19901213Oral Argument.pdf

1'784/~
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
ORIGINAL/tiC-v!:1 y t:u L. "\
BEFORE THE IDAHO PUl3L.eDUTILl!IES COMMISSION
IN THE MATTER OF THE AP~Q~~l~ p~ ~) 21
~~T~~~~~yP~~E~~~M~~~~ ~~~ ¡fJAHO PUßLlC~
INVESTMENT REQUIRED FORUHÌÈTIES COMMIS~IONREBUILD OF THE SWAN FALLS )
HYDROELECTRIC PROJECT AND IN THE ) CASE NO. IPC-E-90-2
MATTER OF THE APPLICATION OF IDAHO ) and
POWER COMPANY FOR A CERTIFICATE )
OF PUBLIC CONVENIENCE AND NECESSITY ) CASE NO. IPC-E-90-8
FOR THE RATE BASING OF THE MILNER )
HYDROELECTRIC PROJECT, OR, IN THE )
ALTERNATIVE, A DETERMINATION OF ) ORAL ARGUMENT
EXEMPT STATUS FOR THE MILNER )HYDROELECTRIC PROJECT )
)
BEFORE
COMMISSIONER DEAN J. MILLER (Presiding)
COMMISSIONER PERRY SWISHER
COMMISSIONER RALPH NELSON
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DATE:November 29, 1990
VOLUME I - Pages 1 - 85
7WEbRICKCOURT REPORTING
537 W. Bannock P.O. Box 578
Suite 205 Boise, Idaho 83701
[phone] ./
. . . We offer .. BaronDaa
Microtranscription™ by
I
I 1
2
I 3
I 4
,5
I 6
I 7
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I
22
23
I 24
25
I
I
APPEARANCES
For the Staff:BRAD M. PURDY. Esq.
and MICHAEL S. GILMORE, Esq.
Deputy Attorneys General
472 West Washington
Boise. Idaho 83720
For Idaho Power
Company:
EVANS. KEANE. KOONTZ, BOYD
SIMKO & RIPLEY
by LARRY D. RIPLEY, Esq.
Idaho First Plaza-Suite 1701
101 South Capitol Boulevard
Boise. Idaho 83702
For the Industrial
Customers of Idaho
Power Company:
DAVIS WRIGHT TREMAINE
by PETER J. RICHARDSON, Esq.
400 Jefferson Place
350 North Ninth Street
Boise, Idaho 83702-and-
DAVIS WRIGHT TREMAINE
by GRANT E. TANNER, Esq.
1300 S.W. Fifth Avenue
Sui te 2300
Portland, Oregon 92701
(Of Record)
For Idaho ConsumerAffairs, Inc.:HAROLD C. MILES
316 Fifteenth Avenue South
Nampa, Idaho 83651
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
APPEARANCES
I
I 1
I 2
3
I 4
I
5
6
I 7
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
BOISE, IDAHO, THURSDAY, NOVEMBER 29, 1990, 3: 00 P. M.
COMMISSIONER MILLER: All right, good
afternoon. We're assembled again for concluding or oral
argument in both cases, IPC-E-90-2 and IPC-E-90-8. As one
preliminary matter, Mr. Miles had during our recess asked
me if it would be agreeable with the Commission and the
parties if Mr. Miles submitted his comments, closing
comments, in the form of a written letter or document to
be received by the Commission not later than next Friday.
In return for that, Mr. Miles is willing to waive any
right of oral argument today. Would any party object to
that procedure for Mr. Miles?
MR. PURDY: Staff has no objection.
MR. RIPLEY: We have no objection.
MR. RICHARDSON: No objection, Mr. Chairman.
COMMISSIONER MILLER: All right, Mr. Miles,
then, if you will submit whatever concluding comments you
have by next Friday, we will have those available to us
before we decide the case.
MR. MILES: Thank you, Mr. Commissioner, I
appreciate it.
COMMISSIONER MILLER: All right, then I
think by common agreement, Mr. Ripley will proceed with
1
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
11
I .12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
his argument first and then we'll hear from Mr. Richardson
and then from Mr. Purdy and then we i II see if the
Commissioners have additional questions or comments
requiring response from the parties and then allow for
concluding remarks with Mr. Ripley concluding last. Is
that agreeable with everyone?
MR. RIPLEY: Yes, sir.
COMMISSIONER MILLER: All right, Mr. Ripley,
we would be happy to hear from you.
MR. RIPLEY: Thank you. Does the Commission
care if we sit?
COMMISSIONER MILLER: That would be fine.
MR. RIPLEY: Okay. Mr. Chairman,
Commissioners, Counsel, I think in order to answer the
queries that were set forth in the Commission's order as
well as the additional queries that came up during the
presentation of the evidence in this proceeding, a short
history lesson, if you will, of how we got to where we are
is extremely important.
And in my mind, at least, I think the
Commission in addressing the issue of Certificates of
Convenience and Necessity must begin with in my opinion
making a couple of policy questions almost right off the
bat, and that is, is there a difference between a
Certif icate of Convenience and Necessity issued for a
2
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
hydro facility as opposed to the issuance of a Certificate
of Convenience and Necessity for a thermal facility.
The reason that I believe that the
Commission has to consider that and, obviously, I also
believe there are different standards, is that when it
comes to the issuance of a Certif icate of Convenience and
Necessity for a hydro facility, which is on a navigable
stream, the Federal Energy Regulatory Commission has
primary, and at the risk of inciting displeasure from the
Commissioners, paramount authority in certain areas. The
Federal Energy Regulatory Commission is the agency which I
believe, and the Company believes, sets the size of the
plant and how it i s to be operated.
Mr. Faull's arguments were indeed
interesting, but I believe they raised the specter as to
what should this Commission do if it decides that the
license that the Company has obtained from the Federal
Energy Regulatory Commission is different insofar as
capacity, how the facility is to be constructed,
et cetera, than what the Federal Energy Regulatory
Commission has determined.
I believe that you must accede to the
jurisdiction of the FERC simply as a common jurisdictional
solution to a har.monious resolution of what would
otherwise be an irreconcilable conflict, and I use those
3
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
words advisedly because I think they appear in various
orders that have come out of the courts whenever you run
into the situation of what do you do when a license has
been obtained by a generator of power from FERC and the
state desires to exercise some jurisdiction.
Commissioner Swisher has succinctly raised the point as to
water rights and the fact that although the states may not
like it, nonetheless, that's the case.
Conversely, when one is looking at a
Certificate of Public Convenience and Necessity for a
thermal facility, there is no FERC jurisdiction and
accordingly, I think the Commission has far greater powers
when one is talking about a thermal facility than they do
a hydro facility.
The next step in trying to resolve where we
are and how we got there is we have to turn to the Idaho
Code section that provides the authority of the
Commission, which is Section 61-526 Idaho Code. I believe
it is also c lear as Chairman Mi ller 's research reveals
that when the Certif icate of Convenience and Necessity
statutes were originally promulgated, they were
territorial type of issuances of authority; in other
words, a utility received the authority to provide sole
service in a geographical area of the state, and in
issuing those Certif icates of Convenience and Necessity,
4
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I 8
9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
the issue as to whether or not the utility could
satisfactorily provide the service, what it was going to
cost, were issues, but they were not issues as to the
specific construction of a facility, and in particular, I
believe, in Idaho, prior to 1970 all of the generation
facilities that I am aware of in Idaho were all hydro, but
I'm not just talking about Idaho Power, I'm talking about
Washington Water Power, I i m talking about Utah Power,
there were no thermal facilities in Idaho.
In 1970 or thereabouts, Idaho Power Company
became involved in the Bridger project, and although I
can i t prove it, I believe that out of the fact that Idaho
Power Company had become engaged in the Bridger project,
there was an amendment to the Idaho Code section which
gave this Commission jurisdiction over generating plants.
Unlike in Montana or other states, I believe
this state correctly made the choice that one agency
should make the determinations as to whether a thermal
facili ty should be constructed by a public utility. In
Montana, as I i m sure the Commissioners are aware, there is
siting authority and after the facility is constructed,
you then have to go to the utility commission and say, all
right, this project is built, it now is time to determine
the revenue requirement ramif ications of the decision that
the siting authority determined.
5
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I 8
9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
That is not the case in Idaho. In Idaho,
you receive a Certif icate of Convenience and Necessity
from the regulatory agency which has power over the
economic side of the house, and I believe that makes
imminent sense.
In the early days of 1970, late i 60s, this
Commission was engaged in a number of cases involving the
insti tution of pollution equipment in private water
companies, Coeur d i Alene, Kellogg. The Department of
Health made the decisions as to the type of filtration
systems that should be installed. Unfortunately, the
Department of Health didn't particularly care about the
economic consequences of what they were requiring.
The Commission, on the other hand, after the
fact was confronted with huge investments. I believe that
was part of the reason that this statute came into
existence in Idaho was that let's keep all those decisions
in one house.
It is very interesting that if you look at
what was deleted in Section 61-526, and a copy of that
cession law is attached to the brief that I filed, you'll
notice that what was deleted was the ability to develop
new generating plants and market the products thereof. It
isn i t just that the Commission has authority over new
generating plants, but it i s the marketing of the product
6
. HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I 8
9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
as well, which I again believe is extremely important when
one is looking at what in the world is a Certif icate of
Public Convenience and Necessity.
After 1970, I think it is also of interest
to the Commission that to the best of my knowledge
utili ties that were subject to the jurisdiction of this
Commission that constructed facilities outside of the
state did not apply for Certificates of Convenience and
Necessi ty from this Commission with the exception of Idaho
Power.
To the best of my knowledge, Washington
Water Power never requested and never received any
Certif icates of Convenience and Necessity from this
Commission for the WPPSS projects. To the best of my
knowledge, Washington Water Power Company never applied
and never received a Certif icate of Convenience and
Necessi ty for the Kettle Falls generation facility which
was the subject matter of a number of Supreme Court
dec isions, and yet that issue never came up in any of
those decisions.
Utah Power & Light Company at that time was
a separate entity from Pacific, they were constructing
thermal facilities in Utah, a number of cases in Idaho, as
Commissioner Swisher has referenced, the infamous i 80s
when rate increases were to be found, at no time was the
7
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 7
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
issue ever raised that Utah Power & Light Company had
never received a Certif icate of Convenience and Necessity
from the Idaho Public Utili ties Commission to construct
those facilities.
What does all that mean? I think what it
means is that this Commission to date has looked at the
applications of Certif icates of Convenience and Necessity
outside the jurisdictional limits of the State of Idaho as
being permissive and only mandatory when they are inside.
That i s the only way that I can reconcile the apparent
conflict, and again, I think it goes to this idea that
when you are talking about thermal facilities, the state
where the facility is located apparently has more powers
than the state where the facility is not located, but that
utili ty is subject to the regulatory economic powers of
that state.
But more importantly, again, when it comes
to hydro facilities, the Commission's powers are limited
to an economic effect of the issuance of the license by
FERC and it cannot modify the license that FERC has
issued. This is not to say that the Commission does not
have regulatory powers. Indeed it does, but it has to be
read in harmony with the FERC.
Now, against that background, the Commission
embarked upon an investigation which we refer to at Idaho
8
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Power Company as the 197-200 investigation. Those are two
docket numbers and those docket numbers were an
investigation as to the least cost planning, how Idaho
Power Company was developing resources, et cetera, and
part of the background of the 197-200 proceedings was the
Pioneer proceeding, and the Pioneer proceeding taught the
Commission valuable lessons, it taught Idaho Power Company
valuable lessons and that was that the period, in the
words of the Commission, of being able to add rate base or
addi tional generation and the result of that additional
generation was a declining unit cost were over, and we
were now in the period that when you added additional
generation, there was an incremental cost which meant that
without question the utility's revenue requirement would
increase as the result of the addition of additional rate
base and the addition of additional generation.
And the Commission in 197-200 then stated,
and I think fairly so, that before you make the decisions,
Idaho Power Company and other utili ties, you must come to
this Commission and if you're constructing the facility in
Idaho, and at least as far as Idaho Power Company is
concerned anywhere, you must at that time apprise the
Commission and the public as to what these facilities are
going to cost, because there is no question and we're not
trying to hide it, in fact, that's why we styled our
9
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
applications as we did, that when you approve a
Certif icate of Convenience and Necessity for Milner and
when you authorize the rebuild of Swan Falls for rate base
purposes, there is going to be an increase in revenue
requirement.
I don't think there's anybody in this room
that seriously does not agree that that isn't going to
occur, but all you have to do is just look around this
room, with the exception of Idaho Power Company personnel
or Staff and two consumer people and the Industrial
Customers and the Staff and Idaho Power, that's all that's
here.
Two years from now when I'm sitting here
asking for an increase as a resul t of the complet ion of
Milner and Swan Falls, this room will be packed with 30
intervenors and they'll all be saying how in the world did
this happen, and I believe the Commission tried to answer
that in 197-200 by saying we want to know what this
facility is going to cost before it is constructed, not
afterwards, and the lesson that was learned in Pioneer for
Idaho Power Company was that if you invest in facilities,
if you enter into procurement contracts, before you
receive a Certif icate of Convenience and Necessity, you do
so at your own risk, and if that certificate is denied,
that investment will not be permitted to be included in
10
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I 8
9
I 10
I
11
12
I 13
I
14
15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
the utility's revenue requirement.
And I might parenthetically add that Idaho
Power Company knows that that is the case in this instance
and knows that it is proceeding at its own risk because of
the two unique situations it has with Milner and
Swan Falls and it is not done out of any desire to thumb
its nose at the Commission or to proceed in def iance of
the Commission. Idaho Power Company is in an extremely
diff icul t position in regards to Swan Falls and Milner as
we stated at the prehear ing conference we held at the
beginning of this proceeding, but nonetheless, we
recognize at this time that we are proceeding at our own
risk if the Commission were to deny the Certificate of
Convenience and Necessity for Milner and were to determine
that it is not going to authorize the rebuild of the
Swan Falls project.
But as a result of the 1970 amendment and as
a result of the 197-200, Idaho Power Company is required
to file for a Certificate of Convenience and Necessity on
a new generation facility and was required by the
Commission, and, again, properly so, to present evidence
to the Commission as to the costs of Swan Falls before it
is constructed, and now we're to the issue what does that
mean now that Idaho Power Company has complied with those
requirements.
11
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 7
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Again, another lesson in history that I
think is important in arriving at what it means and where
we go from here is the Utah Power & Light Company case
which involved construct ion work in progress. The
Commission in the Utah Power & Light Company case stated
that a plant that was being constructed could not be
included in the revenue requirement of the utility
because, obviously, it was producing no revenue.
The Idaho Supreme Court in that case, and we
can argue as to whether it made a mandate for all times or
only that case, but at least in that case stated, no,
Idaho Commission, you were erroneous in excluding the
construction work in progress from the utility's revenue
requirement at the time you investigated the utility's
rates, and the Idaho Legislature reversed that decision,
but in reversing that decision, it also protected the
rights of the utility, and there are two paragraphs to the
statute which I have again included in my attachments, not
just one.
The first portion of that statute provides
that unless there is an emergency, a utility cannot
request that its construction work in progress be included
in its revenue requirement while the facility is being
constructed, but it also states that the utility is
enti tled by law to a return on that investment while it is
12
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
being constructed; in other words, in the vernacular of
the accounting trade, an allowance for funds used during
construct ion.
And so the utility is confronted with what I
consider to be a very unique situation, but easily
resolved in my opinion, that while the utility is
constructing a facility, it is increasing its revenues and
increasing its earnings for revenue requirement purposes
because you are capitalizing the investment that is under
construction and the --
COMMISSIONER SWISHER: At that point I think
the distinction needs to be made, I don't think you
misspoke, but there was a little bit missing in that when
you said the utility is allowed a return during
construction, it's allowed to capitalize that return and
subsequent 1 Y it goes into rate base as opposed to earning
a return at that time from present ratepayers on those
months bills.
MR. RIPLEY: That's right. What happens,
and you're absolutely right and I think it's extremely
important, Mr. Commissioner, or I wouldn't dwell on it,
let's assume that in Year 1 the utility puts a dollar's
worth of construction work in progress, it's got its plant
i
one-third completed. It is then entitled to, say,
capitalize three cents; so it now has $1.03 in
13
.
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
construction work in progress and it has increased its
earnings by three cents, and we get into this discussion
of how the rat ing agenc ies look at non-cash earnings,
et cetera, but, nonetheless, the utility's earnings are
not $1.00, they're $1.03 and it's got $1.03, if you will,
that is in construction work in progress.
Let's go to Year 2, make this short, it's a
two-year project, the utility capitalizes an additional
three cents, it's now got $2.06 in construction work in
progress. It's increased its earnings by six cents. It
then comes to the Commission and says, all right, it's now
time to put into rate base $2.06. The utility i s then
confronted with at that time does the regulatory agency
say wrong, you were wrong all along, you only get $1.00.
That issue can be resolved if you permit
construction work in progress in the rate base because you
would review the amount of the expenditure at the time of
the revenue requirement. Under the Idaho statute, you
don't do that and I think it is important when you're
looking at the Certificate of Convenience and Necessity to
recognize that that's the other half of the disallowance
of construction work in progress from revenue requirement
is the utility is entitled to capitalize and, obviously,
is entitled to retain the ability to recover the dollars
that it capitalized or otherwise, it's really got crazy
14
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
earnings.
Now, the effect of all of this is to mean
that at the time the utility applies for a Certificate of
Convenience and Necessity that the decisions which are
reviewable are reviewed by the Commission and determined
if they are prudent or not, and I have heard and I am
careful to, at the end of this I'm going to say whether
we're in agreement, but I first have to show where I think
we are in disagreement, and I will use Mr. Faull's
example, I think, as the clearest example.
Mr. Faull states he doesn't know for certain
if the generation is of the appropriate size. Well, I
submi t to you now is the time to make that decision by the
Commission. You don't say to the utility, well, it mayor
may not be right, but you're on notice that we're going to
look at it. We're not going to make any decisions right
now, but you're on not ice it may be wrong, coupled with
the fact that FERC makes that decision, but ignore the
FERC for a moment.
That decision is ripe for the Company and
ripe for the Commission to decide now, and once that
decision is made, then the utility's investment that is
premised upon that decision is recoverable. Now, it
obviously goes into construction work in progress, but you
cannot after the fact determine the prudency of the
15
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Company's decision.
That's what a Certif icate of Convenience and
Necessi ty means to me is that those decisions which are
reviewable which have led the Company to make its
recommendation and have led the Commission to issue its
order are in effect, in the vernacular of the legal trade,
res judicata, that you don't go back and reinvent the
wheel, to relook at the evidence that was in existence at
the time the decision was made.
Now, let's move forward in time. The
certificate is now issued, the Commission has stated that
what it wants to know is the amount of the capital
investment so that it can make its decision. That was the
purpose of our commitment estimate. It was nothing, as
Mr. Packwood said, anything more sinister than that and
that was it was a bona f ide effort to give the Commission
that one piece of information that it was vi tal for it to
have and that is, all right, when this facility is
constructed, what are we looking at in terms of rate base
exposure, what are we looking at in terms of the total
amount of dollars that this Company is going to
undoubtedly request from the ratepayers in terms of
magni tude.
Now, as to those decisions which after the
certif icate has been issued are subject to review, the
16
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
classic one being the Industrial Customers, the river went
dry, in that instance, I believe that after the issuance
of the Certificate of Convenience and Necessity those
decisions are reviewable, but the burden is on the other
parties to demonstrate that the decision of the utility is
unreasonable and imprudent, and that's what a certificate
means is it shifts the burden of proof.
Now, that's not to say that would be a very
difficult burden of proof when the river runs dry. I
think all you'd have to do is present one witness and say
you continued the construction after the river ran dry and
why in the world did you do that, I think that i s
imprudent. I think the burden would shift back over to
the utility, but, of course, in the real world the
decisions are not so nice and not so easy to make.
Again, I think the Valmy 2 case demonstrated
to us the difficulties and the conflict and the turmoil
that can arise as to what should be done or what shouldn't
be done. Was the decision to proceed reasonable and
prudent or wasn't it reasonable and prudent, and someone
has to have the burden and I think the issuance of the
certif icate shifts that burden, because if you don't, then
I think what you run up with is a situation that a
Certificate of Convenience and Necessity doesn't mean
anything.
11
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
If the decisions of the Commission can be
challenged on the basis that there was evidence in
existence at the time it issued its certificate which
would have been made its decision erroneous, then the
utili ty doesn't really have anything.
I would add that in this proceeding if the
Commission is convinced in the Milner proceeding that
addi tional evidence is required before it can make its
decision, then it simply reconvenes this proceeding and
says we want the additional evidence. I do not think that
it is fair to say, well, we think there should have been
some additional evidence and you're on notice, Idaho Power
Company, when you come in for your revenue requirement
that we'll raise those issues. I do not believe that that
is the law and I would hope that that is not what has been
suggested, although I got the impression that that might
be the argument. I don't think that's correct.
So where do we differ, and I have to divide
the two now into the two parts, and I have to state what
we think we were asking for in Swan Falls because it's to
me the easier of the two, and that is, as I understand the
Commission's prior rulings, as far as an existing hydro
facili ty is concerned that was constructed before 1910 or
that the Company holds a Certificate of Convenience and
Necessi ty on that the Company is required to present to
18
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
i 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
the Commission the cost that will be incurred in
rebuilding that project.
If the Company is confronted with the loss
of that facility due to FERC regulations, which I believe
as a matter of law it would be, then the issue of need is
not relevant to that determination unless another party
desires to raise it, but I don't think it is part of what
the Commission expects Idaho Power Company to prove and
demonstrate. If we are wrong, we will be happy to present
the resource plan and I believe the least cost issue has
been resolved by even Staff's analysis, but I think the
issue that the Commission has to dec ide is is it going to
permi t the relicensing in the sense that that investment
is going to be permitted for ratemaking purposes.
It's already part of the utility's system,
and when you look at the Swan Falls orders, what the
Commission was in a quandry about in Swan Falls was it
said we recognize that the dam has to be rebuilt, and they
didn't even stop Idaho Power Company from rebui lding the
dam, what they said was we don't want you to add the
addi tional generation until you show us that it's
required.
When you have a facility that is
deteriorating and FERC says reconstruct it, redo it, we
believe that answers that question. I think it's
19
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
i 1
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
important that the Commission give us guidance in this
order, not only for Swan Falls, but the other licenses
which are coming up for renewal. We have Twin Falls,
which frankly is now in the pipeline, so to speak. What
does the Commission want as far as information is
concerned. To us, it's non-deferrable, it is a
non-avoidable unit. If we do not reconstruct the facility
as required by FERC, we'll lose it.
I'm having trouble understanding what else
is the issue if you know how much the facility is going to
cost and that it's non-avoidable and non-deferrable. I
might add in Swan Falls we had the other unique factor
that the parties have inquired as to why there was no cost
per kilowatt hour number. I think it's the Company's
posi tion as expressed through witness Packwood that the
value of Swan Falls is not in the energy that is produced
at the Swan Falls site alone and, therefore, you can't
calculate a cost per kilowatt hour by simply taking the
investment at the Swan Falls site and dividing it by the
total number of kilowatt hours that you project are going
to go through that site. That does not give you a number
as to what the cost of that facility is to the ratepayer
for its benef its. As the Company has attempted to
demonstrate, the value of Swan Falls is that it's the
linchpin to the hydro system of Idaho Power Company.
20
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Now, if we could turn for a moment to the
Cert i f icate of Convenience and Necessi ty at Milner, there
because it is a Certificate of Convenience and Necessity
and is a stand-alone project, the Commission's authority,
while again it is a hydro facility, I believe is greater
and its inquiry must be deeper than at the Swan Falls
facility. At the Milner facility, again, I think the most
important element is the cost of the facility, what is
going to be the cost to the ratepayer, if you will, in the
form of revenue requirement. I don't how else you express
that except saying we want to rate base it.
The issue of notice appears time and time
again in Commission proceedings when you're talking about
revenue requirement. Did we know this was going to occur,
did the ratepayer have an opportunity to participate in
the decision which has led to the revenue requirement, and
now is the time to participate, not when the facility is
constructed.
As to the other issues of cost-effectiveness
in Milner, again, we don't believe that we are raising the
specter of, well, it's non-avoidable and non-deferrable
and, therefore, we're not going to tell you any of these
things, but I truly believe they are irrelevant, and as
the Company has structured its application, it is saying
you know the costs, we either build the facility now or it
21
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 7
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
is gone and that is the decision that has to be raised and
has to be answered by the Commission.
In response to Commissioner Swisher's
question about what do we want in Swan Falls, at the
conclusion of Mr. Packwood's testimony and also at the
conclusion of Mr. Baggs' testimony, they are asked the
question, and I'll read it because it's short, liAs manager
of rates, what is the effect of the Commission's
determination that it will rate base the investment
required for the rebui ld?
If the Company utilizes reasonable and
prudent construction practices, the Commission's
authorization is recognition that the investment is in the
public interest and that it will be included in the
Company's rate base when the Company's rates are next
adjusted after completion. ii
Wi tness Packwood, on the other hand, states
to the question, "ls it in the public interest for the
Commission to authorize the construction of the Swan Falls
Hydroelectric Facility?
Yes, the reconstructed Swan Falls facilities
should be added to the Company's rate base upon complet ion
of the reconstruction. The project has been, and will
continue to be, integral to Idaho Power's Snake River
hydroelectric system and will continue to be used to serve
22
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
retail and firm wholesale load. Reconstruction of the
Swan Falls facility is integral. The project is a
non-deferrable resource in that the physical state of the
plant requires current, not future, reconstruction"; so
what we are asking for is, first, we are responding to the
Commission's instructions that before you reconstruct or
rebuild the Swan Falls facilities you must give us what
the cost of that facility is going to be. The result of
giving the Commission the cost of that facility is that
upon completion of the facility it will be rate based.
If the construction practices of Idaho Power
Company are unreasonable and imprudent, the Commission has
the right on audit to say that is an unreasonable
expendi ture, but that is totally different than saying we
don't believe you should have constructed Swan Falls and
that's the difference. The issuance of the certificate is
assurance to the Company that it can rate base the
facili ty absent unreasonable or imprudent construction
practices.
Now, immediately the question is asked,
okay, but what happens if there is an intervening event
after the issuance of the certificate. Again, a party can
show that the actions of the utility after the issuance of
the certificate based upon facts which occurred after the
issuance of the certificate is unreasonable and imprudent,
23
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
in which event the Commission can then disallow that
portion of the investment.
The answer that I think you have to be
prepared for and I don't think it will happen just because
of the shortness of time of the construction of these
projects, but if there is an intervening event, then the
Company is confronted with the question, my, God, we've
had an intervening event, it may be imprudent to continue
the construction of that project. It will, I assure you
and I'm not really speaking on behalf of the Company,
al though I'm sure that they would agree, the answer of the
utili ty will be to file an application with the Commission
to bring to the Commission's attention the change in the
intervening event with a recommendation that it either
proceed or not proceed. The Commission at that time --
COMMISSIONER SWISHER: That intervening
event could be cited by any party eligible to participate
in a case before us and it could be brought by the Staff,
it could be done by the Commiss ion i tse If.
MR. RIPLEY: Yes, sir, and I dare say on
anything close the utility will bring it as a protective
measure because it is not going to place itself at risk
that it will be second-guessed, and so I think the
Commission in saying, in issuing its order, unless it
wants -- and I don't mean this to be threatening, I'm
24
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
trying to be reasonable and present to you the issues that
you better think about, and that is, if you're into rocky
times and high inflation and you've got something other
than a hydro facility, I think the Company probably would
start filing annually because it's exposed to a tremendous
investment and its risk is incredible if after the fact
it's going to be confronted with a prudency review, which
it's now built the facility and that was, if I may,
Mr. Commissioner, that was the frustrating thing with
Valmy.
We were sitting in a hearing room as if
Valmy was not built, as if it were not producing energy
and we were saying, well, four years ago should you have
done something and it was very easy for the experts on the
other side to say, oh, gosh, I wouldn't have continued; so
you've got to bring things back to reality and I think you
have to put the burden where it belongs and that is the
burden is squarely on the utility up to the time it gets a
certificate. The burdens shifts to the other parties
after it gets the certificate, but the other parties can
certainly demonstrate that the utility is imprudent and
unreasonable. The utility's protection for that is when
it gets to a close question, it should apply to the
Commission for an investigation òf the new event that has
occurred; so where does that leave it?
25
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I
2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
I think that Stephanie Miller's questions
and answers were very c lose to what I think the correct
solution is, and let me go through her testimony because
I've read it so many times because I think she's right.
First, she started out by saying we dispatched an auditor
who went down and looked at the Company's cost commi tment
and we found it to be reasonable. That was in Mi Iner .
The next thing that she said is, okay, we've
got to understand what the Certificate of Convenience and
Necessity is, and that is, obviously, it's an assurance to
the Company that if it practices reasonable measures it's
going to be entitled to rate base that facility and the
ratepayer ought to know that, he ought to know that
today. He shouldn't be able to sit at home and say I
don't care what Idaho Power Company is building, it's not
affecting my rates today. I'll worry about it three years
from now when they want to rate base it.
COMMISSIONER SWISHER: That i s the point --
MR. RIPLEY: Yes, sir.
COMMISSIONER SWISHER: -- perhaps in which
to note that signif icant difference between Valmy 2 and
Milner. There was no such frame.
MR. RIPLEY: I agree with you. I agree with
you that in hindsight what the Commission required, what
the Company gave to the Commission was not sufficient to
26
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
diffuse what was coming down the road and that was a
relatively significant rate increase that had been placed
in motion at the time the Company decided to construct, or\
not construct, but to participate in Valmy and participate
in the construction, and if anything is to come out of
these proceedings, I think it is that the decisions on
generation plant in Idaho rest with this Commission, with
the caveat that FERC has some jurisdiction, and that when
the Commission makes a decision that it's going to permit
the construction of a major generation facility, that
facility is going to be rate based unless there is an
intervening event or that the construction practices are
unreasonable and imprudent.
And back to Stephanie Miller, I think that's
what Stephanie says and I think we differ again in the
burden of proof. I think Stephanie, as any Staff person
would undoubtedly contend, is the burden should always be
on the utility and I don't think that's fair in the
issuance of a certificate because there are always close
questions when you are talking about risk.
Now, one final area that I think I touched
upon, but I want to touch on it just a little bit more and
that is this idea of what we meant by our cost commitment,
that it was some kind of guarantee. The cost commitment
and its caveats or its exceptions evolved out of the fact
21
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
that you were looking at one-of-a-kind construction
activi ties and again, this is the difference between hydro
and thermal magnified.
Each hydro facility is unique in and of
itself. The bed that the hydro facility will sit on is
different than the next one. You don't know for certain
on your core drillings what you're going find down there.
You can take all the core drillings you want to, but until
you build it, you're never really going to know for
certain, and the Commission was struggling for, but we
want to know, and so the Company came up with something
that frankly I advised them they did not have to do and
that is they imposed a commitment.
I don't think this Commission in issuing a
certificate can say if you reasonably and prudently spent
$10 million, we're only going to let you have $65
million. That's what the Company has voluntarily imposed
upon itself in an effort to show its good faith, in an
effort to show that it wants to respond to the
Commission's direct ion as to cost commi tments, because it
has stated we will accept as a condi t ion of the issuance
of the Certificate of Convenience and Necessity that there
will be a ceiling.
Now, in doing that, it had to protect itself
from those exposures that it had no control over. That
28
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
has been misconstrued by the parties to say, well, that's
illusory, that doesn't mean anything. It means an awfully
lot, because if we exceed that ceiling, we've got to come
back to this Commission and say,well,we blew it.It's
going to be more than that and we ask for your authority
to raise the cap or to cancel the project or do whatever.
It's not to say,well,you let us build it for,in the
case of Milner,63 million,but because of inflation it
comes in at 10, you've got to give us 10, that is not what
the Company is saying.
What the Company is saying is we will commit
to build this project for $63 million, but in recognizing
that we are committing, that we are in essence giving an
assurance to this regulatory agency that we'll build it
for 63 million, we've got to have the ability to come back
in the event that something beyond our control occurs so
that the Commission has the right to say we don't want it
buil t for that, cancel it.
Now, with the FERC problem again, I have to
keep saying that, with FERC you don't just say, well,
we've dec ided not to complete the construct ion of the
project. You would have to apply to FERC for authority to
amend the license or to cancel it and I want to be candid
wi th you. That is an issue, but, of course, FERC doesn't
say you've got to tell us exactly what your ceiling is for
29
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
constructing.
So in summary, I think we are, if you read
Stephanie Miller's testimony, I don't think we are as far
apart as it appears on the surface. I think what we are
saying in Milner is we desire the issuance of a
Certificate of Convenience and Necessity. We have given
you a cost commitment. That cost commitment will form the
cap, but it is, of course, not a cost-pIus-type deal that
you get up to 63 million. Obviously, the Company's
construction practices are subject to review and audit,
but absent some imprudent or unreasonable construction
practice as far as the acquisition of the equipment, the
generators, et cetera, the Company believes that with the
issuance of the certif icate that when it purchases that
equipment it will be rate based.
Insofar as Milner is concerned, we believe
that the FERC license controls as to the size of the
equipment, et cetera, and that the Commission does not
have to have an independent review and investigation of
the size of the generation facilities, et cetera, that
that is subject to FERC jurisdiction and control.
We also believe that now is the time to
approve the agreements between the canal companies and
Idaho Power Company. Again, a lesson that we all learned
out of Valmy on both sides of the table is that you don't
30
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
wai t until the project is completed and in operation to
then say, well, I don't know if I'm going to authorize for
revenue requirement purposes all of the agreements that
are contained in the agreement between the canal companies
and the Power Company. That agreement is in existence,
it's been tendered to you. I f there are any quest ions
over and above those that have already been presented,
then reconvene the proceeding, but I don't think you can
wait.
Swan Falls, to me it's easier. The
Commission on its own motion advised the Company that it
should not proceed with construction of the power
facilities until it had presented a cost commitment to the
Commission. It also said explore the alternatives. We
believe that we have answered the explore-the-al ternatives
question by saying it is a lost opportunity, it will be
forever lost if we don't build it now, we'll lose the
license. Those will have adverse impacts upon the
Company's entire system and that dictates the construction
of the facility.
Finally, although I think we have talked
about a lot of things that probably will never come to
pass as far as Swan Falls and Milner is concerned, the
river runs dry, et cetera, what do we do, what do we do,
we need some additional guidelines as to what the
31
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Commission desires insofar as Twin Falls and the other
licenses which are coming up for renewal.
The '90s will be, in the words of
Mr. Packwood when we were talking about my oral argument,
will be the decade of the relicense. Where do you believe
your powers fit with FERC, what should we do, et cetera,
we look for guidance.
Thank you.
COMMISSIONER MILLER: Thank you,
Mr. Ripley. Do any of the Commissioners have questions
for Mr. Ripley or do you want to hear from other counsel
and then ask any questions more collectively?
COMMISSIONER SWISHER: I'd prefer to hear
from the others.
COMMISSIONER NELSON: I believe so, yes.
COMMISSIONER MILLER: All right, let's hear
from everyone else, then, and we'll kind of accumulate our
questions as we go along and if they're not answered when
we're all through, we'll ask them.
Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
COMMISSIONER MILLER: Mr. Richardson, our
court reporter needs a short recess. We'll take five
minutes.
(Recess. )
32
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I
2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
COMMISSIONER MILLER: All right,
Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
Mr. Chairman, I'm also very concerned about who's in the
audience today, and as Mr. Ripley pointed out, we've got
folks from the Power Company, folks from the Commission
Staff and the Idaho Consumer Affairs folks and that's it.
The reason the room isn't packed, as Mr. Ripley said it
would be if this were in fact a ratemaking proceeding, is
because it's never been perceived to be a ratemaking
proceeding, these types of proceedings.
If this were in fact a proceeding in which
Idaho Power's rates, Idaho Power i s customers' rates, were
immediately at risk, if you will, you would have indeed
seen more people here than you have. You would have seen
other traditional intervenors such as the irrigators, the
large users, they would all be here. In fact, even Idaho
Power's own witnesses weren't able to respond to the
question what percentage increase are you requesting. The
response was, we ll, we're not request ing an increase,
we're simply requesting pre-authorization for rate base
purposes. Then they go on to say, once you do that, the
burden shifts from the utility to show that its rates are
reasonable and just to the intervenors to show that
they're not.
33
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
In over an hour of oral argument on the
legal issues involved, the Power Company hasn't cited the
Commission to a single legal authority that would give
this Commission the authority or jurisdiction to
pre-approve investment for ratemaking purposes for plant
that's not used and useful in the provision of service to
the customers of the utility.
Counsel for Idaho Power makes an argument
that there should be a distinction between thermal and
hydro certificates. He makes an argument that there
should be a shifting of the burden from the Power Company
to the intervenors. Those are questions that are best
left, and are properly left, to the Legislature to
answer. What we have to work with is what exists in the
Idaho Code and the interpretation of that code by the
Idaho Supreme Court.
The Certif icate of Public Convenience and
Necessi ty statute doesn't even distinguish between
electrical corporations or telephone corporations, let
alone sub-distinguish between hydro and thermal plant. I
believe that much of the confusion that we have seen over
these last three days stems directly from Idaho Power's
failure to, A, articulate exactly what it is seeking, and,
B, articulate a rationale under which the Commission could
grant its applications.
34
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
To demonstrate that, with your indulgence,
I'LL walk you through a little bit from the Company's
pleadings in this matter. In Idaho Power's initial
application that started these proceedings, Idaho Power in
Swan Falls, I'll start with Swan Falls here, Idaho Power
framed the issue as one of obtaining pre-approval for rate
base treatment of investment in plant that's yet to be
used and useful.
Page 1 of its initial application makes it
very clear. It says, liAs noted by the Commission, Idaho
Code, ii and cites the certificate code, 61-526, IIdoes not
require that the Company apply for a Certificate of Public
Convenience and Necessity to increase the capac i ty of
existing generating plants, but the Commission does
require that the Swan Falls rebuild be reviewed and
Commission approval for rate basing be obtained before
construction of the facilities commences. ii
Idaho Power's next statement on what it is
seeking in the Swan Falls case is found in its response to
comments that were filed by the Staff and the Industrial
Customers. In Idaho Power i s response, it appears that
Idaho Power is saying just the opposite of what is
requested in its application.
Again, with your indulgence, I'll read from
Idaho Power's response to comments. Idaho Power states
35
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
that it is required to apply to the Commission for an
order authorizing the Swan Falls reconstruction for
purposes of determining the amount of investment that will
be included in rate base when the Swan Falls
reconstruction is completed, and that appears to be in
harmony with what they say in their application, but they
go on to say, and I'LL quote, "There will be no change in
the Company's rates until a revenue requirement proceeding
has been initiated by the Company and the COMmission has
determined the new revenue requirement of Idaho Power and
the resulting rates. In that revenue requirement
proceeding, if the Swan Falls reconstruction is completed,
the investment reasonably incurred by the Company up to
the amount of the voluntary cap proposed by Idaho Power
Company would be included as part of the Company's
investment for purposes of determining the Company's
revenue requirement. II
The Industrial Customers believe that's an
accurate statement of the law. Once the facility is
constructed, reasonable investment is included for
ratemaking purposes. However, once we get to Idaho
Power's brief, which is parallel in the Swan Falls case,
because by the time we get to the br ief ing stage, you've
consolidated the two cases for briefing purposes, finally,
in its brief on the legal issues, Idaho Power took an
36
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83701
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
entirely different position from the positions it took in
its initial application and from the position it took in
its response to comments.
In its br ief, Idaho Power makes the
assertion that Idaho's AFUDC statute mandates recovery in
rates all funds that are accrued to that account. Idaho
Power's brief at Page 4 provides, II In 1984, the Idaho
Legislature enacted Idaho Code 61-502A to provide that
construction work in progress could not be included in
rate base for revenue requirement purposes, but that the
Commission must allow a reasonable allowance for funds
used during the construction of utility plant. II
I go on, IIIn short, if a utility has
obtained a Certif icate of Public Convenience and Necessity
authorizing the construction of plant, the Commission is
required to permit a return on that plant dur ing
construction and cannot retroactively disallow the return
or the investment upon which that return has been
calculated. II
Idaho Power in that language assumes that
AFUDC is in fact a requirement that funds accrued to that
account are to be recovered in rate base. AFUDC is
nothing more than an accounting tool in which funds that
are used dur ing construct ion are allowed to accrue and
earn a return when and if the project is included in the
31
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Company's rate base. It's just like all other
construction costs.
Indeed, Idaho Power's Exhibit NO.6 contains
a line for AFUDC. To argue the AFUDC is the equivalent of
inclusion in rate base would remove any authority that the
Commission may have over the Company's construction costs
and, in effect, give the Company carte blanche to rate
base any costs it wanted to.
In the Swan Falls case, Idaho Power went
from arguing that the Commission must pre-approve all
investments that have yet to be made for inclusion in rate
base to arguing that only that investment that was
reasonably incurred for plant that is constructed and
presumably on line may be included in rate base to finally
arguing that all costs accrued to the AFUDC account must
be included in rate base.
On Milner, the history of Idaho Power's
Mi lner proceedings also demonstrate a lack of focus as to
exactly what it is that the Power Company is asking the
Commission to do. Idaho Power's Milner application
focuses not on the Certificate of Public Convenience and
Necessi ty, but rather on rate basing the investment in
Milner.
For example, the Company doesn't speak of
just a Certificate of Public Convenience and Necessity, it
38
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
speaks of a Certificate of Public Convenience and
Necessi ty for rate basing, one phrase, all caps, as if
it's a unique, separate document, a Certificate of Public
Convenience and Necessity for rate basing. Obviously,
there's no provision in Idaho Code for such a document,
just as there is no provision in Idaho Code for a
Certificate of Exemption, but more importantly, in Idaho
Power's Milner application, in the prayer for relief in
that application, Idaho Power never mentions a Certificate
of Public Convenience and Necessity. Idaho Power simply
asks the Commission to commit to rate base treatment for
its future investment. And I'll read from the wherefore
clause in Idaho Power's Milner application.
"Idaho Power Company respectfully requests
that the Commission issue an order authorizing the rate
basing of the Milner project with an upper limit of
$63 million allowed for the Company's investment in the
powerhouse. II No request for a Certificate of Public
Convenience and Necessity, simply a request for rate
basing treatment of the investment made in the project
before the project is completed.
I think it's c lear from the Milner
application that Idaho Power did not view the Milner case,
ini tially at least, as a Certif icate of Public Convenience
and Necessity case, but rather a case for ratemaking
39
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
treatment for investment that is yet to be made.
Idaho Power's comments to the, Idaho Power's
response to the comments filed by the Staff and the
Intervenors changes the focus of the Milner case from one
of ratemaking proceeding to more of one of a certificate
proceeding, and in response to comments, Idaho Power
speaks of the ramifications of a certificate being granted
and not first and foremost of a commitment to rate base.
For example, in Idaho Power's response to
comments, beginning at the bottom of Page 1, Idaho Power
says, lilt is the position of Idaho Power Company that the
issuance of a Certificate of Public Convenience and
Necessi ty for a generation facility is a determination by
the Commission that the facility upon construction will be
included in rate base of the utility when determining the
revenue requirement of that utility. II
Idaho Power no longer speaks of a
Certificate of Public Convenience and Necessity for rate
basing, but rather engages in a discussion of the meani~g
of a simple Certificate of Public Convenience and
Necessi ty and the consequences of such document. Again,
in the brief in Milner which is parallel to the brief in
Swan now, Idaho Power changes its argument to assert that
AFUDC requires all funds that are used during construction
to be rate based with no review by the Commission.
40
HEDRICK COURT REPORTING
P.O. Box 518 ¡ Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Well, it's not surprising, then, that some
wi tnesses may have been confused in this case. The
confusion, I think, stems from the failure of Idaho Power
to accurately identify what, and under what authority, it
is asking the Commission to do. Looking at Idaho Power's
brief for that authority, for that legal authority, for
the Commission to do what Idaho Power is asking it to do,
I think it's clear that that authority doesn't exist just
.
by looking at the Company's brief.
After its introduction in its brief, Idaho
Power argues what it calls FERC jurisdiction. No
assertion is made in that discussion that FERC requires
the states to a particular ratemaking treatment of FERC
licensed projects.
Next, Idaho Power argues what it calls
statutory authority. The Company cites the Certificate of
Public Convenience and Necessity statute, 61-526, without
asserting that it allows the Commission to pre-approve
investment for rate base purposes. In addition, the
Supreme Court case cited under the statutory section is
not cited in support of Idaho Power's position in this
case.
COMMISSIONER SWISHER: Say that again.
MR. RICHARDSON: In addition, the Supreme
Court case that is cited under Idaho Power's statutory
41
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
authori ty section of its brief isn't cited for the
proposition that the Commission has the authority to
pre-approve rate base investment.
COMMISSIONER SWISHER: Okay.
MR. RICHARDSON: Idaho Power then argues
what it calls Supreme Court decisions. Idaho Power cites
the UP&L case on construction work in progress which was
overruled by the Legislature's enactment of the AFUDC
statute. The AFUDC statute is addressed at length in the
Industrial Customers' brief. That statute makes it clear
that the Company is not allowed to earn a return on any
plant that is not used and useful in service to
ratepayers. AFUDC is simply another cost of construction
that accounts for the value of money that is tied up
during construction.
The Citizens case next cited by Idaho Power
Company provides a def ini tion of rate base as utility
property that is used to provide service to customers.
The Citizens case alone makes it clear that Idaho Power
cannot rate base anything until it's used and useful. It
is illogical to argue that plant that is yet to be built
is used and useful.
Finally, Idaho Power cites Afton in order to
def ine the purpose of avoided cost rates, and that's it,
that's the extent of Idaho Power's legal argument in
42
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
support of its request that this Commission pre-approve
for rate base treatment investment that is yet to be made
on plant that is yet to be built and that is yet to be
demonstrated to be used and useful in service to Idaho
Power Company's ratepayers.
Qui te frankly, I have been unable to find
any legal authority for the Commission to grant Idaho
Power's wish. Indeed, as the brief of the Industrial
Customers demonstrates, the Commission is aff irmatively
precluded from issuing an order granting rate base
treatment for such property.
The Commission also asked the parties to
address the effect of using avoided costs as a ceiling or
cap on rate basing. For Swan Falls, avoided costs may
indeed be too high as a ceiling or cap on the rate base
amount for Swan Falls unless the Company can demonstrate
that avoided cost is its least cost resource.
In Order No. 19623, the Commission made it
clear. The Commission said, "We put Idaho Power on
explicit notice, however, that before it undertakes any
substantial reconstruction or replacement of the Swan
Falls facility other than improvement or reconstruction of
the existing spillway, it must first demonstrate to this
Commission in a formal proceeding that the project is the
least cost method of acquiring a new resource for its
43
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
system. "
So if the Company is to comply with the past
orders of the Commission on Swan Falls, it must show that
Swan Falls is, it must not show that Swan Falls is
compatible with avoided costs, but that Swan Falls is
actually its least cost resource.
For Milner, avoided cost would be an
appropriate methodology for placing a ceiling or cap on
rate base. Idaho Power Company properly argues that
avoided costs are not set for the purpose of setting
general rates or evaluating generating plant that is owned
by the Company. Idaho Power Company argues that avoided
cost is only useful in evaluating generating plant that is
sold to the Company.
This lack of symmetry aside, Idaho Power
Company, I believe, misses the point. The point is not
what avoided costs are used for, but what avoided costs
show. Avoided costs purport to show the cost to the
Company of its next resource. It is clearly not a least
cost resource, but it is certainly a reasonable cap to
place on any additions to the Company's generating mix.
Well, I think I've spent enough time arguing
the defects I see in the Company i s case. I think it's
important that the Commission understand what it is the
Industrial Customers are doing here and what it is they
44
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
are not doing here.
First, we do not as a matter of policy
oppose the issuance of a Certif icate of Public Convenience
and Necessity for Milner, nor as a matter of policy do we
oppose the authorization to construct Swan Falls. We do
believe that the Company must make the requisite showings
necessary to satisfy the Certificate of Public Convenience
and Necessity statute and the requisite showings necessary
to satisfy the Commission's prior orders in the Swan Falls
case. If the Company satisf ies those prerequisites, then
the Industr ial Customers say, fine, go ahead and
construct.
What the Industrial Customers strongly
oppose is any order from this Commission that purports to
pre-authorize costs for inclusion in rate base on plant
that is yet to be demonstrated to be used and useful in
the provision of service to Idaho Power Company's
ratepayers. We, therefore, recommend that the Commission
deny those portions of the Company's applications that
seek such pre-authorization for rate base treatment.
Finally, we do expect the Commission to
evaluate the record in both proceedings and make a finding
that the Company either has or has not met those
standards. In the spirit of Glasnost, the Commission
asked that we identify common ground. I do believe that
45
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
ther~ is common ground and that if the Company's
investments are prudent and if they are reasonable and if
the Company brings these plants on line in a reasonable
fashion and that once on line they are useful in providing
service to Idaho Power Company's ratepayers that these
plants should be included in rate base for revenue
requirement purposes.
The uncommon ground, if you will, is that
those determinations cannot be made until after the plants
are built and on line. If you'll indulge in an analogy,
it is as if the employees are asking the boss to get paid
on Monday morning instead of Friday afternoon after the
work is completed.
Thank you, Mr. Chairman.
COMMISSIONER MILLER: Thank you,
Mr. Richardson.
Mr. Purdy.
MR. PURDY: Thank you, Mr. Chairman,
Commissioners and Counsel. I think Staff's position has
been fairly thoroughly stated in prior brief ings; so I'll
just summarize briefly. I think it's quite clear that
Staff has shown some reservations about the Milner
project, about the management practices thus far,
specif ically in the testimony of Mr. Faull, but just the
same, I don't think it was ever Staff's intention to delve
46
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
into issues that it considered premature and it was
moreover Staff's intention that we just bring some of our
concerns to the Company's attention at this time, and in
light of those concerns, or in spite of those concerns
rather, I think Staff generally recommends the issuance of
a Certificate for the Present Public Convenience and
Necessity.
It's Staff's interpretation, of course, that
that simply authorizes the Company to start breaking
ground, so to speak, to begin construction. I think
clearly Section 61-526 simply authorizes the commencement
of construction. It does not guarantee that the plant
will be rate based.
Regarding some of the cases that you,
Mr. Chairman, brought forth in your memorandum concerning
the history of Section 526 and its original function, I
believe you stated that it dealt more with dealing with
competi tion among utili ties in earlier years when that was
a problem and in fact, that's no longer such a problem
these days, at least with respect to electric utili ties.
I think also, though, that Section 526
serves another very important function in that it gives
the Public Utili ties Commission an opportunity to review a
proposed project in its initial stages and the opportunity
to determine at that time whether the project is in the
41
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
public interest, which I think is what a public
convenience and necessity analysis is all about.
An example would be that while a coal-fired
plant located on Main Street in Boise, Idaho, may be
economically viable, it may provide needed power,
certainly the environmental consequences would outweigh
the benefit of the plant, and while that's a rather
extreme example, I think it proves a point that 526 serves
a function apart from its original intention as
Mr. Chairman has pointed out.
I think that pre-approval of rate base at
the certificate stage places risks on the ratepayers that
should be more appropriately borne by the shareholders of
the Company, the risks that certain events might occur and
that the Company management will not react appropriately
to those risks.
The Company shareholders, of course, earn
the rate of return. The reason they earn a rate of return
is because they're willing to take risks and I hate to see
the Commission eliminate all risks for the shareholders
and essentially transfer them to the ratepayers.
I have to admit that I was a bit surprised
by some of the statements made by Mr. Ripley in his
argument. I was quite pleased, as a matter of fact,
because originally it was my understanding, and maybe this
48
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
is what Mr. Richardson was trying to get at, that the
Company was taking the position that it had no management
responsibility during the course of construction insofar
as keeping its head out of the sand, looking around and
figuring out what's going on in the real world around it.
I was under the assumption that when we talked of burden
of proof, the Company was saying it had no responsibility,
it had no burden, to look at the world around it and
constantly make an assessment as to whether the project is
still viable.
Now Mr. Ripley comes forth and has made a
statement that perhaps that's not what the Company
intends, that they still feel they have some
responsibility along those lines and I couldn't agree more
and perhaps to a certain extent that alleviates some of
Staff's concerns.
Staff has never taken the position that the
Company should not get some type of reasonable ratemaking
relief. Once it's issued a certif icate and assuming that
it has exercised prudent construction practices and good
business judgment, I think clearly the Company can be
assured, and should be assured, that it's entitled to some
type of ratemaking relief, although perhaps not the
tradi tional rate base rate of return type of relief.
Wi th respect to the Company iS al ternat i ve
49
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I 8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
proposal for what it terms a Cert i f icate of Exempt ion,
since Staff essentially recommends the issuance of a
present Certif icate of Convenience and Necessity, I don't
think that the exemption is appropriate. I think, in
fact, there's no statutory basis for the Commission to
issue such a certificate; however, I think the Commission
does have the authority under Section 526 to issue
essentially a certificate for the future convenience and
necessi ty which could contain any terms and conditions the
Commission desired. Of course, Staff has made it quite
clear that it does not agree with the Company's proposed
valuation method; i. e., reproduction cost new less
depreciation.
Staff feels that assuming the scenario of an
exemption that the valuation in rate base determination as
to the plant should be made when it's dedicated to the
ratepayers, and furthermore, Staff also expressed some
concerns that in the event that there is some type of
exemption that there be no cross-subsidization between the
utili ty and subsidiary that would presumably operate the
Milner plant.
Wi th that, I guess I'd just summarize and
state that Staff recommends issuance of the Certificate
for the Present Convenience and Necessity. Staff urges
the Commission not to guarantee a rate base at this time.
50
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
10
11
12
13
14
15
16
11
18
20
21
22
23
24
1 Staff does not feel that's appropriate or needed. A lot
2 of Staff's concerns have been alleviated by some of the
3 things Mr. Ripley has said, although I have to state that
4 I think there's a little confusion between what some of
5 the Company's briefing and statements of position have
6 said and what Mr. Ripley says today. I like his
7 characterization of their position today a lot better than
8 what they i ve said in brief ing, and so I guess it's simply
9 our position that the Commission should not lock itself in
to rate basing at this time, and with that, I have nothing
further.
COMMISSIONER MILLER: All right, thank you.
Let's see, Commissioner Swisher, do you have
any questions for counsel that you would like addressed?
COMMISSIONER SWISHER: I have. This is both
for Mr. Ripley and Mr. Richardson. I have some concern
about the relationship between Idaho Power's application,
especially in the Swan Falls case, and the case law, and
19 I'm not an attorney and I'm not willing to defer to the
Chairman just because he is, although I'll ask his
opinion.
My concern has to do with what has happened
so far in the Supreme Court cases. The so-called CWIP
25
case was one in which one of the Hunter units was brought
in and it had never been certificated, Mr. Ripley is
51
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I 8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
right, there was no certification process at UP&L and the
court's order was so sanguine that it said in overruling
this Commission's rejection of the application to put into
rate base that which the Commission found no need for and
had not authorized the Company to build, and the court's
order was so sanguine that as fast as the company booked
it, as fast as work orders could be converted into
invoices, and I do not oversimplify, then the ratepayer
responsibility began, that's how Draconian that order was,
and that's the reason that the Legislature, as I recall
wi th one dissenting vote, passed the anti-CWIP
legislation, and that was a remarkable turnaround for a
Legislature that only a year or two before had told this
Commission to go jump off a cliff over a couple of issues
having to do with rate inversion. It had absolutely
protected Idaho Power from having its tail block rates
inverted and it had ordered us to cease and desist and get
lost and do some other terrible things over the question
of new load building.
We had imposed some fees much like the
current trend toward user fees and avoidance of new tax
load out there in the non-regulatory arena when new homes
were built, and we had said you're going to have to pay so
much per kilowatt hour to hook up new space heating load
on the Washington Water Power system. Cornelli threw that
52
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
out and got heavy about it that we could not do that.
Keep in mind that we were doing this in a
climate, as Mr. Ripley and I have discussed in this
hearing, when sometimes the difference between new load
coming on at the margin and the old embedded system, it
was most dramatic at Water Power, could be as high as 12
and 14, 16 to 1; so we were trying to take pretty heavy
action, and the court in reacting in those cases took very
heavy act ion and said thou shal t not; so we were overruled
in that case.
In the Hunter case, we were told as quick as
the Company incurs the costs that go with providing load
it must be booked. Now, the court was silent as to
whether you could then subsequently through the Staff or
intervention or other action at the Commission, whether
you could subsequently challenge any of those costs, but
it was a most unusual opinion and it did galvanize the
Legislature into that action.
I suspect if the PUC had never gone near the
building, the anti-CWIP statute would have passed. The
Legislature didn't overrule; it simply addressed that
quest ion, you know, the court said in the absence of
anything against that in the code the Commission could not
interfere; so the court gave us the power and said that
only in an emergency and only in times of spans of less
53
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
than one year could we allow the pass-through of CWIP
directly to the ratepayer.
In that sense, the CWIP statute was never, I
mean the CWIP opinion was not overruled or set aside, they
simply changed the law. That's not the same thing. The
Legislature cannot overrule the Supreme Court.
I have concerns that haven i t gone away,
Mr. Ripley and Mr. Richardson, especially you two, and
maybe Mr. Gilmore if he wants to chime in, we did
authorize a duet for the Staff this afternoon, I really
have concerns about the relationship between that history
of past Commission actions, court opinions and what we're
doing now.
Keep in mind that before the settlement was
reached here on the last major Idaho Power Company rate
case, the Commission again had ruled substantially against
the embedding of Valmy 2 and the court again had overruled
us, separate question from the CWIP question, but
nevertheless, against that background, now when I get this
kind of an application from the Company and I read it and
cannot quite understand what the Company's asking me to do
as a Commissioner, I need more than I've heard in this
afternoon i S oral arguments to tell me what happens if in
our certification we do more than has traditionally been
done with a Certificate of Convenience and Necessity. I'd
54
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
like to hear an order, I think the rational order would be
from Mr. Ripley and then from Mr. Richardson and then from
probably Mr. Gilmore. The nag of that may well not go
away and it may be just because I'm a layman.
Mr. Ripley.
MR. RIPLEY: Sure.
COMMISSIONER NELSON: Excuse me, Mr. Ripley,
but before you start, my question is essentially the same,
I would just like to add a little bit to his question or
maybe more c lear i y def ine it in my mind and then I won't
have any questions, but along that line, in the prior
orders where we have said, before you build anything else,
come in and tell us how much it's going to cost, and you
now feel that you have done that and it appears that the
other two part ies, maybe the othe.r three part ies, are
saying, well, yeah, they've done that like you've said,
but don't tell the Company that 63 million bucks is okay,
tell them to go ahead and start construction, I want to
know how you reconc ile those pr ior orders where we've said
before you build anything else, come in and tell us what
it's going, to cost to now, then, if we do what apparently
the other parties would like us to do, issue a Certificate
of Public Convenience and Necessity and ignore the cost
factor and I think that's just to follow up on Perry's
question.
55
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
MR. RIPLEY: Where I think we should start
in answering that question is in the Commission's
discussion in the handout that I gave you, the Idaho Power
Company case that I handed out just before noon, whiçh is
is a discussion, if you will, of the Boardman cancellation
costs, this decision I think is worth a lot because it is
was reviewed and aff irmed by the Idaho Supreme Court.
The Commission's order that I'm going to
quote from was reviewed by the Supreme Court and they said
what they did in Boardman was correct and the key to me,
and perhaps I'm too close to it and, therefore, I think
it's too simple and I realize it's not, but when you live
with something for five or six years, I think you begin to
assume things that perhaps others --
COMMISSIONER SWISHER: It's called common
law marr iage .
MR. RIPLEY: Okay, anyway, on Page 442 there
is a discussion by the Commission addressing two, well,
actually three, types of costs in the Boardman
investigation, and what occurred just to give a brief,
brief summary of the issue and that was that at the time
that the Pioneer plant was canceled, Idaho Power Company
wi thout authorization from the Idaho Public Utili ties
Commission had purchased the boiler for the Pioneer
thermal facility and that boiler had been constructed to
56
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 7
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
the specif ications of where Idaho Power Company thought
that boiler was going to be located; i. e., outside of
Boise in the infamous Pioneer site; so it was constructed
to withstand certain earthquake and other factors at that
site.
When the Pioneer application was denied,
Idaho Power Company found itself with a boiler. As a
resul t of that, Idaho Power Company then discovered that
Portland General was constructing the Boardman facility
and so it tendered the boiler as a compensation, if you
will, for a portion of the plant and that's how Idaho
Power Company owns ten percent of the plant, but the key
there was that Idaho Power Company's audi tors recognized
that when they went in and noegtiated with Portland
General and Portland General said, we will give you the
value of the boiler, but there i s roughly $2 million of
costs that would not have been incurred by us to construct
that boiler at the Boardman site that you incurred in
order to put the boiler at the Pioneer site and those were
the non-shared costs.
Against that background, the Idaho
Commission said, we are going to disallow the non-shared
costs of Boardman, write them off, Idaho Power Company,
and Idaho Power Company objected to that and said that's
unfair, that's taking our property without due processes
51
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
of law and all the other nine yards that we throw in when
we're going to go across the street, and we went across
the street.
The Commission's order formed the basis of
the court's decision and now I want to read that to you
because I think it answers to a great extent the issue
that we're talking about, and this is the Commission,
"Before turning to each of these issues, it is well to put
them in context. The key to this case is the fact that,
under Idaho Code Section 61-526, Idaho Power Company is
required to obtain a Certificate of Public Convenience and
Necessi ty in order to construct a generation plant. Prior
to 1910, there was no statutory requirement.
Consequently, the Power Company was then authorized to
pick the type of resource it would build, select a site of
its own choosing, and incur expenditures for the design,
engineering and construction of its generating plants,
free from prior regulatory supervision or approval of any
kind. After 1910, the Company was required to obtain a
certif icate before it could ~begin the construction of a
plant' Idaho Code 61-526.
It is this fundamental legal background that
led to the Commission's two key findings in Order
No. 18985.
First, the Company acted reasonably in
58
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
17
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
incurr ing expenses to answer product ion requests and to
obtain feasibility estimates for its costs of construction
of a plant at the Orchard site. II Those were the costs
that Idaho Power Company had to incur in order to put on a
case before the Commission to demonstrate that it should
obtain a Certificate of Public Convenience and Necessity,
and I'm adding that parenthetically, but the Commission
then goes on to state, "On the contrary, the Company did
not act reasonably in incurring expenses associated with
purchase and order of equipment and machinery and expenses
associated with meeting its construction timetable at the
Orchard site.
Idaho Power's petition for reconsideration
does not challenge this fundamental division of expenses,
based upon the statutory certification requirement. II
All right, now, I think it is clear beyond a
doubt and the Idaho Supreme Court so found that if the
utility after it receives its certificate purchases
equipment, machinery and expenses, it is entitled to
recover the costs of the purchase of that machinery,
equipment and expenses up to the time that the Commission
or some other party says stop, do not go further. We do
not want you to pursue the construction of this facility
any further.
Now, up to that point in Idaho, under the
59
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
CWIP statute, Idaho Power Company, unless there's an
emergency, and any other utility, cannot come into the
Commission and say, I want to earn on that investment,
because under the statute it is not presently capable of
producing revenue and, therefore, the Legislature said
it's construction work in progress.
COMMISSIONER SWISHER: So you believe we
have what in the nomenclature of the industry is termed a
used and useful requirement.
MR. RIPLEY: Yes, sir. You do not have one
under the classic sense of the word under the construction
work in progress; however, because a utility is regulated,
you can't expect the utility to invest large sums of money
over extended per iods of years and not recover a return on
that investment because you are, obviously, conf iscating
the utility's property. To the extent that it has made an
investment, the time value of money is worth something,
et cetera, et cetera; so what the Idaho Legislature did,
and I believe what the Idaho Supreme Court was talking
about, was the other shoe, and that is there are two ways
for a utility, unlike any other beast that I know of,
there are two ways for a utility to earn an investment
when the project is under construction.
One is to permit that portion of the
investment that is under construction to be included in
60
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
the utility's revenue requirement. Now, of course, when
you do that, you are requiring the ratepayers of today to
pay for a plant which obviously doesn't produce anything.
COMMISSIONER SWISHER: And Idaho Power has
never applied for CWIP.
MR. RIPLEY: And Idaho Power Company has
never applied for it. It has always operated under the
assumption that it is entitled to earn a return, and
that i s where I disagree with counsel for the Industrial
Customers, this is not an accounting mechanism. This is
recogni tion of the legal requirement that a utility is
enti tIed to earn a return on its investment that it has
dedicated to the public use. That's where the allowance
for funds used during construction, and I date myself, the
old interest during construction, theory came from. It's
a legal theory to counter the argument that you are
confiscating the utility's property by not permitting it
to be in rate base.
Now, what Judge Bakes did is Judge Bakes
said, all right, we've got an investment that's very close
to be putting into rate base and the test year was old.
What he did is he said, okay, I'm going to allow
construction work in progress in the rate base because I
think by the time the order is issued it's going to be.
That's probably got nothing to do with what
61
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
we're talking about here now, Perry, but I think what
happened was that the Commission said, oh, my, God, they
are permitting the utility to always earn a return on
construct ion work in progress, and that was not the case
at all. The Supreme Court, I believe, was saying there's
one of two ways the utility is entitled to earn a return.
You can't disallow both. It's either entitled to an
allowance for funds used dur ing construct ion or it's
enti tIed to put that construction work in progress into
rate base.
My point, and I hope I haven't confused it,
is if you say, we're not going to allow construction work
in progress, we're going to authorize you to purchase the
equipment and to capitalize it, but then when it comes
time to put it into rate base we're going to say, no,
we're not going to permit you to recover your investment
on that machinery and equipment that you purchased and
we're going to disallow the amount that we previously
enti tled you to report in your earnings as an allowance
for funds used during construction.
COMMISSIONER SWISHER: To magnify this out
of all proportion, Mr. Ripley, because it is serious, I
suspect it weighs even more heavily on my colleagues than
it does on me, just to put it not in perspective, but to
take it out of perspective, not to put it in proportion,
62
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I 8
9
I 10
I 11
12
I 13
I
14
15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
but to take it out of all proportion, consider anyone of
the WPPSS plants that was actually constructed as being
under the jurisdiction of this Commission with this
Commission having issued a Certificate of Public
Convenience and Necessity and at any stage in that
operation, as you say, anybody could come in and blow the
whistle, but the exposure, of course, was enormous and
that whole world just went up in flames; so there's the
mega explanation, if you will, for the Richardson oral
argument this afternoon. It's not applicable to Swan
Falls unless you build it out of titanium, but it does
speak to the problem. You haven't closed it yet.
MR. RIPLEY: Okay.
COMMISSIONER SWISHER: I don't think.
MR. RIPLEY: Okay, the other shoe is that a
body of law built up that was applicable to nuclears, that
was applicable to the huge, and 11m talking energy farms,
the huge thermal fac1li ties, the 2-, 3,000 megawatt
facili ties, and what happened was the investment of the
canceled plant was so huge that you would have had a
revolution and they fashioned a remedy to take care of a
circumstance which was never contemplated by anyone, and I
guess that's why I like to practice administrative law.
God help us and I apologize,I shouldn't say
God help us,but if we become so straight-jacketed in our
63
HEDRI CK COURT REPORTING COLLOQUY
P.O.Box 518,Boise,ID 83101
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
thinking that we say we're going to apply nuclear
cancellation law to Swan Falls, I think this Commission
will have lost its perspective and I'm not sitting here
contending that by, gosh, if you give us authority for
63 million, that's it, you know, let's go out and eat
steak dinners and put it on work orders because we're
going to get it all back.
Obviously, you're going to audit it, but at
the same time, I just hesitate to see this idea, as there
was in the nuclears, and that is that gee, this was just a
bad idea and you should have known that, and I'm sure that
there were people in those hearing rooms that said I
didn't think it was a bad idea until we were committed 50
percent, but those statutes do say that, but again, back
to your construction work in progress, if I will, there's
two ways to compensate aut il i ty if it has been author ized
to do something and that is you permit the investment that
it has made to be included in its revenue requirement when
it files for a rate application or you permit an allowance
for funds used dur ing construct ion.
Idaho, unique state, Idaho has by statute
made that decision; therefore, I think you've got to
follow the statutes, that's why I cited it. I think
you're required to say the investment you've made up to
this point is adequate.
64
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I 8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
COMMISSIONER MILLER: Mr. Purdy and
Mr. Richardson, your response to this question. As you
do, I'll just add on top of the other two questions. I
think some specific attention to the relationship between
the 1910 amendment to Section 525 and Mr. Ripley's
analysis of the relationship between that amendment to
Section 502A would be very helpful to me.
MR. RICHARDSON: I won't begin with the
analysis between the amendment in 1910 between Section 525
and 502A, I think I'll start with Commissioner Swisher's
and then go to Commissioner Nelson and then take a stab at
yours, Mr. Chairman. I'm not sure what happened to those
Hunter plants. I'm not sure if they're still in Utah
Power & Light rate base or not. The Utah Power & Light
case on construction work in progress was in fact
specifically overruled, or at least the Legislature thinks
it was, by 502A.
The Legislature declared that it is hereby
declared to be the Legislative intent that this act should
overrule that portion of the decision of the Supreme Court
of Idaho, and they cite the case, which authorized or
required construction work in progress ur property held
for future use to be included in the utility's rate base
or otherwise authorized or required the Commission to
grant a a return on such property.
65
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I 8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
COMMISSIONER SWISHER: As a non-lawyer, I'll
just submit that the use of the word, of the verb overrule
in the statute is a piece of parliamentary arrogance, but
go ahead.
MR. RICHARDSON: That may well be,
Mr. Commissioner, but the Legislature went on to say that
the Commission should be prohibited from following the
precedent of that case in any order issued after the
effective date of this act to the extent that such
precedent authorizes construction work in progress or
property held for future use which is not currently used
and useful in providing utility service to be included in
rate base or authorize or require the Commission to allow
a return on such property.
I think Mr. Ripley confuses the question of
earning a return on property and rate base. Mr. Ripley is
saying that AFUDC equates to earning a return on the
investment of the property, and once that property is
included in rate base, that's true, but before that
property is included in rate base, it's merely another
cost of construction that mayor may not be included in
rate base that the Company mayor may not earn a return
on. AFUDC is not a finding that the plant is used and
useful.
Commissioner Nelson asked what's the purpose
66
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
of requiring the utili ties to come in and offer a number
for construction costs if we're not going to adhere to
that number, if we're not going to say okay, that's a
number, we'll bless it and put it in rate base. Well, I
think that the Commission specif ically said things like
the days of hell or high water financing are over, the
ratepayer should not be at risk if the management
commences construction before it receives a definitive
cost estimate or before it has an approved water right or
it fails to study reasonable alternative projects,
et cetera, et cetera, that's 19623.
I think that the Commission's intent in that
order has been admirably fulf illed in this case because
right now we have Idaho Power Company here bringing
numbers into the Commission, saying we i re doing our best
to keep the cost of these projects at the lowest possible
rate. I think that's the intent of the Commission's
order, and once the Company comes in and does that and
makes the other requisite showings for a Certif icate of
Public Convenience and Necessity, then this Commission
will issue an order granting a Certificate of Public
Convenience and Necessity. I think the system is working
beautifully.
The gloss the Commission has put on the
certificate requirement by requiring the Company to come
67
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
in and say yes, we're building a plant and we're doing our
darndest to keep it at the lowest possible reasonable
cost, I think that fulfills the Commission's intent.
Wi thout that order, we wouldn't have Idaho Power Company
in here today showing you numbers.
The import is that the number Idaho Power
shows provides the Commission with enough evidence to say
that yes, it is in the public interest assuming other
factors are satisfied to grant the certificate. It
doesn't show that rate base treatment is appropr iate at
this time. It shows that at this time the Company's on
the proper course and a Certificate of Public Convenience
and Necessity ought to be issued, and if you would give me
a few moments to gather my thoughts on your question,
Mr. Chairman, perhaps I could follow Mr. Gilmore on that.
COMMISSIONER MILLER: Sure, and I don't
know, it's not mandatory that you even comment on that
question, but go ahead.
MR. GILMORE: With the exception of the 1910
amendment to the statute, you're pretty much asking me to
walk you through my history at the Commission. I was the
attorney who argued that Utah Power case and lost. I
roughed out the draft of the statute that was sent over to
the Legislature and the governor's off ice and what emerged
in a slightly altered form is this bill that was later
68
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
enacted into law.
I think I was one of the Staff attorneys on
the Boardman case that Mr. Ripley cited. What I think
happened with the anti-CWIP statute, 61-502A, was the last
sentence of the statute itself says, "When construction
work in progress is excluded from the rate case, the
Commission must allow a just, fair and reasonable
allowance for funds used during construction or similar
account to be accumulated," and I think accumulated is an
important word, "computed in accordance with generally
accepted accounting principles."
What that means to me is that since the
statute has prohibited paying a return on CWIP while it is
CWIP, the statute recognizes there are carrying costs or
capi tal costs associated with deferring the recovery of
that, and what it says is you have to allow the Company to
accumulate those costè. It never addresses whether the
underlying capital costs themselves are fairly or not
fairly passed on to ratepayers.
Let i S take the ridiculous example. In the
building of Milner that Idaho Power designs the turbines
for a right-hand screw and orders a left-hand screw, which
I don' tthink is going to happen, and they have to spend
5- or $10 million sorting things out at the end because
they didn't match up.
69
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I 8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
COMMISSIONER SWISHER: This happened at
Diablo Canyon.
MR. GILMORE: And it happened, I think, with
one of the original BPA dams during World War II, the
screws didn't match up. I don't think this statute says
you have to allow AFUDC on that $5 million of mistake.
What it simply says is if you're allowing the bricks and
mortar investment itself into rate base, you have to allow
the AFUDC assoc iated with that rate base in at the same
time. It's silent on whether there was an imprudent
investment that should be disallowed for whatever reason
and I would just interpret that part of the statute as
nothing more.
The critical analysis is not the AFUDC, but
the actual investment. If the investment is prudent, the
AFUDC rides along with it. If the investment is
imprudent, for some reason it should be disallowed, the
AFUDC associated with that investment rides along outside
recovery in the same way that the principal as opposed to
the interest would be outside of recovery.
I think the teaching of the Boardman case
which Mr. Ripley handed out, and there were really two
Boardman cases, there was this Boardman case having to do
wi th expenses of investigation that is the Stearns-Roger
engineering contract, and a second Boardman case having to
10
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
do with the rate basing of Boardman itself that I think
were closely associated.
COMMISSIONER SWISHER: The second one was
not appealed.
MR. GILMORE: My memory differs from
Mr. Ripley and I should have looked this up over the lunch
hour and I didn't. I thought this was the one that was
not appealed and the other one was appealed.
MR. RIPLEY: I don't think so.
MR. GILMORE: That the other one was part of
a rate case where 1- or $2 million of Boardman boiler
investment that had previously been allowed into rates was
excluded and I believe that was appealed.
COMMISSIONER SWISHER: And that's the case
that went up.
MR. GILMORE: And that's the case that went
up, but these cases are so similar in import I don't think
it's important which one went up.
COMMISSIONER SWISHER: Pardon me again, but
I suspect this was not the one that was affirmed because
this was not the one that went up. I think it was the
question of the boiler in the rate base.
MR. GILMORE: But the teachings are similar,
regardless of which one went up, and one is that if you
spent money on plant without a certificate after 1910, you
11
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
spent the money at your own peril, but I don't think in
logic the converse follows. It doesn't follow that if you
have a certificate and you don't spend your money wisely
you nevertheless get it in rate base.
I think the Staff position and, if I
understood Mr. Ripley correctly, the Company position is
if you decide to grout with spaghetti and it cost you a
few million dollars instead of grouting with cement, well,
the ratepayers are going to pay for it, no, I don't think
that's going to happen again, but in the event something
like that happens, merely because you have a certificate
doesn i t insulate the Company from somebody challenging the
reasonableness of such an expenditure. The Company --
COMMISSIONER SWISHER: Well, here, before
you go on, keep in mind that in the testimony of the
Staff, Mr. Gilmore, in the testimony of Dr. Reading, there
was unqualified testimony saying I don't think Swan Falls
is cost just i f ied, doesn't meet the cr iter ia, is too
expensive and that is your testimony and that's Reading's
testimony, and all these other considerations, such as
that def ined by the Tom Nelson letter, are not weighed in
the balance in that testimony. Doesn't the Company have
some right to be concerned?
MR. GILMORE: Yes, but Mr. Faull did not
produce the only testimony on Swan Falls. Mr. Eastlake,
12
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Mr. Faull did the number crunching and it was his opinion
that they were not cost justif ied wi thin a small
difference, I believe, was it five percent or two percent,
I can't remember which is which right now, but I think
Mr. Eastlake then gave the broader picture, within a two
or five percent difference considering the value of this
plant to the ratepayers for its water rights, we're not
talking about very much in the world of cost justification
and in fact, we are looking at a much, much more important
issue than narrow cost justification.
COMMISSIONER SWISHER: Okay, Mr. Gilmore,
but the thing that Mr. Ripley didn't touch on, perhaps
because he knew he ran his hour out, was in the mention of
the FERC licensing. The FERC licensing includes things
that this Commission would not have included, and he's
saying FERC has the right to do that and the Company must
have some concern about that. I mean, when the State
Historical Society goes over and says, well, we would like
a nice little overnight bivouac aside the dam and an
overlook for the old town site and maybe a roost for
Morley's birds and the FERC puts it in, stuff this the
Commission would not have put in, I'm conf ident, again the
Company must have some concern given the testimony of
Dr. Reading, given the testimony of Mr. Faull.
MR. GILMORE: I don't think the Staff has
13
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
taken any position that the Company can be required by the
Federal Energy Regulatory Commission to spend money, be it
on a historical preservation and the like, and not recover
it, that's not the Staff position, and I believe
Mr. Faull's testimony just said for a worst case analysis,
let i S take the whole number and assume that's the cost of
generation rather than trying to chop out a little chunk
of it that is the cost of histor ical preservat ion and
another little chunk that's the cost of fish propigation
or whatever it be, and he said if you take it all, under
the worst circumstance, you're going to come out within a
few percent and I think that i s the context of his
analysis.
COMMISSIONER SWISHER: Thank you.
MR. GILMORE: I've lost my train of thought,
just a second.
COMMISSIONER MILLER: I really think you'd
kind of gotten or I was enlightened. Let me just ask one
last question, I guess, of Staff and the Intervenor and I
really apologize for keeping the parties and the court
reporter so late, but we've kind of gone around and around
on the question of what does a certificate mean, and if
the Commission in this case says a certif icate means this,
it means that the project is required by the present or
future public convenience, it means that costs incurred to
14
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
date have been prudently incurred and that is
MR. MILES: Mr. Chairman, would you pull
your microphone a little closer?
COMMISSIONER MILLER: -- it means that costs
incurred to date are prudently incurred and it means that
upon completion of the project, the facility will be
placed in rate base unless it is established that the
Company failed to follow prudent construction practices or
that intervening events rendered continuation imprudent,
if the Commission said that's what a certificate means, at
least in these two cases, where would we be going wrong or
would we?
MR. GILMORE: Do you want me to begin? I
think there's not a great deal to quibble with there. I
think as a practical matter if the Commission authorizes a
certif icate it has authorized a certain amount of the
Company's investment to be recovered from ratepayers.
Now, I don't think since construction has already begun
that either the Staff or the Commission has gone out and
done the kind of audit you would associate with current
construction expenditures. Mr. Ripley admitted that they
already started some construction expenditures a little
bi t ahead of game.
Now, we have no reason to believe what the
audi t would disc lose, we just don't know; so I would
15
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
disagree with that part of your characterization that the
things they have done so far with regard to construction
have been approved. I think the Staff would say that the
kind of engineering studies they did, the kind of expenses
they've incurred in putting this case on, the kind of
reconnaissance estimates and feasibility estimates in
terms of the 191 case, that kind of stuff is all prudent
and whether the project were built or not built, Staff
feels the Company ought to be spending that kind of money
on projects because it ought to be finding out what's
going on out there, and I think there's an order from the
middle 1980s where we approved the recovery from
ratepayers of a substant ial amount of reconnaissance and
feasibili ty studies on projects that were never built,
because it's important to spend some money to find out if
they could be bui 1 t or should be buil t .
So with that quibble, I think I'll move on
to the last one, and rate basing I think is probably going
to be one of the more troublesome issues in this case or a
subsequent 'rate proceeding. I think at least since the
passage of the PURPA in the late 1910s that it is not a
given that there will be traditional rate of return rate
basing for new utility generating plant, that that is not
constitutionally or statutorily required.
It may very well be the wisest choice, it
76
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
I
11
12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
may be the choice the Commission will take in 99 out of
100 cases, but I think the Commission should hesitate to
say that is the only choice before the rate case comes
in. You know, if Idaho Power just goes out there and does
a tremendous job, let's say that in Swan Falls, which is
the case I'm more familiar, there's almost 40 percent
contingency builtin between the 15 percent that was
discussed in one and the 25 percent in other, they might
be able, if conditions are right, they may be able to ring
the fat out of that thing and bring it in well, well below
avoided cost, and it may turn out that in the end avoided
cost is the fair way of doing it and they'll come out
ahead from what they would have with traditional rate
basing. I don't know and I don i t think the Commission
should want to foreclose whatever possibilities are
there.
I think the authorization, the certificate
in the Milner case or the authorization to proceed in the
Swan Falls case ought to speak in general terms that the
Company is entitled to a fair, just and reasonable
ratemaking treatment of its investment without committing
itself to traditional rate base rate of return
regulation. I don't think we need to make that decision
right now in the event that the things we're talking about
happen, the Company is prudent in its construction and
11 ,
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
it's prudent in its business practices of managing the
project as it goes on.
Does that answer?
COMMISSIONER MILLER: It does, thank you.
Pete, do you have anything to add?
MR. RICHARDSON: I concur in what
Mr.. Gilmore said. I would emphasize that an order today
commi tting the Commission to include in rate base costs
that are going to be incurred in the future places the
Commission in a very precarious position in terms of the
abili ty to go back and review unknowable events, and so I
would have a serious problem with that portion of your
scenario, but I have no problem if the Commission at this
point makes a finding based on the record that
construction is in the public interest and to issue a
Certif icate of Public Convenience and Necessity.
In terms of what happens after that, I don't
think practically speaking or from a good policy
standpoint or from the Idaho Code that the Commission can
predict; so that's all I have to add to that,
Mr. Chairman.
COMMISSIONER MILLER: All right, thank you.
Can we take Mr. Ripley's concluding
remarks?
MR. RIPLEY: I'm going to be very short,
18
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
believe it or not, I promise.
COMMISSIONER MILLER: All right. There are
just a couple things that I would like you to comment on
while you're doing that. First, you haven't yet touched
on the point raised, I think, by the Industrial Customers
having to do with the valuation statute; that is, the
point seemed to be or the point made by the Industrial
Customers is that the fact that there is a separate
statute relating to valuation seems to contemplate that
the fixing of utility plant values occurs at some time
other than the certif icate stage.
And then just a very small point with
respect to FERC preemption, I guess. It's undoubtedly
true, as you say, that we can't modify a FERC license or
modify the terms of a FERC license, and this is more
hypothetical than anything else, but wouldn't you say it
would be true that we could pass on the prudence of the
Company obtaining a license on the terms that it obtains;
that is, if the Company obtains a license from FERC and
it's the Company's act ions that resul t in those
requirements being in the license, can't we pass on the
prudence of obtaining that license under those terms? I
don't think that's really an issue in the case but from a
theoretical point of view.
MR. RIPLEY: Well, in answer to your last
19
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
question, although I've always been skilled never to say
totally no to the Commission, I believe the answer to your
question is that I don't think you can pass upon the
advisabili ty of the utility accepting imposed requirements
by the federal government. I think there is a vehicle
which the Commission can select to protect itself in those
areas and that is that you are given notice, specific
notice, of the filing of all of the Company's applications
with FERC.
The fact that you choose not to participate
I don't think should somehow be able to convert itself
into, well, we waited until after the process and are
going to make a determination that what FERC imposed was
imprudent for the utility to accept. I think you then
have a conf lict between jur isdict ions. I don't think you
can do that, but I do think there is a vehicle.
As to the issue of you determine the value
of the property at some other time, again I go back to the
fact that the Legislature in 1910 passed the Certificate
of Convenience and Necessity statutes, and the
requirements that this Commission has laid down as far as
filing for authority, imposing cost commitments, the
decision that I read to you, I think all dictate the fact
that the Company is entitled to recover its investment.
Now, what we may be talking about, and as
80..
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
usual, I think Mike and I agree on the law, but how you
interpret it we differ, and that is that if the Commission
issues a Certificate of Convenience and Necessity and
Idaho Power Company purchases the turbine, the dec ision to
purchase the turbine, I believe, is final and conclusive.
Now, whether the Company should have
accepted some kind of a widget or a gidget that is
attached to that turbine I think is also conclusive, but
if they incur needless expenditures in installing the
turbine, then I think this Commission has the right to
audi tit and say you're not conducting reasonable and
prudent practices, and so to that extent, it is
determining the value, but you're an original cost
jurisdiction and I just, I blanch at the thought of you
saying, well, the original cost no longer means anything.
We will decide what you book separate and apart from what
the utility can show that its vouchers are.
Staff comes down and they audit vouchers.
Did we account for the expenditures properly and what are
those expenditures, but I don't think you want to get into
the situation where if the shovel costs $2.50, we're going
to make some kind of extemporaneous decision here that,
well, we're going to put a $2.00 value on the shovel, I
just don't think you do that and I don't think that's what
the statute means.
81
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I 5
6
I 1
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
Other than that, I guess I would add to your
question to Mr. Gilmore and to the Staff if the Commission
did this and said the costs incurred to date may be rate
based, I think you can say the costs incurred to date we
will permit the utility to recover in its revenue
requirement and that leaves what Mike is talking about a
little more open.
Rate base to me is the shorthand method of
saying the utility is entitled to recover that investment
in its revenue requirement. What frightenes the utility
is when you say we're going to have new and novel methods
of rate recovery, normally the utility comes up short
under the new and novel methods, but the utility is used
to seeing, and Standard and Poor's, the rating agencies,
et cetera, are used to seeing we will permit the utility
to recover its investment in its revenue requirement, and
I dare say if you issue this order the way that you
phrased it hypothetically that you will receive favorable
responses which could have an effect upon this utility's
rate of return in future proceedings. I think this is the
partnership idea that, frankly, if you look at Wisconsin,
that in some areas it's considered the Cadillac of the
regulatory industry --
COMMISSIONER SWISHER: It is the Cadillac.
MR. RIPLEY:and what you're talking
82
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
about is a recognition of the revenue requirement, but
other than that, I only have one other thing to say.
COMMISSIONER SWISHER: All I ask is no
matter what order we issue in that respect that dialogue
between the Wall Street analysts and the controller become
a conference call, it has gone on too long. This
Commission has suffered and so has the utility from that
treatment.
MR. RIPLEY: Sure. I would simply close by
saying again that I believe that the issuance of the
Certif icate of Convenience and Necessity and the cost
commi tment in Swan Falls is an indication as to what these
projects are going to cost and gives the Commission the
abili ty to issue the order under the terms that you set
out in your hypothetical with the exception I don't think
we need rate base, but you could say will be recovered in
the revenue requirement.
With that, I would close. Thank you.
COMMISSIONER MILLER: All right, thank you.
Let's see, let me conclude by saying that of all the
proceedings that I have participated in since I've been at
the Commission, this has been one of the most interesting
and, in my opinion, best argued by all the parties and,
Mr. Richardson, I hope you will tell your clients
specif ically that, at least in my opinion, I appreciate
83
HEDRICK COURT REPORTING
P.O. Box 518, Boise, ID 83101
COLLOQUY
I
I 1
I 2
3
I 4
I
5
6
I 7
I
8
9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I 25
I
the presence of your effort in this case, and the Company
doesn't always like to have a lot of people here throwing
rocks at it, but I think that you really force us to make
better decisions when the issues are discussed and
explored in the way they were here, and the same applies
to the Staff, Mr. Purdy and Mr. Gilmore, in my opinion,
and to the Company as well. I want to thank the Company
for what I consider to be a forthright presentation of
issues that are important.
So I simply wanted each of the parties to
know that we, I can at least speak for myself and I'm sure
for the other Commissioners, that we appreciate the effort
that you put into this.
Wi th that, I think we can consider the
record in these two cases closed with the exception of
Mr. Miles' submittal to come wi thin a week from tomorrow,
and the record then being closed, the Commission will take
these matters under advisement and issue its decisions in
due course.
(The Oral Argument concluded at 5:35 p.m.)
84
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83101
COLLOQUY
I
I 1
I
2
3
I 4
5
I 6
I 1
8
I 9
I 10
11
I 12
I 13
14
I 15
I 16
11
I 18
I 19
20
I 21
I 22
23
I 24
I
25
I
AUTHENTICATION
This is to certify that the foregoing oral
argument held in the matter of the application of Idaho
Power Company for a Certificate of Public Convenience and
Necessi ty for the rate basing of the Milner Hydroelectric
project, or, in the alternative, a determination of exempt
status for the Milner Hydroelectric project and in the
matter of the application of Idaho Power Company for
authority to rate base the investment required for the
rebuild of the Swan Falls Hydroelectric project,
commencing at 3: 00 p. m., on Thursday, November 29, 1990,
at the Commission Hearing Room, 412 West Washington,
Boise, Idaho, is a true and correct transcript of said
proceedings and the original thereof for the file of the
:K2ÖÌ~+6KeL d
01STANCE S. BUCY
~rtified Shorthand
85
HEDRICK IOURT REPORTING
P.O. Box 518, Boise, ID 83101
AUTHENTICATION