state of vermont public utility commission case no. 17 ...€¦ · 1 issued a certified public...

STATE OF VERMONT

PUBLIC UTILITY COMMISSION

Case No. 17-3112-INV

Investigation into the petition of Green Mountain Power Corporation's

tariff filing requesting an overall rate increase in the amount of 4.98%,

to take effect January 1, 2018.

PREFILED DIRECT TESTIMONY OF

ROBERT L. ROSENKOETTER, CPA

SAGE MANAGEMENT CONSULTANTS, LLC

ON BEHALF OF THE

VERMONT DEPARTMENT OF PUBLIC SERVICE

August 14, 2017

Summary: Mr. Rosenkoetter provides testimony on the proposed Green Mountain Power capital

expenditures for support services.

List of Exhibits Sponsored by Mr. Rosenkoetter:

Exhibit PSD-RLR-1 – Resume/CV

Exhibit PSD-RLR-2 – GMP Discovery Attachment GMP.DPS1.Q97)

Exhibit PSD-RLR-3 – GMP capital folder (Project 148581: 2017 Security Cameras Chittenden Dam)

Exhibit PSD-RLR-4 – GMP capital folder (Project 148723: St. Johnsbury Storage Building)

Exhibit PSD-RLR-5 – GMP capital folder (Project 148501: 2017 EBS Upgrade & Enhance)

Exhibit PSD-RLR-6 – GMP capital folder (Project 154648: 2017 Digger Replacement)


GMP Rate Case

PSD Direct Testimony of Robert L. Rosenkoetter

August 14, 2017

Page 1 of 18

Q1. Please state your name, occupation, and business address. 1

A1. My name is Robert L. Rosenkoetter. I am a Senior Consultant at SAGE Management 2

Consultants, LLC (“SAGE”), a regulatory and litigation support management consulting 3

firm. My business address is 10085 Buice Road, Johns Creek, Georgia 30022. 4

5

Q2. Please describe your role, educational background, and experience. 6

A2. I provide testimony on the Green Mountain Power Interim 2017 and Rate Year 2018 7

capital expenditures for support services. 8

9

I am a Certified Public Accountant with over 25 years of experience as an accounting 10

expert in the utility industry. I have performed numerous analytical and financial reviews 11

to analyze costs and to compare costs to benefits expected or realized. I have provided 12

regulatory and litigation support and expert witness services to consumer advocates and 13

regulatory commissions. I have served as lead consultant on over 30 management 14

reviews or assessments of investor-owned utilities, focusing on cost accounting and 15

allocations, cost/benefit analysis, financial operations, accounting procedures, and 16

financial policies. I have conducted focused cost verification audits and prudency 17

reviews of utility companies. 18

19

I have a Bachelor of Science degree in Business Administration from Auburn University, 20

a Master of Business Administration in Finance degree from Georgia State University, a 21

Master of Professional Accountancy degree from Georgia State University, and have been 22


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August 14, 2017

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issued a Certified Public Accountant (“CPA”) certificate. My resume is attached as 1

Exhibit PSD-RLR-1. 2

3

Q3. Have you ever testified before the Vermont Public Service Board? 4

A3. No. 5

6

Q4. What is the purpose of your testimony? 7

A4. The purpose of my testimony is to provide analysis and recommendations concerning the 8

Green Mountain Power (“GMP”) capital additions that pertain to the Communications, 9

Facilities, Information Technology, and Transportation departments. 10

11

Q5. In how many management audits of utility companies have you reviewed capital 12

additions? 13

A5. I have reviewed capital budgets, capital budgeting processes, and capital expenditure 14

proposals in over thirty management audits of electric, gas, and water utilities and 15

telephone companies. 16

17

Q6. Can you please describe the Green Mountain Power capital addition projects that 18

you reviewed? 19

A6. I reviewed all of the capital projects proposed by GMP for 2017 and 2018 for the 20

Communications, Facilities, Information Technology, and Transportation departments. 21

This is a total of 100 projects – five Communications projects, 21 Facilities projects, 64 22

Information Technology projects, and ten Transportation projects. 23


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Q7. What was the dollar value of the capital projects you reviewed? 1

A7. The total dollar value of these projects was $29.6 million as shown on the following table 2

(the full list of projects attached as Exhibit PSD-RLR-2, which is taken from GMP’s 3

discovery attachment – GMP.DPS1.Q97). 4

Capital Projects by Department 5

2017 and 2018 6

7

Departments Capital Projects

Number Amount ($000)

Communications

2017 4 410.6

2018 1 120.6

Total Communications 5 531.2

Facilities

2017 15 4,036.4

2018 6 614.2

Total Facilities 21 4,650.6

Information Technology

2017 40 8,494.0

2018 24 6,915.3

Total Information Technology 64 15,409.3

Transportation

2017 7 5,490.3

2018 3 3,494.3

Total Transportation 10 8,984.6

Totals

2017 66 18,431.3

2018 34 11,144.4

Total Projects 100 29,575.7

Exhibit PSD-RLR-2

8

9

Q8. What kind of documentation was made available to review these projects? 10

A8. The project folders that were made available to review generally consisted of the 11

following: 1) Installation and Retirement Work Order – providing a Project Justification 12


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August 14, 2017

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and Project Description, 2) Capital Summary – depicting the spending by expense 1

account and year to be spent, 3) Labor Summary – describing hours and cost of internal 2

labor to be used on the project, 4) Assumptions – consisting of contractor assumptions, 3

labor assumptions, and O&M supporting cost information; 5) Qualitative Financial 4

Analysis – providing the primary reason for completing the project, rationale for the 5

timing of the project, other costs or benefits that were expected to result from the project, 6

and any alternatives to proceeding with the project and the cost of the alternatives; 6) 7

Direct Materials – indicating the cost of materials involved in the project; and 7) Contract 8

Fees and Other Costs – describing any contract, the quote year, and the vendor. An 9

example of a GMP project folder is attached as Exhibit PSD-RLR-3 (Project 148581: 10

2017 Security Cameras Chittenden Dam). 11

12

Q9. Were there any other documents in the project folders? 13

A9. Yes, there was usually a bid proposal from a vendor or a vendor’s invoice for the work 14

that had been or was to be completed. Additionally, for the several blanket projects there 15

was a schedule reflecting the expenditures for the blanket category for the past five years 16

and calculations on which the blanket amount was based. 17

18

Q10. What level of detail justifying the capital project was provided in the project 19

folders? 20

A10. The level of detail was generally limited to several sentences describing the proposed 21

project, the justification for the project, and benefits that were expected to be realized 22

from the project. 23


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Q11. Was the level of detail concerning the justification of capital projects less than you 1

have seen in other utility companies? 2

A11. Yes, the level of detail, especially concerning any cost/benefit analysis, was minimal and 3

not what I have seen in reviewing the capital projects, capital budget processes, and 4

capital budgets in numerous management audits of utility companies. 5

6

Q12. Are the projects classified in any way? 7

A12. Yes, the categories that describe the purpose of the project are: safety, reliability, 8

customer service, operational efficiency, and/or State energy policy. The following 9

exhibit displays the projects from these four functions by these categories (the data is 10

taken from the table included in Exhibit PSD-RLR-2). 11


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Projects by Justification Category 1 2

Department

Justification Category

Customer

Service

Operational

Efficiency Reliability Safety

State

Energy

Policy

Total

# ($000) # ($000) # ($000) # ($000) # ($000) # ($000)

Communications

2017 1 314.5 3 96.1 4 410.6

2018 1 120.6 1 120.6

Total

Communications 1 314.5 1 120.6 3 96.1 5 531.2

Facilities

2017 9 2,130.6 2 650.1 4 1,255.7 15 4,036.4

2018 3 261.3 1 135.3 2 217.6 6 614.2

Total Facilities 12 2,391.9 3 785.4 6 1,473.3 21 4,650.6


2017 5 1,371.9 25 5,002.3 5 919.0 3 294.9 2 905.9 40 8,494.0

2018 3 1,411.5 18 4,292.9 1 275.4 2 935.5 24 6,915.3

Total IT 8 2,783.4 43 9,295.2 5 919.0 4 570.3 4 1,841.4 64 15,409.3

Transportation

2017 6 5,187.5 1 302.8 7 5,490.3

2018 1 336.6 2 3,157.7 3 3,494.3

Total

Transportation 7 5,524.1 3 3,460.5 10 8,984.6

Totals

2017 6 1,686.4 40 12,320.4 7 1,569.1 11 1,949.5 2 905.9 66 18,431.3

2018 3 1,411.5 23 5,011.4 1 135.3 5 3,650.7 2 935.5 34 11,144.4

Total Projects 9 3,097.9 63 17,331.8 8 1,704.4 16 5,600.2 4 1,841.4 100 29,575.7

Source: Exhibit PSD-RLR-2

3

Q13. What is the significance of this exhibit? 4

A13. The operational efficiency justification is used for 63% of projects from these four 5

departments and almost 60% of the dollar amount of these projects. The operational 6

efficiency justification requires that economic calculations or cost/benefit analysis be 7


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August 14, 2017

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utilized to justify capital expenditures, rather than some of the other capital expenditure 1

justifications such as safety, reliability, and compliance with regulatory energy policies 2

that might not include such financial justification. The operational efficiency project 3

justification means that there is an economic reason for spending capital. The economic 4

reason could be increased revenues, decreased operating costs, or cost avoidance. Due to 5

the ability to compare the cost of the capital expenditure against the benefit that is to be 6

realized, projects classified as operational efficiency were the focus of my review and 7

analysis for these four departments. 8

9

Q14. What did your analysis reveal concerning projects that were classified as customer 10

service, reliability, safety, and the State energy policy? 11

A14. The projects that were categorized as customer service, reliability, safety, and the State 12

energy policy did not contain much quantification, but the justifications for these projects 13

were reasonable considering the stated purpose of the projects. For instance, a project to 14

install security cameras at Chittenden Dam is justified with the criteria of safety and 15

reliability, stating, “This has been classified as a high hazard dam and is recommended by 16

the GMP Dam External Inspection Review Organization with the support of the PSB for 17

camera installation.” See Exhibit PSD-RLR-3 (Project 148581: 2017 Security Cameras 18

Chittenden Dam). 19

20

21

22

23

24


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Q15. What did your analysis reveal concerning projects that were classified as 1

operational efficiency? 2

A15. I found that for a significant portion of the projects in this category the justification for 3

expenditures was insufficient. The financial justification was limited, insufficient to 4

justify the project, or non-existent. 5

6

Q16. Can you provide some examples of projects with insufficient operational efficiency 7

justification? 8

A16. A 2017 project to construct a cold storage building so that trailers, an Argo, and materials 9

currently stored outside could be stored inside cost $191,711. The primary reason for 10

building this structure was the extra time required to “clear, clean, and make these items 11

usable.” No cost/benefit analysis was offered. Under the costs and benefits section for 12

this project was the statement, “The benefits are not quantifiable at this time but will be 13

once the building is in place.” GMP’s folder for this project is attached as Exhibit PSD-14

RLR-4 (Project 148723: St. Johnsbury Storage Building). 15

16

Another 2017 project to upgrade the Oracle E-Business Suite cost $680,787. Benefits to 17

be realized were a cost avoidance of a 20% increase in the annual support cost charged by 18

Oracle, amounting to $19,218 annually. Dividing the capital expenditure of $680,787 by 19

the savings per year of $19,718 yields a payback period of over 35 years. GMP’s folder 20

for this project is attached as Exhibit PSD-RLR-5 (Project 148501: 2017 EBS Upgrade 21

& Enhance). 22

23


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August 14, 2017

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A third 2017 project to replace two digger trucks cost $675,551. There was no 1

quantification or cost/benefit analysis provided concerning the “expensive” repair costs 2

that would be avoided, if new trucks were purchased. GMP’s folder for this project is 3

attached as Exhibit PSD-RLR-6 (Project 154648: 2017 Digger Replacement). 4

5

Q17. Which projects that you reviewed did not contain sufficient justifications? 6

A17. The following tables list the projects that I believe do not contain sufficient justification. 7

The tables are organized by function and year within the operational efficiency category 8

(project data is taken from the table included as Exhibit PSD-RLR-2). 9

2018 Communications Projects 10

Project Title Project Description

Rate

Base

Additions

($000)

Comments

153486: 2018 OC3 Node

Replacement

Purchase and install

equipment replacing older

fiber communications

equipment with newer

technology.

120.6

Operational Efficiency is

not supported, "There are no

direct operational

efficiencies associated with

this project."

Total 2018

Communications 120.6


11

2017 Facilities Projects 12


Rate Base

Additions

($000)

Comments

148724:

Royalton

Storage

Building

Construct a 30'x60' cold storage

building 191.6

No quantification of cost

of continuing to store

equipment and materials

outside


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August 14, 2017

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Rate Base

Additions

($000)

Comments

148838: Saint

Albans HVAC

Replace 5 roof top HVAC units at

the St Albans service center. 43.7

No documentation of

cost benefit; no details

on the safety factor

143630:

Montpelier

Renovation

Renovate existing space to

accommodate the construction of a

3,050 sq/ft garage addition to the

Montpelier Service Center.

1,413.2 Cost is high - $332 per

square foot for a garage

148723: St J

Storage

Building

Construct a 30'x60' cold storage

building 191.7

No quantification of cost

of continuing to store

equipment and materials

outside

Total 2017

Facilities 1,840.2


1

2018 Facilities Projects 2

3


Rate Base

Additions

($000)

Comments

148920: Saint

Albans Cold

Storage

Construction of 30'x60' cold storage

building 193.1

No quantification of

cost of continuing to

store equipment and

materials outside

148726:

Royalton Unit

Heaters

Replace 7 unit heaters in the Royalton

Service Center. 34.1

No cost/benefit

analysis; no details on

safety issues

148727:

Sunderland

Unit Heaters

Replace 5 unit heaters in the

Sunderland Service Center. 34.1

No cost/benefit

analysis; no details on

safety issues

Total 2018

Facilities 261.3


4

5

6


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2017 Information Technology Projects 1

2


Rate Base

Additions

($000)

Comments

148524: 2017

Technology

Refresh

Annual replacement of various

technology that is due for

replacement, including laptops, iPads,

etc.

524.1

Rationale is Industry

Standard (replace

every 3-4 years);

estimate of equipment

failures would require

192 IT hours annually;

payback on investment

would be 54.5 years

153813: 2017

Watershed

Forecast Tools

Development of hydro modeling for

our watersheds combined with

software to provide an accurate

forecast of available hydro generation

in our ponding facilities and our run-

of-river facilities.

93.2

Cost/benefit = $5,200

per year based on

saving 104 hours per

year at $50/hour;

payback would be

approximately 30

years

148495: 2017

Log sheets

Enhancements

Enhancements to log sheet program

used by system operators to track

system and generation data.

37.3

Estimated cost savings

would take 23+ years

to recoup the cost of

this project

143658: Bi

Tech Upgrade

2016

Upgrade systems presently on BI

Oracle Warehouse Builder (OWB

extractor 2.4) to latest version of BI

2.5.x using Oracle Direct Integrator

(ODI).

472.2

Necessary for future

upgrades of other

systems; operational

efficiencies = $5,100

annually; payback

would be 92.5 years

148501: 2017

EBS Upgrade

& Enhance

Upgrade Oracle E-Business Suite

(EBS Oracle Financials) to latest

version.

680.8

Payback, based on

alternative 20%

increase in

maintenance ($19,218)

would be 35.4 years

148475: 2017

Cell Amp Sys

P & S

Cellular amplification systems

installed in 25 generation plants and

substations.

113.9

"Actual savings

cannot be predicted

with any reasonable

accuracy"; "not able to

quantify the

operational savings

due to the sporadic

nature of calls"


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August 14, 2017

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Rate Base

Additions

($000)

Comments

148511: 2017

Plant

Networking

PowerOverEthernet capable Cisco

network switch stacks with redundant

power will be installed at various

locations and the old switches will be

retired.

106.1

No documentation on

the cost effect of not

replacing the old

equipment

148499: 2017

ODM Sys

Enhancements

Oracle Utilities Operational Device

Management (ODM) application

enhancements.

68.7

Payback is 7-10 years;

other operational

efficiency benefits

have not been

provided

154085: 2017

Virtual Web

Svc Load Bal

Installation and configuration of F5

(virtual load balancing appliances)

for use in the Virtual Desktop

Infrastructure (VDI) environment that

provides external access to GMP

applications.

96.2

No history provided of

failures or cost of

failures

148527: 2017

Work Mgmt

Enhancements

Upgrade existing Work Management

software to allow for bi-directional

CC&B (Customer Care & Billing)

interface to create, update and close

work orders in both systems.

165.0

Payback would be

approximately 14

years based on saving

420 labor hours per

year at $28.50 per

hour

148496: 2017

M2C

Enhancements

Multiple enhancements that will add

new features and functionality to

Oracle Utilities Meter-to-Cash

application suite (i.e CCB, MDM,

ODM, MWM).

311.0

Cost of not making

enhancement would be

an additional Billing

resource ($50,000) to

meet regulatory

obligations; payback

would be 6 years

148553: 2017

MDM

Enhancements

Consultant assistance (requirements

gathering, design, development,

configuration, unit testing) for MDM

2.1 SP3 new functionality. This

project will allow GMP to further

utilize the functionality of the MDM

application.

92.0

No cost/benefit

analysis for

enhancement to Oracle

Utilities Meter Data

Management

application


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Rate Base

Additions

($000)

Comments

153503: 2017

Ent Storage

Infrastructure

Replacement of all existing physical

NetApp storage equipment in both

the Rutland and Colchester data

center locations; moving to more

efficient flash based storage versus

the physical disks in the current

system.

774.8

Justification is to

avoid cost of

extending

maintenance contract;

no information on the

cost if contract is

extended

148582: 2017

Backup and

Rec Solution

Backup and recovery project

consisting of purchase of software

and 2 Dell Servers with solid state

disks - one will be installed and

configured in the Rutland data center

and the other one in the Colchester

data center.

205.0

Operational Efficiency

amounts to $1,250 per

year; at that rate, the

payback for this

project would be 164

years.

148516: 2017

Radio

Infrastructure

Upgrade

This project consists of two parts,

central server replacements and

remote radio console system

replacement/deployment.

234.6

No documentation of

failure rate or cost for

a failure

148517: 2017

SCADA DMZ

Server Rplmt

Replacement of 2 Dell workstations

and 6 Dell servers and upgrading of

the associated software on the servers

that are used for monitoring the scada

network and all appliances on that

network.

35.2

Based on the

alternative cost if there

were a failure of the

existing servers, the

purchase price equals

200 failures.

Total 2017 IT 4,010.1


1

2

3

4

5

6

7


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2018 Information Technology Projects 1


Rate Base

Additions

($000)

Comments

153504:

2018

Technolgy

Refresh

Annual replacement of various

technology that is due for replacement,

including laptops, iPads, etc.

259.6

Payback on this

investment would be

27 years based on

estimated 192 hours

required to repair

expected failures and

labor rate of $50 per

hour [$259,603/(192 x

$50)];

153529:

2018

Watershed

Forecast

Tools

Development of hydro modeling for our

watersheds combined with software to

provide an accurate forecast of available

hydro generation in our ponding facilities

and our run-of-river facilities.

155.3

Cost/benefit = $5,200

per year based on

saving 104 hours per

year at $50/hour;

payback would be

approximately 30

years

153492:

2017

Enterprise

Video Conf

Sys

Replacement of the 25 aging Enterprise

Video Conferencing Systems. 276.0

Need for replacement

not documented

153495:

2018

Network

Switch Rep

The project will include configuration and

implementation of nine new Cisco local

area network switches to replace existing

end of life equipment.

339.8

No cost/benefit

analysis or

quantification of

expected performance

improvements

153491:

2018 MDM

Stor &

Compt Infra

Increase the capacity of the MDM storage

environment by adding three additional

servers with high capacity drives.

331.0

Need for this

expenditure not fully

explained; payback

would be 10 years

based on benefit of

650 labor hours per

year at $50 per hour;

documentation of

safety issues


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August 14, 2017

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Rate Base

Additions

($000)

Comments

153502:

2018 Server

Upgrades

Replacement of aging servers. 281.9

Timing is

questionable; could

replace servers as they

fail; or purchase a

smaller number of

servers as backup for

failures

153507:

2018 C&I

Portal

Website enhancement directed at

providing C&I (commercial and

industrial) customers access to their

account information and enable them to

create custom reports based on their

needs.

228.0

Operational Efficiency

not supported;

payback is 41.5 years

153487:

2018 Core

Network

Capacity

Design and planning for two new data

center switches to be integrated into the

core local area network in Rutland.

22.2

No details on when

expansion to support

future needs is needed.

153498:

2018 Gen

Plant

Wireless Syst

Install Aruba wireless APs (access points)

at 15 generations sites. 50.5

Payback of 8.5 years;

maybe justified based

on improved

performance

153524:

2018 ODM

Upgrade

Upgrade ODM to the latest version so that

we can access additional functionality and

extend the life of the software and retain

access to Premier support.

118.8

Savings from avoiding

paying increased

maintenance cost

($5,000/year) makes

this a 23.8 year

payback

153521:

2018 M2C

Enhancement

Multiple enhancements that will add new

features and functionality to Oracle

Utilities Meter-to-Cash application suite.

368.6

Based on avoiding an

additional billing

resource ($50K) ,

payback would be 7.4

years

Total 2018

IT 2,431.7


1

2

3

4


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2017 Transportation Projects 1

2


Rate Base

Additions

($000)

Comments

148958: 2017

Bucket Trucks

Purchase 8 bucket trucks to replace

older equipment. 2,353.5

"Frequent repairs" not

quantified; avoiding

expensive repairs - also

not quantified; no details

on safety issues

154648: 2017

Digger Trucks

Purchase 2 digger derricks to replace

older equipment. 675.6

No quantification of

expected maintenance

expense that would be

avoided if equipment

were not replaced; no

details on safety issues

148959: 2017

Small Vehicle

Replace 25 small vehicles ranging

from small passenger vehicles to

larger operations vehicles.

651.1

No quantification for

maintenance cost of

deferring this purchase;

no details on safety

problems

153774: 2018

Small Vehicles

Replace 28 vehicles as follows: 1

Ford F550, 4 F450, 7 F150 extended

cabs, 1 F150 regular cab, 3 Ford

F250, 2 Ford 350 DRW, 4 Ford F350,

4 Ford Escapes, and 2 Toyota Rav4.

1,389.5

No quantification re: cost

of repairs for the existing

vehicles

Total 2017

Transportation 5,069.7


3

4

5

6

7

8

9


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2018 Transportation Projects 1

2


Rate Base

Additions

($000)

Comments

153765: 2018

Digger

Replacements

Replacement of one digger derrick. 336.6

No cost/benefit analysis;

no quantification of

"expensive repairs" that

would be avoided; safety

issues not documented

Total 2018

Transportation 336.6


3

Q18. What are you recommending concerning the projects shown in the preceding 4

tables? 5

A18. I am recommending that additional justification, clearly providing cost/benefit analysis 6

and a business case or economic reason for the expenditure of capital funds, be provided 7

for these 41 projects. If these projects were disallowed there would be a $14,070,270 8

reduction in GMP’s rate filing. Please see Mr. Winn’s testimony for the recommendation 9

relevant to this analysis. The total amounts by function are shown on the following table. 10


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Projects with Insufficient Justification 1 2

Functions Projects

Number Amount ($000)

Communications

2017

2018 1 120.6

Total

Communications 1 120.6

Facilities

2017 4 1,840.2

2018 3 261.3

Total Facilities 7 2,101.5


2017 16 4,010.1

2018 11 2,431.7

Total IT 27 6,441.8

Transportation

2017 4 5,069.7

2018 1 336.6

Total Transportation 5 5,406.3

Totals

2017 25 10,920.0

2018 16 3,150.3

Total Projects 41 14,070.3

3

Q19. Does this conclude your testimony? 4

A19. Yes.5

state of vermont public utility commission case no. 17 ...€¦ · 1 issued a certified public...

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