Attch10_IPCE0114_StaffComments.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
472 WEST WASHINGTON STREET
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AN ACCOUNTING ORDER AUTHORIZING IDAHO POWER TO INCLUDE POWER SUPPLY EXPENSES ASSOCIATED WITH TEMPORARY MOBILE GENERATION IN THE POWER COST ADJUSTMENT, OR IN THE ALTERNATIVE, A DETERMINATION OF EXEMPT STATUS FOR THE TEMPORARY GENERATION.
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CASE NO. IPC-E01-14

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of Application, Notice of Modified Procedure, and Notice of Comment/Protest Deadline issued on June 18, 2001, and pursuant to an informal agreement with Idaho Power Company to extend the comment file deadline to July 25, 2001, submits the following comments.
On May 4, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) seeking an accounting Order authorizing Idaho Power to include expenses associated with the acquisition and operation of temporary mobile electric generating facilities in the true-up portion of the Company’s Power Cost Adjustment (PCA). In the alternative, the Company requests an Order determining that the generation from the temporary mobile generators be exempt from regulation by the Commission.
On May 31, 2001 the Company supplemented its original application with an update to the status of the generating units. The Company explained that generating units had been installed and were operated for a period of time at the Cloverdale and Mora Substations. The Company further explained that due to significant local public concern the generators at these two locations had been shut down and that the Company was seeking operating approval at other more remote locations. In the mean time the Company requested that the Notice of Application be issued and that the Commission proceed to process and consider the Application.

STAFF ANALYSIS
In April when leases for the diesel generating equipment were being negotiated and signed, forward market prices for summer and fall were more than $200/MWh. These prices led to Commission approval of several other programs with projected power costs of $150/MWh or more. The Company’s initial projection was that leased diesel generators could supply energy at $124/MWh. This cost includes the fixed cost of the leased generating equipment and a variable operating cost of $78/MWh. Generating energy at this cost and offsetting purchases in a very high priced market could save ratepayers and shareholders money through the 90/10 sharing provision in the Power Cost Adjustment Mechanism.
The Company leased a total of 25 diesel generating units beginning May 1, 2001, and installed 17 of the units at two separate sites. Since the decision was made to sign the lease agreements, two significant events have occurred. First, after installing and operating 17 of the 25 leased generating units for a few days, Idaho Power made the decision to shut them down and relocate them due to opposition from neighbors near the generating sites. Second, in early June the market price dropped below the operating cost of the diesel generation units where it has remained for most hours of most days since that time. The significance of the drop in market price is that even if the generators were not voluntarily shut down awaiting permits to relocate, the generators would not be running due to market prices below the cost of operating the generators. It is not known how long this condition will continue.
Staff has evaluated several potential positions with regard to the ratemaking treatment of diesel generating costs. The Company in its filing provided the option to not include diesel generation as a regulated utility resource. At the time that lease agreements were signed, diesel generators were expected to be beneficial to customers. Based on the information available at the time, the Company made a reasonable decision when it entered into the lease agreements. Staff therefore proposes that the Commission accept the diesel generating units with their associated lease costs as regulated utility resources.
If the mobile generating units are accepted as generating resources for the regulated utility, the Company proposes that all actual costs of leasing and operating the diesel generating units be accepted into the PCA. Staff is concerned that the Company’s voluntary shut down of the units due to the complaints of neighbors who did not like the noise and smell is costing the general body of ratepayers a substantial amount of money. It is Staff’s understanding that Idaho Power Company obtained all required permits to operate the diesel generators at the selected sites and that the Company had every legal right to operate them. It is Staff’s position that after the Company determined there were concerns with the initial siting, the Company should have continued to run the 17 grid connected generators while pursuing the necessary permits to relocate them. In so doing, the generators would have provided some of the benefits that they were intended to provide and the general body of ratepayers would have been able to capture some benefits to offset the lease costs.
A third site is to be the generating location of the final 8 generators. It is Staff’s understanding that the Company did not initially apply for siting permits for the third site. It was the Company’s belief that these permits would be easier to obtain after the initial two sites had been permitted. This has not been the case. The final group of generators has not received siting approval and it is unclear whether or not the applications for permits have yet been filed. It is Staff’s position that the Company should have applied for permits to site and operate the final 8 generating units when it applied for permits to operate the other 17 units. Not doing so subjects ratepayers to costs with no potential for offsetting benefits.
Application of the above Staff positions to the Company’s PCA requires that adjustments be made to actual power supply costs incurred by the Company. Staff proposes that the Company’s actual power costs be adjusted to reflect diesel generation costs and purchased power benefits that would have occurred if the 25 generating units had been continuously dispatched against market prices beginning May 1, 2001. Such an adjustment eliminates the PCA rate effects of the Staff’s two previously discussed concerns. First, that the Company shut down 17 operating units prior to obtaining permits that would have allowed them to be immediately operated at another location and, second, that the Company did not initially apply for siting permits for 8 units and has not obtained the permits to date. Staff has prepared a spreadsheet that is Attachment A to these comments that demonstrates the calculation of the recommended adjustment. Attachment A consists of three pages. Page 1 shows the calculation of the May and June adjustments that Staff recommends be made to actual power supply costs. Page 2 is the model that calculates May costs under the Staff assumed operating scenario and page 3 is the same model for June.
The upper half of Page 1 of Attachment A indicates that actual mobile generation lease and operating costs in May were $1,147,773 and that $738,787 in estimated purchase power costs were avoided or saved by operating the generation. These net to an increase in actual power supply costs caused by the mobile diesel generators of $408,986. The Staff proposed model produces May lease and operating costs of $3,215,050 and purchased power cost savings of $6,425,517. These net to a decrease in purchase power costs of $3,210,467. The difference in the costs of the two scenarios is the adjustment to actual costs that Staff is proposing for May. Staff proposes that actual May power supply costs be reduced by $3,619,453 in PCA calculations. The PCA allocates 90 percent of the savings to ratepayers.
The bottom half of Page 1 of Attachment A shows the calculation of the proposed Staff adjustment for June. The proposed June adjustment to actual power supply cost is much smaller due to the very substantial drop in market prices that occurred early in the month. Prices below the $78/MWh operating cost of the mobile generating units would not allow them to be dispatched even if they were available. The attachment indicates that actual power supply costs for June should be reduced by $213,210.

STAFF RECOMMENDATION
Staff recommends that the 25 mobile generating units leased by the Company be accepted as regulated utility resources for the purpose of rate making. Staff also recommends that actual power costs be adjusted to reflect what they would have been if all 25 units were dispatched against market price as demonstrated in Attachment A. The methodology developed and applied to May and June should be applied to all months of the lease period until the Company has siting approval for all 25 units and is dispatching them against market price. For all full months after that occurs, the unadjusted actual costs should be included in PCA calculations.

Respectfully submitted this day of July 2001.

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Scott Woodbury
Deputy Attorney General

Technical Staff: Keith Hessing
Alden Holm

SW:KH:AH:umisc/comments/ipce01.15swkhahtc

STAFF COMMENTS 5 JULY 25, 2001