies in the

United States and Canada. I am responsible for conducting depreciation, valuation

and original cost studies, determining service life and salvage estimates, conducting

field reviews, presenting recommended depreciation rates to clients, and supporting

such rates before state and federal regulatory agencies. I am also responsible for

Gannett Fleming’s proprietary depreciation software, training of depreciation staff,

and the development of solutions for technical issues related to depreciation.

3. Q. WHAT IS YOUR EDUCATIONAL BACKGROUND?

A. I have Bachelor of Science degree in Mathematics from Lafayette College in

Easton, PA.

Allis-DIRECT 1

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4. Q. DO YOU BELONG TO ANY PROFESSIONAL SOCIETIES?

A. Yes. I am the current Vice President of the Society of Depreciation Professionals

(“Society”) and an associate member of the American Gas Association/Edison

Electric Institute (“AGA/EEI”), an industry accounting committee. I also serve as

an instructor for depreciation training provided by the Society.

5. Q. DO YOU HOLD ANY SPECIAL CERTIFICATION AS A DEPRECIATION

EXPERT?

A. Yes. The Society has established national standards for depreciation professionals.

The Society administers an examination to become certified in this field. I passed

the certification exam in September of 2011 and was recertified in March of 2017.

6. Q. HAVE YOU RECEIVED ANY ADDITIONAL EDUCATION RELATING

TO UTILITY PLANT DEPRECIATION?

A. Yes. I have completed the following courses conducted by the Society:

“Depreciation Basics,” “Life and Net Salvage Analysis” and “Preparing and

Defending Depreciation Study.”

7. Q. PLEASE OUTLINE YOUR EXPERIENCE IN THE FIELD OF

DEPRECIATION.

A. I joined Gannett Fleming in October 2006 as an Analyst. My duties included

assembling basic data required for depreciation studies, conducting statistical

analyses of service life and net salvage data, calculating annual and accrued

depreciation, assisting in preparing reports and assisting in providing testimony

setting forth and defending the results of the studies. I also developed and

maintained Gannett Fleming’s proprietary depreciation software. In March of 2013,

Allis-DIRECT 2

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I was promoted to the position of Supervisor, Depreciation Studies. In March of

2017, I was promoted to my current position of Project Manager, Depreciation and

Technical Development. More details regarding my professional background and

qualifications are set forth in Exhibit Allis-Direct-1.

8. Q. HAVE YOU SUBMITTED TESTIMONY IN PRIOR PROCEEDINGS

BEFORE THE PUBLIC UTILITIES COMMISSION OF NEVADA

(“COMMISSION”)?

A. Yes. I submitted testimony related to depreciation in the two most recent rate cases

for Sierra Pacific Power Company (“Sierra”), Docket Nos. 13-06004 and 16-06006.

9. Q. HAVE YOU SUBMITTED TESTIMONY IN ANY OTHER

JURISDICTIONS?

A. Yes. In addition to Nevada, I have submitted testimony on depreciation related

topics to the New York Public Service Commission, the New Jersey Board of

Public Utilities, the Florida Public Service Commission, the District of Columbia

Public Service Commission, and the Federal Energy Regulatory Commission

(“FERC”).

10. Q. WHAT IS THE PURPOSE OF YOUR PREPARED DIRECT TESTIMONY

IN THIS PROCEEDING?

A. I am sponsoring Statements A, B and C of the depreciation application for electric

plant, which set forth the results of my depreciation study for Nevada Power’s

electric plant in service as of December 31, 2016 (the “2017 Depreciation Study”

or “Depreciation Study”).

Allis-DIRECT 3

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11. Q. ARE YOU SPONSORING ANY EXHIBITS?

A. Yes. I am sponsoring the following Exhibits:

Exhibit Allis-Direct-1 Statement of Qualifications

Exhibit Allis-Direct-2 ON Line Depreciation Rates

12. Q. WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY?

A. My testimony will explain the methods and procedures of the depreciation report

as well as set forth the annual depreciation rates as of December 31, 2016.

Statement A sets forth the recommended depreciation rates in the 2017

Depreciation Study, as well as a comparison between the existing rates and the

recommended rates. Statements B and C provide detailed methods, procedures and

results of the Depreciation Study as of December 31, 2016. Each section of the

Depreciation Study will be explained in Part II of my testimony. In Part III of my

testimony I discuss the calculated theoretical reserve imbalance. Finally, I discuss

the depreciation rates calculated for ON Line assets in Part IV of my testimony.

II. METHODS USED IN DEPRECIATION STUDY

13. Q. PLEASE DEFINE THE CONCEPT OF DEPRECIATION.

A. The FERC Uniform System of Accounts defines depreciation as follows:

Depreciation, as applied to depreciable electric plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of electric plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities.1

1 18 C.F.R. 101 (FERC Uniform System of Accounts), Definition 12.

Allis-DIRECT 4

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14. Q. IN PREPARING THE DEPRECIATION STUDY, DID YOU FOLLOW

GENERALLY ACCEPTED PRACTICES IN THE FIELD OF

DEPRECIATION AND VALUATION?

A. Yes, I did. I followed generally accepted practices as outlined in various

depreciation manuals such as National Association of Regulatory Utility

Commissioners’ (“NARUC) Public Utility Depreciation Practices; Depreciation

Systems by Wolf and Fitch; The Estimation of Depreciation by Fitch, Wolf, and

Bissinger; Engineering Valuation and Depreciation by Marston and Winfrey; and

various other public utility depreciation references.

15. Q. DID YOU REVIEW PRIOR COMMISSION ORDERS ADDRESSING

DEPRECIATION ACCRUAL RATES?

A. Yes I did. I focused in particular on Nevada Power’s most recent depreciation study

and associated order in Docket No. 11-06007. I also reviewed Sierra’s most recent

electric depreciation studies and the associated Commission orders in Docket Nos.

10-06003, 13-06004 and 16-06006. I participated in each of these cases as either a

witness or as the lead analyst for the depreciation study.

16. Q. DID YOU REVIEW THE REGULATORY FILING REQUIREMENTS

IDENTIFIED BY THE COMMISSION?

A. Yes I reviewed Nevada Administrative Code (“NAC”) sections 703.2715 through

703.278.

17. Q. DOES YOUR DEPRECIATION STUDY AND ASSOCIATED SCHEDULES

PROVIDE ALL THE REQUIRED INFORMATION FROM THE ABOVE

MENTIONED SECTIONS.

Allis-DIRECT 5

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A. Yes, they do.

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18. Q. PLEASE DESCRIBE THE CONTENTS OF YOUR REPORT.

A. Statement A provides schedules setting forth both the depreciation rates resulting

from the Depreciation Study, as well as the currently approved depreciation rates.

Statements B and C set forth the 2017 Depreciation Study. The Depreciation Study

is presented in 10 parts. Parts I through V are included in Statement B and Parts VI

through X are included in Statement C.

• Part I, Introduction, presents the scope and basis for the 2017 Depreciation

Study;

• Part II, Estimation of Survivor Curves, explains the process of estimating

survivor curves and the retirement rate method of life analysis;

• Part III, Service Life Considerations, discusses factors and the informed

judgment involved with the estimation of service life;

• Part IV, Net Salvage Considerations, discusses factors and the informed

judgment involved with the estimation of net salvage;

• Part V, Calculation of Annual and Accrued Depreciation, explains the method,

procedure and technique used in the calculation of annual depreciation expense

and the theoretical reserve;

• Part VI, Results of Study, sets forth the service life estimates, net salvage

estimates, annual depreciation rates and accruals and theoretical reserves for

each depreciable group. This section also includes a description of the detailed

tabulations supporting the 2017 Depreciation Study;

• Part VII, Service Life Statistics, sets forth the survivor curve estimates and

original life tables for each plant account and subaccount;

Allis-DIRECT 6

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• Part VIII, Net Salvage Statistics, sets forth the net salvage analysis for each

plant account and subaccount;

• Part IX, Detailed Depreciation Calculations, sets forth the calculation of

average remaining life for each property group; and

• Part X, Description of Service Life and Net Salvage Estimates, provides a

discussion of the considerations that inform the service life and net salvage

estimates for each plant account and the probable retirement dates for each

generating unit.

19. Q. PLEASE IDENTIFY THE DEPRECIATION METHOD THAT YOU USED.

A. I used the straight line remaining life method of depreciation, with the average

service life procedure. The annual depreciation rates and accruals are based on a

method of depreciation accounting that seeks to distribute the unrecovered cost of

fixed capital assets over the estimated remaining useful life of each unit, or group

of assets, in a systematic and rational manner.

20. Q. WHAT ARE YOUR RECOMMENDED ANNUAL DEPRECIATION

ACCRUAL RATES FOR NEVADA POWER?

A. My recommended annual depreciation accrual rates as of December 31, 2016, for

Nevada Power are set forth in the tables on pages VI-5 through VI-13 of the 2017

Depreciation Study.

21. Q. HOW DID YOU DETERMINE THE RECOMMENDED ANNUAL

DEPRECIATION ACCRUAL RATES?

A. I performed this determination in two phases. In the first phase, I estimated the

service life and net salvage characteristics for each depreciable group (that is, each

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plant account or subaccount identified as having similar characteristics). In the

second phase, I calculated the composite remaining lives and annual depreciation

accrual rates based on the service life and net salvage estimates determined in the

first phase.

22. Q. PLEASE DESCRIBE THE FIRST PHASE OF THE DEPRECIATION

STUDY, IN WHICH YOU ESTIMATED THE SERVICE LIFE AND NET

SALVAGE CHARACTERISTICS FOR EACH DEPRECIABLE GROUP.

A. The service life and net salvage studies consisted of compiling historical data from

records related to Nevada Power’s plant; analyzing these data to discern historic

trends of survivor and net salvage characteristics; obtaining supplementary

information from management and operating personnel concerning practices and

plans as they relate to plant operations; and interpreting the above data and

information, as well as estimates used by other electric utilities to form judgments

of average service life and net salvage characteristics.

23. Q. WHAT HISTORICAL DATA DID YOU ANALYZE FOR THE PURPOSE

OF ESTIMATING SERVICE LIFE CHARACTERISTICS?

A. I analyzed the Company’s accounting entries that record plant transactions during

the 79-year period from 1938 through 2016. The transactions included additions,

retirements, transfers and the related balances. The Company’s records also

included the surviving dollar values by year installed for each plant account as of

December 31, 2016.

24. Q. WHAT METHOD DID YOU USE TO ANALYZE THE SERVICE LIFE

DATA?

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A. I used the retirement rate method. The retirement rate method is an actuarial method

for deriving survivor curves using the average rates at which property of each age

group is retired. It is the industry preferred method when sufficient data are

available.

25. Q. WOULD YOU EXPLAIN HOW YOU USED THE RETIREMENT RATE

METHOD TO ANALYZE NEVADA POWER’S SERVICE LIFE DATA?

A. I applied the retirement rate method to each different group of property in the study.

For each property group, I used the retirement rate method to form a life table that,

when plotted, shows an original survivor curve for that property group. Each

original survivor curve represents the average survivor pattern experienced by the

several vintage groups during the experience band studied. The survivor patterns

do not necessarily describe the life characteristics of the property group; therefore,

interpretation of the original survivor curves is required in order to use them as

valid considerations in estimating service life. Iowa-type survivor curves were used

to perform these interpretations.

26. Q. WHAT IS AN “IOWA-TYPE SURVIVOR CURVE” AND HOW DID YOU

USE SUCH CURVES TO ESTIMATE THE SERVICE LIFE

CHARACTERISTICS FOR EACH PROPERTY GROUP?

A. Iowa-type curves are a widely used group of generalized survivor curves that

represent the range of survivor characteristics usually experienced by utilities and

other industrial companies. The Iowa curves were developed at the Iowa State

College Engineering Experiment Station through an extensive process of observing

and classifying the ages at which various types of property used by utilities and

other industrial companies had been retired.

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Iowa-type curves are used to smooth and extrapolate original survivor curves

determined by the retirement rate method. Iowa curves and truncated Iowa curves

were used in this study to describe forecasted rates of retirement based on the

observed rates of retirement and the outlook for future retirements.

The estimated survivor curve designations for each depreciable property group

indicate the average service life, the family within the Iowa system to which the

property group belongs, and the relative height of the mode. For example, the Iowa

50-R2 indicates an average service life of 50 years; a right-moded, or R, type curve

(the mode occurs after average life for right-moded curves); and a moderate height,

2, for the mode (possible modes for R type curves range from 1 to 5).

27. Q. SHOULD THE ESTIMATION OF SURVIVOR CURVES BE BASED

SOLELY ON THE RESULTS OF STATISTICAL LIFE ANALYSES?

A. No. Because depreciation requires the estimation of future service lives for assets

currently in service, and because the historical database only allows for the analysis

of a portion of the full service lives of each group of assets, informed judgment is

necessary to determine the most reasonable survivor curve estimate. Judgment must

be used not only to incorporate information external to the statistical analyses, but

also to properly interpret the historical data as part of the curve fitting process.

Authoritative depreciation texts support that judgment is necessary in the

estimation of depreciation, and that reliance only on statistical results can, and does,

produce unreasonable results.

28. Q. WHAT APPROACH DID YOU USE TO ESTIMATE THE LIVES OF

PRODUCTION FACILITIES?

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A. The life span method was used to estimate the lives of electric generation facilities,

for which concurrent retirement of the entire facility is anticipated. In this method,

the survivor characteristics of such facilities are described by the use of interim

retirement survivor curves (typically Iowa curves) and probable retirement dates.

The interim survivor curve describes the rate of retirement for assets that will be

retired prior to the final retirement of the facility (for example, retirements related

to the replacement of elements of the facility). For a power plant, examples of

interim retirements include the retirement of piping, boiler tubes, condensers,

turbine blades, and rotors that occur during the life of the facility. Interim survivor

curves were developed using the retirement rate method in a manner similar to that

used for mass property. The probable retirement date, an estimate of the probable

date at which a facility will be retired based on its anticipated operating life, affects

each year of installation for the facility by truncating the interim survivor curve for

each installation year at its attained age as of that date. The life span of the facility

is the time from when the plant is originally placed in service to the expected date

of its eventual retirement (i.e., the probable retirement date).

The use of interim survivor curves, truncated at the estimated probable retirement

dates, provides a consistent method of estimating the lives of several years’

installation for a particular facility inasmuch as a single concurrent retirement for

all the years of installation will occur at that specified date.

29. Q. HAS THE LIFE SPAN METHOD BEEN USED PREVIOUSLY BY NEVADA

POWER?

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A. Yes. The life span method was used and accepted by the Commission in Nevada

Power’s most recent depreciation study, as well as in Sierra’s recent depreciation

studies.

30. Q. WHAT ARE THE BASES FOR THE PROBABLE RETIREMENT DATES

THAT YOU ESTIMATED FOR EACH FACILITY?

A. The probable retirement dates for Nevada Power’s steam production and other

production facilities are established using the Commission-approved Life Span

Analysis Process (“LSAP”), which is developed and approved during the

Company’s Integrated Resource Planning (“IRP”) process. The two primary

changes in life span estimates from the previous depreciation study are for the

Company’s coal-fired facilities. As required by Nevada law, the Company has

retired all four units at the Reid Gardner facility, and these generating units are

therefore not included in the depreciation study. Similarly, the Company also plans

to retire the Navajo generating station by the end of 2019, and the life span for this

facility has been updated to reflect this change. Company witness Mr. Kevin

Geraghty supports the 2019 retirement date for Navajo in his direct testimony.

The Commission has not approved new retirement dates for the Company’s other

generating facilities through the LSAP process since the 2011 depreciation study.

The retirement dates for these facilities used in the 2017 Depreciation Study are

therefore the same as those approved by the Commission in Docket No. 11-06007.

For production facilities that were not part of the previous studies (Las Vegas Gen

Block 1, 2 and 3 and SunPeak 3, 4 and 5), the life spans are consistent with the life

spans currently used for similar facilities. Additionally, a 30-year life span is used

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for the Nellis Solar facility, consistent with the terms of the Company’s agreement

with the Nellis Air Force Base.

31. Q. DID YOU PHYSICALLY OBSERVE NEVADA POWER’S ELECTRIC

PLANT AND EQUIPMENT AS PART OF YOUR DEPRECIATION

STUDY?

A. Yes. On January 26 and 27, 2017, my firm held a number of meetings with

personnel involved with operations and maintenance of Nevada Power’s

production, transmission, distribution and general plant. Discussions were held

regarding retirement, construction, and operations of electric plant assets. Field

visits were also conducted of the Harry Allen, Nellis solar, Las Vegas Gen Block,

SunPeak, Clark and Goodsprings generating facilities, as well as the MYS

Substation. Meetings and field reviews are typically conducted to become familiar

with the Company’s operations and obtain an understanding of the function of the

plant and information with respect to the reasons for past retirements and the

expected future causes of retirements. This knowledge, as well as information

obtained from other interviews and discussions with management and Company

personnel, was incorporated in the interpretation and extrapolation of the statistical

analyses.

32. Q. WOULD YOU PLEASE EXPLAIN THE CONCEPT OF “NET SALVAGE?”

A. Net salvage is a component of the service value of capital assets that is recovered

through depreciation rates. The service value of an asset is its original cost less its

net salvage. Net salvage is the salvage value received for the asset upon retirement

less the cost to retire the asset. When the cost to retire exceeds the salvage value,

the result is negative net salvage.

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Inasmuch as depreciation expense is the loss in service value of an asset during a

defined period (e.g. one year), it must include a ratable portion of both the original

cost and the net salvage. That is, the net salvage related to an asset should be

incorporated in the cost of service during the same period as its original cost so that

customers receiving service from the asset pay rates that include a portion of both

elements of the asset’s service value, the original cost and the net salvage value.

For example, the full recovery of the service value of a $100 transformer might

actually be $130, as the full cost would include not only the $100 of original cost,

but also, on average, $45 to remove the transformer at the end of its life and $15 in

salvage value. In this example, the net salvage component is negative $30 ($15

$45), and the net salvage percent is negative 30% (($15 - $45)/$100).

33. Q. PLEASE DESCRIBE HOW YOU ESTIMATED NET SALVAGE

PERCENTAGES.

A. The net salvage estimate for each plant account is based on informed judgment that

incorporates the analysis of historical net salvage data. The net salvage analysis for

most accounts incorporated analyses of Nevada Power’s historical data for the

period of 1986 through 2016. In the historical analyses the net salvage, cost of

removal and gross salvage amounts were expressed as percentages of the original

cost retired. These percentages were calculated on annual, overall and five year

averages as well as three-year moving average bases for the 1986 to 2016 period.

34. Q. WAS NET SALVAGE FOR PRODUCTION FACILITIES CALCULATED

IN THE SAME MANNER?

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A. Net salvage for production was estimated separately for interim retirements and for

final retirements. For interim retirements for production plant, net salvage was

estimated in the same manner as described above. For final net salvage, estimates

were based on actual site specific dismantling studies. The two net salvage

estimates (interim and final) were combined to develop a composite net salvage

percent for each production account.

35. Q. FOR PRODUCTION PLANT HOW WAS THE DECOMMISSIONING

COST ESTIMATE DEVELOPED?

A. The estimates of decommissioning costs used in the 2017 Depreciation Study are

based on the estimates ordered by the Commission in Nevada Power Docket No.

11-06007. The estimates in that filing were developed for steam production and

other production facilities based on site specific studies performed for Nevada

Power by URS Corporation. The URS study was finalized in April of 2011 and was

modified by the Commission’s Order from Docket No. 11-06007. Rather than

perform a new decommissioning study, for purposes of the current Depreciation

Study the decommissioning costs approved in the Commission’s order for Docket

No. 11-06007 were escalated by the Company to 2016 for the 2017 Depreciation

Study. For the Las Vegas and Sun Peak generating stations, the estimates were

based on comparable generating units. The decommissioning estimates for the

Nellis solar facility are based on an estimate developed for the Company. The

development of the decommissioning estimates is discussed in further detail in the

prepared testimony of Company witness Ellen Fincher

These escalated decommissioning costs were used to develop a percentage by

account. This net salvage percentage was then added to the interim retirement net

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salvage percentage to develop an overall net salvage percent for each generating

station by account. A description of these calculations and the development of net

salvage percentages used for each production account, are provided in Parts VIII

and X of the Depreciation Study.

36. Q. IS THIS AN ACCEPTED METHOD OF DEVELOPING

DECOMMISSIONING COSTS?

A. Yes, a site-specific study for each individual generating station is generally

considered to be the best method to establish decommissioning costs for production

plant. This method has been used by the Company in the past and was approved by

the Commission in previous rate cases as recently as Docket No. 11-06007.

37. Q. PLEASE DESCRIBE THE SECOND PHASE OF THE PROCESS THAT

YOU USED IN THE DEPRECIATION STUDY, IN WHICH YOU

CALCULATED COMPOSITE REMAINING LIVES AND ANNUAL

DEPRECIATION ACCRUAL RATES.

A. After I estimated the service life and net salvage characteristics for each depreciable

property group, I calculated the annual depreciation accrual rates for each group

based on the straight line remaining life method, using remaining lives weighted

consistent with the average service life procedure. The annual depreciation accrual

rates were developed as of December 31, 2016.

38. Q. PLEASE DESCRIBE THE STRAIGHT LINE REMAINING LIFE

METHOD OF DEPRECIATION.

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A. The straight line remaining life method of depreciation allocates the original cost

of the property, less accumulated depreciation, less future net salvage, in equal

amounts to each year of remaining service life.

39. Q. PLEASE DESCRIBE THE AVERAGE SERVICE LIFE PROCEDURE FOR

CALCULATING REMAINING LIFE ACCRUAL RATES.

A. The average service life procedure defines the group for which the remaining life

annual accrual is determined. Under this procedure, the annual accrual rate is

determined for the entire group or account based on its average remaining life and

this rate is applied to the surviving balance of the group’s cost. The average

remaining life of the group is calculated by first dividing the future book accruals

(original cost less allocated book reserve less future net salvage) by the average

remaining life for each vintage. The average remaining life for each vintage is

derived from the area under the survivor curve between the attained age of the

vintage and the maximum age. Then, the sum of the future book accruals is divided

by the sum of the annual accruals to determine the average remaining life of the

entire group for use in calculating the annual depreciation accrual rate.

40. Q. PLEASE PROVIDE AN EXAMPLE TO ILLUSTRATE THE

DEVELOPMENT OF THE ANNUAL DEPRECIATION ACCRUAL RATE

FOR A PARTICULAR GROUP OF PROPERTY IN YOUR

DEPRECIATION STUDY.

A. Account 353 Station Equipment is used as an example to illustrate how the annual

depreciation rate is determined for a particular group of property. The retirement

rate method was used to analyze the survivor characteristics of this property group.

Aged plant accounting data were compiled from 1938 through 2016 and analyzed

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for periods that best represent the overall service life of this property. The life table

for the 1938-2016 experience band is presented on pages VII-51 and VII- 52 and

the life table for the 1997-2016 experience band is presented on pages VII-53 and

VII-54 of the depreciation study. The life table displays the retirement and

surviving ratios of the aged plant data exposed to retirement by age interval. For

example, page VII-51 shows $627,722 retired during age interval 1.5-2.5 with

$663,276,247 exposed to retirement at the beginning of the interval. Consequently,

the retirement ratio is 0.0009 ($627,722/$663,276,247) and the survivor ratio is

0.9991 (1-0.0009). The percent surviving at age 1.5 of 99.85 percent is multiplied

by the survivor ratio of 0.9991 to derive the percent surviving at age 2.5 of 99.75

percent. This process continues for the remaining age intervals for which plant was

exposed to retirement during the period from 1938 through 2016. The resultant life

table, or original survivor curve, is plotted along with the estimated smooth survivor

curve, the 60-R2, on page VII-50.

The net salvage analysis is presented on pages VIII-23 and VIII-24. The net salvage

percentage for each year is based on the result of annual gross salvage minus the

cost to remove plant assets as compared to the original cost of plant retired during

the period 1986 through 2016. The overall average cost of removal, gross salvage

and net salvage percentages, as well as moving three-year averages and the most

recent five-year averages are also calculated.

The calculation of annual depreciation related to the original cost of Account 353

Station Equipment, at December 31, 2016, is presented on pages IX-57 and IX-68.

The calculation is based on the 60-R2 survivor curve, (5) percent net salvage, the

attained age, and the allocated book reserve. The tabulation sets forth the

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installation year, the original cost, calculated accrued depreciation, allocated book

reserve, future accruals, remaining life and annual accrual. These totals are brought

forward to the table on page VI-11.

41. Q. WERE YOU ABLE TO DEVELOP RESULTS FOR EVERY

DEPRECIABLE ACCOUNT IN THE STUDY USING THE ABOVE

MENTIONED STATISTICAL METHODS?

A. Yes. The above mentioned statistical methods were used for each depreciable plant

account. Information obtained from Company personnel, comparisons to other

electric utilities and experience and knowledge of the electric utility industry were

factored into the final results.

42. Q. DID YOU USE THIS SAME METHODOLOGY FOR ALL GENERAL

PLANT ACCOUNTS?

A. No. As has been the practice in previous depreciation studies, amortization

accounting was used for several General Plant accounts. Amortization is

appropriate for accounts that have a large number of units, but relatively small asset

values.

43. Q. PLEASE DESCRIBE AMORTIZATION ACCOUNTING.

A. In amortization accounting, units of property (typically general plant) are

capitalized the same as they are in depreciation accounting. Retirements are

recorded when a vintage is fully amortized rather than as the units are removed

from service as is the case for depreciation accounting. Each plant account or group

of assets is assigned a fixed period which represents an anticipated life during which

the asset will render service. For example, in amortization accounting assets that

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