20240906Comments.pdf

STAFF COMMENTS 1 September 6, 2024
ADAM TRIPLETT
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10221

Street Address for Express Mail:
11331 W CHINDEN BLVD, BLDG 8, SUITE 201-A
BOISE, ID 83714

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER ROCKY MOUNTAIN
POWER’S APPLICATION FOR APPROVAL
OF $62.4 MILLION ECAM DEFERRAL
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CASE NO. PAC-E-24-05

COMMENTS OF THE
COMMISSION STAFF

COMMISSION STAFF (“STAFF”) OF the Idaho Public Utilities Commission, by and
through its Attorney of record, Adam Triplett, Deputy Attorney General, submits the following
comments.
PROCEDURAL BACKGROUND
On June 21, 2024, PacifiCorp dba Rocky Mountain Power (“Company”) petitioned for
reconsideration of Order No. 36207, arguing that the Idaho Public Utilities Commission
(“Commission”) erred by disallowing recovery of $2.3 million of Washington Climate
Commitment Act (“WCCA”) compliance costs via the Company’s Energy Cost Adjustment
Mechanism (“ECAM”). Specifically, the Company argued that Order No. 36207 applies an
atextual interpretation of the 2020 PacifiCorp Inter-Jurisdictional Allocation Protocol (“2020
Protocol”), the WCCA, and the Washington Clean Energy Transformation Act (“CETA”).
Additionally, the Company asserted that disallowing recovery of WCCA compliance costs
RECEIVED
2024 September 6, 3:05PM
IDAHO PUBLIC
UTILITIES COMMISSION
STAFF COMMENTS 2 September 6, 2024
violated basic ratemaking principles and the Dormant Commerce Clause of the United States
Constitution.
On July 19, 2024, the Commission granted the Company’s petition, setting comment
deadlines, authorizing the parties to submit additional evidence, and posing some initial
questions for the Company to answer.
LEGAL STANDARD
Under Idaho Code § 61-626, the Commission may abrogate or change one of its orders
that it determines after reconsideration is unjust, unwarranted, or should be changed. This
permits the Commission to correct any errors in the original order before appellate review. See
Washington Water Power Co. v. Kootenai Env't All., 99 Idaho 875, 879, 591 P.2d 122, 126
(1979).
ARGUMENT
The Commission should reject the Company’s request to modify Order No. 36207 to
allow recovery of WCCA compliance costs associated with the Company’s operation of the
natural gas-fired generation facility in Chehalis, Washington (“Chehalis”). The Commission
correctly determined that these costs arise from a Portfolio Standard and are, therefore, properly
situs assigned to Washington under 2020 Protocol. Furthermore, even if this determination were
in error, the Commission should not authorize recovery of WCCA compliance costs because it
would not be fair, just, and reasonable to include them in Idaho rates. Accordingly, the
Commission should neither revise Order No. 36207 to permit recovery of WCCA compliance
costs, nor remove the benefits of generation from the Chehalis natural-gas facility from Idaho
rates as the Company alternatively proposes.
1. The WCCA is a Portfolio Standard.
The Commission determined that “the WCCA is more akin” to a Portfolio Standard than
the Company’s chosen analog: the Wyoming Wind Tax. Order No. 36207 at 11. Section 3.1.2.1
of the 2020 Protocol states that “costs associated with Interim Period Resources acquired to
comply with a State’s Portfolio Standard adopted, either through legislative enactment or by a
State’s Commission, that exceed the costs PacifiCorp would have otherwise incurred, will be
allocated on a situs basis to the Jurisdiction adopting the Portfolio Standard.” Accordingly, the
Commission reasoned that WCCA compliance costs, which the Company would not have
STAFF COMMENTS 3 September 6, 2024
incurred but for the Washington legislature’s enactment of the WCCA, were properly assigned to
Washington.
Under the 2020 Protocol a “Portfolio Standard” is, among other things, “a law or
regulation that requires [the Company] to acquire . . . Resources in a prescribed manner.” 2020
Protocol Section 3.1.2.1. The Company ostensibly reads Order No. 36207 as implying that
WCCA allowances constitute discrete “Resources” under the 2020 Protocol. However, Order
No. 36207 further states that the Company “lost the right to operate [Chehalis] to generate
electricity to serve customers outside of Washington State without purchasing allowances” after
the WCCA became effective. Order No. 36207 at 11. Certainly, the WCCA did not divest the
Company of legal title to the Chehalis generating facility. Accordingly, the most reasonable
interpretation of the above quoted statement indicates that the Commission reasoned that the
WCCA deprived the Company of the right to lawfully operate Chehalis to generate electricity
without obtaining and retiring allowances. Stated differently, although the Company owned the
physical assets of Chehalis, it effectively was inoperable as an electric generation facility unless
the Company obtained allowances. Accordingly, the Commission did not err by concluding that
the Company “reacquired” the right to lawfully operate Chehalis to generate electricity in the
manner prescribed by the WCCA (i.e., obtaining WCCA allowances) and that the WCCA was a
Portfolio Standard under the 2020 Protocol.
The legislative intent behind the WCCA further supports the Commission’s conclusion.
The stated intention of the WCCA is to reduce greenhouse emission from Washington’s
business. See RCW § 70A.65.005. This intent is very similar to that underlying portfolio
standards, which are generally used to lower greenhouse emissions. Therefore, for all the above-
stated reasons, all the costs incurred above the normal costs to operate Chehalis without the
WCCA should be situs assigned to Washington.
2. Including WCCA Compliance Costs in Idaho Rates Is Not Fair, Just, and
Reasonable.
Two principles underpin the 2020 Protocol that apply directly to this situation. First,
costs should be allocated fairly between the states in the Company’s service territory. Second,
the impacts of one state’s policies on the rates of another state should be minimized. Including
the WCCA cost in Idaho rates does not abide by the first principle and directly violates the
second. Accordingly, even if the WCCA is not a Portfolio Standard, the Commission should
STAFF COMMENTS 4 September 6, 2024
disallow recovery of the costs the Company incurred to comply with the legislation because it
would not be fair just and reasonable to include such costs in Idaho rates.
Generally, the 2020 Protocol governs the allocation of the costs and benefits of Company
resources across the six states in which the Company operates. However, Section 1 of the 2020
Protocol expressly provides that it is not “intended to abrogate any Commission’s right or
obligation to: (1) determine fair, just, and reasonable rates based upon applicable laws and the
record established in rate proceedings conducted by the Commission;” or “(2) consider the effect
of changes in laws, regulations, or circumstances on inter-jurisdictional allocation policies and
procedures when determining fair, just, and reasonable rates. . . .” For the reasons described
below, including WCCA compliance costs would not be fair, just, and reasonable. Accordingly,
even if the 2020 Protocol would otherwise require allocation of WCCA compliance costs to
Idaho, the Commission should exercise its authority under Section 1 to disallow their recovery in
Idaho rates.
a. WCCA Compliance Costs Are Not Taxes.
Generation taxes are generally included in Idaho rates, even when another state imposes
the tax. A prime example is the Wyoming Wind Tax. This tax is a flat rate set by the Wyoming
legislature imposed on each Megawatt hour of wind energy produced in the state. See Wyo. Stat.
Ann. § 39-22-104.
However, the WCCA operates significantly different. For example, the WCCA gives free
allowances for generation serving Washington rate payers. RCW §§ 70A.65.110, 70A.65.120,
70A.65.130. But the Wyoming Wind Tax provides no such exemptions or carve outs.
Additionally, the costs of WCCA allowances are not set by the legislature. Rather, they are
priced in an auction and their value can vary greatly depending on circumstance. See RCW §
70.65.100. Consequently, the value of WCCA allowances can be affected by non-energy
producers as other industries are required to purchase these allowances.
b. QF Rates Have a Method for Addressing Situations When One State Raises Energy
Costs.
The treatment of rates for Public Utility Regulatory Policies Act Qualifying Facilities
(“QF”) under the 2020 Protocol provides a salient example of how a single state’s artificial
inflation of energy prices should be allocated. Specifically, the section of the 2020 protocol
governing QF rates states that if any QF is priced above reasonable energy prices, then the
STAFF COMMENTS 5 September 6, 2024
excess above the reasonable energy price would be situs assigned to the state that authorized the
QF contract. 2020 Protocol Section 4.4.2.1. The impact of an overpriced QF rate is, practically
speaking, substantially like that of the WCCA. The Washington legislature has artificially
increased the price of Chehalis above a reasonable operating cost. Accordingly, like overpriced
QF rates, the amount above the reasonable operating cost for energy from the Chehalis
generating facility should be situs to the state that caused it, which in this case is Washington.
In sum, requiring Idaho ratepayers to bear the cost of a unilateral Washington policy
decision that is not equally applied to its own residents is not fair, just, and reasonable. Similar
cost increases authorized by another state would not be recoverable for Idaho ratepayers under
the 2020 Protocol. Accordingly, even if a portion of the Company’s WCCA compliance costs
would otherwise be allocated to Idaho under the 2020 Protocol, the Commission should exercise
its authority under Section 1 of the 2020 Protocol to disallow recovery of those costs from Idaho
ratepayers.
1. Disallowing Recovery of WCCA Compliance Costs Does Not Violate the Dormant
Commerce Clause.
The Company contends disallowing recovery of WCCA compliance costs offends the
Dormant Commerce Clause of the United States Constitution. Article I, Section 8, clause 3 of the
United States Constitution contains what is commonly referred to as the Interstate Commerce
Clause, which grants Congress authority “[t]o regulate commerce ... among the several states....”
In addition to this power, the clause has long been interpreted to have a negative, or “dormant,”
aspect that implicitly preempts state regulations interfering with the free-flow of interstate
commerce, even in the absence of a conflicting federal regulation. United Haulers, Ass’n, v.
Oneida–Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007).
The Dormant Commerce Clause protects markets and their participants. Gen. Motors
Corp. v. Tracy, 519 U.S. 278, 300 (1997). Therefore, the Dormant Commerce Clause is
inapplicable without actual or prospective competition between entities in an identifiable market
and state action that either expressly discriminates against or places an undue burden on
interstate commerce. Id. Furthermore, this impact must be more than merely incidental. United
States v. Lopez, 514 U.S. 549, 559 (1995).
The Company argues that disallowing recovery of WCCA compliance costs
impermissibly discriminates against it as an interstate utility. In support of this argument, the
STAFF COMMENTS 6 September 6, 2024
Company asserts that WCCA compliance costs are “functionally the same as” other taxes or
transfer costs the Company can recover in rates. Thus, according to the Company, the
disallowance of WCCA compliance costs provides Idaho customers with the benefits of
generation from Chehalis, but not its costs.
As set forth above, the WCCA is not like other taxes or transfer costs that the Company
recovers in rates. Washington protects its residents from WCCA compliance costs by providing
the Company with no-cost allowances to cover electricity distributed to Washington customers
that Chehalis generates. Washington ostensibly does this to prevent its residents from bearing the
cost of the Company’s compliance with both the CETA and the WCCA. See Invenergy Thermal
LLC, and Grays Harbor Energy LLC v. Laura Watson, in her official capacity as Director of the
Washington State Department of Ecology, Defendant, (“Invenergy v. Ecology”) Defendant’s
Mot. to Dismiss, (Feb. 16, 2023), Western District of Washington Case No. 3:22-cv-05967.
However, the more than $40 million disparity between the $42 million of total WCCA
compliance costs the Company incurred during 2023 compared and the relatively paltry
$336,219 of CETA compliance costs the Company incurred the same year appears more
indicative of favoritism in-state residents than an attempt at cost equalization. Compare Direct
Testimony of Jack Painter at 24 (detailing the Company’s total WCCA compliance costs in
2023) with the Company’s Response to Staff’s Production Request #12 (detailing the Company’s
CETA compliance costs). Accordingly, any Dormant Commerce Clause violation associated
with WCCA compliance costs occurred when the Company initially incurred the costs—not
when the Commission subsequently denied their recovery from Idaho ratepayers. Consequently,
like a baseball player striking out by swinging behind a fastball, the Company’s Dormant
Commerce Clause argument fails because it targets an act too late in the chain of events
associated with the WCCA costs the Company incurred.
2. The Company Overstated the Impact of Removing Chehalis.
Instead of imposing WCCA compliance costs on Idaho ratepayers, the Company
alternatively proposes removing both the benefits of Chehalis’ generation and its costs from
Idaho rates. The Company indicated that it disfavors this result because, according to Company
calculations, this would increase Idaho’s Net Power Cost by $23.6 million. See Pet. for Recon. at
17. However, as described below, this overstates the impact of removing Chehalis from Idaho
rates. Staff proposals are summarized in Confidential Attachment A.
STAFF COMMENTS 7 September 6, 2024
Should the Commission decide it is appropriate to remove Chehalis from Idaho rates
completely, Staff believes the Company’s approach to doing so is inappropriate. The Company
used the costs from the Western Resource Adequacy Program (“WRAP”) to calculate the
replacement capacity if Chehalis were removed. The WRAP includes a penalty amount to
incentivize its participants to be capacity sufficient. However, the Company is not actually
capacity deficient, it would instead be entirely reallocating existing generation at a cost to Idaho
ratepayers. Consequently, incurring the penalty is not reasonable, as the Company would still be
capacity sufficient as a Company. That penalty is not appropriate to this situation and artificially
inflates the capacity cost. In addition, the Company omitted capacity costs in April, May, and
October. The Company also dramatically increased the capacity costs in August by not dividing
the annual capacity costs by 12 for a monthly cost. Staff’s calculation uses the WRAP cost for
capacity for each month of the year but not including the penalties. This reduces the capacity
costs of removing Chehalis from $119 million on a system basis to $46 million on an Idaho
basis. This is a reduction of $4.1 million. See Staff Confidential Attachment A, Line No. 7.
Additionally, Staff disagrees with the Company’s use of the hourly Mid-Columbia (Mid-
C) prices to replace the energy supplied by Chehalis. The WRAP replacement costs are based on
a replacement gas plant. Following that same principle, it would be more appropriate to instead
use the monthly average cost per MWH of gas generation on the Company’s system. Using the
monthly average gas cost would reduce the energy costs to replace Chehalis from $190 million
to $91 million on a system basis and a reduction of $5.5 million on an Idaho basis. See Staff
Confidential Attachment A, Line No. 8.
If the cost of gas generation is considered inappropriate, it would also be appropriate to
use the Company’s eastern Balancing Area Authority Locational Marginal Price (LMP) from the
Energy Imbalance Market (“EIM”) (or the Energy Day Ahead Market when that becomes
available), as a more appropriate rate versus using Mid-C market prices, since the Company
would be purchasing replacement power at the LMP. Staff’s calculation uses the average hourly
LMP to calculate the replacement energy price. Using LMP prices reduces the replacement
energy cost from $190 million to $123 million on a system basis. This is a reduction of $5.5
million on an Idaho basis. See Staff Confidential Attachment A, Line No. 8.
In addition, the Company used the rate base and expenses from 2020 to remove the cost
of Chehalis operation from rates. The Company used amounts from the previous general rate