20171130PAC to Staff 4th Suppl WY Interwest Set 2 (1-2).pdf

ROCKY MOUNTAIN
POWER
DIVISION OF PAClFICORP 1407 W North Temple,Suite 330
Salt Lake City,Utah 84116
November 17,2017
Lisa Tormoen Hickey,#5-2436
ALPERN MYERS STUARTLLC
14 North Sierra Madre,Suite A
Colorado Springs,CO 80903
l¾[e-mail] (C)
RE:Wyoming Docket 20000-520-EA-17
Interwest 2nd Set Data Request (1-7)
Please find enclosed Rocky Mountain Power's Responses to Interwest 2nd Set Data Requests 2.1-
2.7.
Sincerely,
S o
Manager,Regulation
Enclosures
C.C.:Meridith Bell/WPSC [e-mail](C)
Lori L.Brand/WPSC [e-mail] (W)
John Burbridge/WPSC [e-mail] (W)
Michelle Bohanan/WPSC [e-mail] (W)
Kara Seveland/WPSC [e-mail](W)
Morgan Fish/WPSC [e-mail] (W)
Dave Walker/WPSC [e-mail] (W)
Perry McCollom/WPSC [e-mail](W)
Abigail C.Briggerman/WIEC [e-mail]
Patti Penn/WIEC [e-mail](W)
Bob Pomeroy/WIEC [e-mail] (W)
Thor Nelson/WIEC (W)
Emanuel Cocian/WIEC [e-mail] (W)
Nik Stoffel/WIEC NSMfe_l@hollandha_rtcom (W)
Christopher Leger/OCA [e-mail] (C)
Crystal J.McDonough/[e-mail] (C)
Brandon L.Jensen/RMSC [e-mail] (C)
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.1
Interwest Data Request 2.1
Please assume,for purposes of this Second Set of Data Requests,that PacifiCorp will
issue a request for proposals for non-residential solar resources (2017S)as indicated in its
communications with the Utah Public Service Commission.If solar energy resources are
required as part of the 2017S RFP,please describe in detail the value of the federal
Investment Tax Credit (ITC)which will apply to resources acquired which are deemed
by the Internal Revenue Service to have commenced construction before each of the
followingdates:
(a)December 31,2019
(b)December 31,2020
(c)December 31,2021
(d)On or after January 1,2022.
Response to Interwest Data Request 2.1
Under current federal income tax law,qualifying solar photovoltaic facilities will
generate a federal energy investment tax credit (ITC)in the followingpercentages for
facilities which are deemed to have commenced construction before each of the following
dates:
(a)If construction begins before January 1,2020 -30 percent.
(b)If construction begins after December 31,2019 and before January 1,2021 -26 percent
(c)If construction begins after December 31,2020 and before January 1,2022 -22 percent
(d)If construction begins on or after January 1,2022 -10 percent
Any solar facility described above that is not placed in service by January 1,2024 will
generate an energy ITC of 10 percent.
Respondent:Doug Locke
Witness:To Be Determined
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.2
Interwest Data Request 2.2
How will RMP incorporate the ITC in its present value revenue requirement for any solar
resources which are proposed to be acquired so that benefits of the ITC can be passed on
to its ratepayers?
Response to Interwest Data Request 2.2
An RMP owned solar facility will be subject to the federal income tax normalization
rules for ITC.Accordingly,the ITC will result in a rate base reduction which will be
amortized over the 20-year book life of the solar facility.The 20-year book life is based
on the last RMP depreciation study approvedby the Wyoming Public Service
Commission.
Respondent:Doug Locke
Witness:To Be Determined
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.3
Interwest Data Request 2.3
Please describe,in detail,how "normalization"requirements for the Investment Tax
Credit for solar energy differ from the production tax credit for wind energy which will
be applied to the new wind investments for which RMP requests approval herein (Wind
Facilities).
Response to Interwest Data Request 2.3
The federal production tax credit (PTC)is not required to be normalized.The PTC is
therefore returned to customers on a tax grossed-up basis as it is earned over the 10-year
production period.See the discussion on the PTC tax gross-up at Data Request 2.6.A
regulated utility can elect to either take the PTC or ITC on a qualifyingwind facility.
Generally,the wind PTC will result in a lower present value revenue requirement for
customers than the wind ITC which is requiredto be normalized.
Solar facilities are not eligible for the PTC.Accordingly,RMP will claim the solar ITC
which is required to be normalized.This will result in a rate base reduction for the amount
of the solar ITC which will be amortized over the 20-year book life of a solar facility.The
20-year book life is based on the last RMP depreciation study approved by the Wyoming
Public Service Commission.
Respondent:Doug Locke
Witness:To Be Determined
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.4
Interwest Data Request 2.4
Please describe,in detail,how the corporate tax rate affects the availability or value of
the production tax credits (PTC)to be acquired for wind energy produced by the Wind
Facilities.Please list and provide copies of all studies,reports,analysis and data requests
in this docket where the impact of corporate tax rates is referenced by RMP.
Response to Interwest Data Request 2.4
A reduction in the federal corporate income tax rate will not affect the availabilityor the
direct value of the production tax credit (PTC).The PTC is not required to be normalized
but is a reduction in the cost of service (COS)for income taxes.The PTC for Company-
owned resources will therefore be grossed-up for income taxes as discussed in the
Company's response to Interwest Data Request 2.6.Accordingly,a reduction in the
federal income tax rate will result in a reduced tax gross-up in revenue requirement for
customers.
The Company has not performed an analysis of corporate income tax rate for the new
wind and transmission projects addressed in this docket.Consistent with the approach
described in the Application,the Company will update its economic analysis in its
supplemental filing scheduled to be filed in January 2018.Other data request responses in
this docket related to income tax are OCA Data Request 1.83,WIEC Data Request 7.10,
and WIEC Data Request 7.13.
Respondent:Doug Locke /Dan Swan
Witness:Rick Link
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.5
Interwest Data Request 2.5
Please confirm that there is no difference in how the corporate tax rate affects the
availability or value to electricity consumers of the PTCs to be acquired from wind
energy produced by (a)company-owned wind resources;and (b)independentpower
producer-owned wind resources.If not confirmed,please describe any differences in
detail.
Response to Interwest Data Request 2.5
A reduction in the federal corporate income tax rate will not affect the availability or the
direct value of the PTC.The PTC is not required to be normalized but is a reduction in
the cost of service for income taxes.The PTC for company owned resources will
therefore be grossed-up for income taxes as discussed in Data Request 2.6.Accordingly,
a reduction in the federal income tax rate will result in a reduced tax gross-up in revenue
requirement for customers.
An independentpower producer also will not have the availabilityor value of the PTC
reduced by any reduction in its federal income tax rate.Theoretically,a reduction in the
federal income tax rate on revenue flowingto an independentpower producer from a
power purchase agreement (PPA)would be at least partiallypassed throughto a
regulatedutility in a reduction in the price per kilowatt hour as set out in the PPA.
Respondent:Doug Locke
Witness:To Be Determined
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.6
Interwest Data Request 2.6
On page 13 of Jeff Larson's direct testimony attached to the Application in this docket,
he states as follows:
To derive the revenue requirement value of the tax credit,the PTC value must be
grossed-up by the Company's tax gross-up rate.The Company will use the tax gross-up
rate from its most recent general rate case to calculate the value of the PTCs from the
Wind Projects.The RTM will reflect the value for the grossed-up PTCs.
Please define "gross-up"as used in various places in this section of Mr.Larson's
testimony in detail so it can be understood by persons not familiar with RMP's rate cases
in Wyoming.
Response to Interwest Data Request 2.6
In a regulated rate environment,the customers receive the benefit of the federal PTC as a
cost of service reduction for determining the overall revenue requirement impact of the
PTC.Therefore,$1.00 of PTC initiallyreduces the customer revenue requirement by
$1.00.However,this $1.00 reduction in rate revenue also reduces RMP's federal and
state taxable income by $1.00.This results in a reduction of federal and state income tax
at RMP's commissioned approved combined federal and state income tax rate of
37.951%.This requires that the PTC be subject to a tax "gross-up"to capture the
interpolative income tax effect of the initial $1.00 revenue requirement reduction for the
PTC which results in a reduction of taxable income.
The tax gross-up calculation requires the conversion of the $1.00 PTC by the tax gross-up
factor.The tax gross up factor is 1 divided by (1-combined federal and state tax rate).
Therefore the RMP tax gross-up rate would be 1/(1 -.37951)or 1.6116.This means that
$1.00 of PTC reduces the customer revenue requirement by $1.00 x 1.6116 or $1.6116.
Proof:
Revenue Requirement Reduction $1.6116
Federal and State Tax @ 37.951%<0.6116>
Amount of generated PTC $1.00
Respondent:Doug Locke
Witness:To Be Determined
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.7
Interwest Data Request 2.7
On October 23,2017 you responded to WIEC Data Request 7.6 (a)as follows:
(a)Not confirmed.The Company recalls discussing the nuances of production tax
credit (PTC)eligibilityunder a number of hypothetical scenarios during the technical
conference with Wyoming stakeholders held on September 25,2017.During the
dialogue,the Company explained that its interpretation of Internal Revenue Service
(IRS)code regarding individual wind turbine generators (WTGs)is that individual
WTGs may meet the IRS's "in-service"qualificationto maintain 100 percent safe
harbor PTC eligibilityunder certain circumstances before December 31,2020,
without having been placed into "commercial operation."The Company recalls
explaining that the 500 kilovolt (kV)transmission line associated with the Company's
proposed Wyomingwind projects will need to be "in-service"to facilitate
"commercial operation"of the wind resources.
Please explain how individual WTGs may meet the IRS's "in-service"qualification
without having been placed into "commercial operation"before December 31,2020,and
the time period within which the facility would have to be in commercial operation in
order to maintain 100 percent safe harbor PTC eligibilityunder these circumstances.
Response to Interwest Data Request 2.7
Assuming the Wyoming transmission projects were not completed by December 31,
2020,but otherwise have facilitated synchronization to the transmission grid and
commissioning of individual wind turbines pursuant to IRS guidance,the Company
would treat a completed and functionalwind turbine as being placed in service regardless
of any transmission constraints affecting a wind project.
In Private Letter Ruling (PLR)20033403,the IRS ruled that if a wind turbine has all
necessary operating permits and licenses,has been synchronized to the power grid,the
critical tests for the components of the wind turbine have been completed,the wind
turbine has been placed in the control of the taxpayer by the contractor,the taxpayer has
sold electricity that has been produced by the wind turbine,and the wind turbine is
puttingpower onto the grid on a regular basis,then the wind turbine has been placed in
service.This is even if the wind project is not producing transmission level electricitydue
to a delay in a transmission project and has not been deemed to be under commercial
operation by a regulatory commission.A PLR may not be relied on as precedent by other
taxpayers;however,it is indicative of the IRS position on certain matters.In this
instance,the repowered wind facilities would be deemed to meet the four year safe
harbor requirement and qualify for the 100 percent PTC.
Provided that the individual wind turbines were regularlygenerating electricity to the grid
for sale to customers by December 31,2020 and continued to do so until the wind project
was deemed to be in commercial operation then the wind turbines would qualify for the
100 percent PTC.
20000-520-EA-17 /Rocky Mountain Power
November 17,2017
Interwest Data Request 2.7
Respondent:Doug Locke
Witness:To Be Determined