981013.docx

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,  IDAHO  83720-0074
[phone]
Street Address for Express Mail:
472 W WASHINGTON
BOISE ID  83702-5983
Attorney for the Commission Staff
BEFORE  THE  IDAHO  PUBLIC  UTILITIES  COMMISSION
IN THE MATTER OF THE PETITION)
OF THE WASHINGTON WATER POWER)CASE  NO.  WWP-E-98-4
COMPANY FOR AN ORDER TERMINATING)
ITS POWER COST ADJUSTMENT (PCA))RESPONSE TO THE FIRST
MECHANISM.)PRODUCTION REQUEST
)OF THE WASHINGTON
)WATER POWER COMPANY
)TO THE COMMISSION
_____________________________________________)STAFF
The Staff of the Idaho Public Utilities Commission, by and through its attorney of record, Scott Woodbury, Deputy Attorney General, hereby responds to The Washington Water Power’s (WWP; Water Power) First Production Request to the Idaho Public Utilities Commission Staff dated September 23, 1998.  Technical Staff consulted was Keith Hessing.
WWP Request No. 1:
Mr. Hessing states at page 3 beginning at line 7 of his direct testimony that:
“Since a PCA automatically allows recovery of nearly all of the difference between normalized and actual power supply costs, establishing normalized power supply costs becomes much less contentious.”
Mr. Hessing states at page 5 beginning at line 11 of his direct testimony that:
“However, there are other things that can also cause deferrals.  If any computer model assumptions used to represent the normalized base are incorrectly set they would cause amounts to be deferred when all other conditions are normal.  These could be weather adjusted loads, contract obligations, resource availability factors, etc.”
Request:
a)  Please explain how incorrectly set weather adjusted loads cause amounts to be deferred when all other conditions are normal in WWP’s PCA mechanism.  Please provide a written explanation as well as show an example calculation with the associated effect on the PCA deferral using Staff Exhibit No. 101.  Please show the assumptions being made and the amounts that change on each line of Staff Exhibit No. 101.
b)  Please explain how incorrectly set contract obligations cause amounts to be deferred when all other conditions are normal in WWP’s PCA mechanism.  Please provide a written explanation as well as show an example calculation with the associated effect on the PCA deferral using Staff Exhibit No. 101.  Please show the assumptions being made and the amounts that change on each line of Staff Exhibit No. 101.
c)  Please explain how incorrectly set resource availability factors cause amounts to be deferred when all other conditions are normal in WWP’s PCA mechanism.  Please provide a written explanation as well as show an example calculation with the associated effect on the PCA deferral using Staff Exhibit No. 101.  Please show the assumptions being made and the amounts that change on each line of Staff Exhibit No. 101.
d)  Please explain the other computer modeling assumptions indicated in “etc.” that would cause amounts to be deferred when all other conditions are normal in WWP’s PCA mechanism.  For each other computer modeling assumption identified please provide a written explanation as how the deferral is effected as well as show an example calculation with the associated effect on the PCA deferral using Staff Exhibit No. 101.  Please show the assumptions being made and the amounts that change on each line of Staff Exhibit No. 101.
e)  In light of the responses to items (a) through (d) above please explain how WWP’s PCA automatically allows recovery of nearly all of the difference between normalized and actual power supply costs.
Response to WWP Request No. 1:
It is not my position that Water Power’s PCA trues up for weather, incorrectly input contract obligations or differences in resource availability factors.
WWP Request No. 2:
Mr. Hessing states at page 10 beginning at line 6 of his direct testimony that:
“Even with deferred accounting approved, changes in approved methodology cannot be appropriately applied going back in time.”
Mr. Hessing states at page 15 beginning at line 13 of his direct testimony that:
“In Water Power’s existing PCA, deferred accounting is approved.  This has allowed the correction of errors or omissions in accounting entries after the fact. However, correcting for over deferral for rebate based on any alternative method discussed in this case involves a substantial change in PCA methodology.  This is not appropriately done for past time periods and is not appropriate to consider in this case.”
On September 25, 1997, WWP in Case No. WWP-E-97-10 filed a petition regarding the exclusion of Palo Verde trading from the secondary price calculation used in determining monthly PCA deferrals.  The Commission approved the exclusion of Palo Verde trading from the secondary price calculation by Order No. 27202 dated November 4, 1997.  At page 2 of the order the Commission stated:  “We find that the trading engaged in by the Company at Palo Verde was never envisioned when the PCA methodology was established and it is reasonable to exclude same from PCA secondary price calculations.”  An adjustment to the PCA deferral account for past time periods was made for the exclusion of Palo Verde trading.
Request 2(a):
Please explain whether or not the heavy load/light load hydro generation pricing problem was envisioned when the PCA methodology was established.
Response to 2(a):
I do not believe that it was.
Request 2(b):
Please explain whether or not problems created by the 80%/20% adjustment were envisioned when the PCA methodology was established, specifically liquidity and efficiency of the energy markets limiting the ability of the company to influence price and changes in how river flows are managed.
Response to 2(b):
I do not believe that the changes that have occurred in the energy markets or in river management were envisioned when the PCA methodology was established ten years ago.  Certainly Washington Water Power has less price control in the secondary energy market now than it did then.  The 80%/20% adjustment in the case that established the PCA was justified on the basis of the amount of price control Water Power had in the northwest. If the “problems” the Company mentions stem from the loss of this control, I agree that the methodology should be reevaluated.       
Request to 2(c):
Please identify and explain how you would catagorize or define the type of change in PCA mechanism that resulted from the exclusion of Palo Verde trading in the secondary price calculation.
Response to 2(c):
The effects of speculative trading at Palo Verde crept into the PCA mechanism and affected the calculation of the weighted average secondary price.  The Commissions approval of Water Power’s PCA mechanism was without this kind of trading in that it did not exist at the time the PCA was approved nor was it contemplated or discussed.  The exclusion of Palo Verde trading from the calculation of weighted average secondary price returned that price calculation methodology to what it was when the Commission issued its order.  By allowing the Company to recapture the difference in deferrals caused by Palo Verde trading, the Commission corrected for the deviation from the approved methodology.  The Palo Verde trading problem correction was not a change in approved PCA methodology but a return to approved PCA methodology.
Request 2(d):
Please identify and explain how you would catagorize or define the type of change in the PCA mechanism that would result from correcting the heavy load/light load hydro generation pricing problem.
Response to 2(d):
Correcting the heavy load/light load hydro generation pricing problem requires a new, or at least substantially changed, PCA methodology.
Request 2(e):
If you categorize the heavy load/light load hydro generation pricing problem differently than you categorize the exclusion of Palo Verde trading, please explain the differences between the two problem and how you arrived at a different categorization for each.
Response to 2(e):
The Palo Verde trading problem was corrected by returning to the Commission approved PCA methodology and adjusting the deferral account.  Any correction for a heavy load/light load hydro generation pricing problem requires a change to Commission approved PCA methodology.
Request 2(f):
Please identify and explain how you would categorize or define the type of change in the PCA mechanism that would result from correcting the 80%/20% adjustment problem.
Response to 2(f):
Removal of the 80%/20% adjustment would constitute a change from Commission ordered PCA methodology.
Request 2(g):
If you catagorize the 80%/20% adjustment problem differently than you categorize the exclusion of Palo Verde trading, please explain the differences between the two problems and how you arrived at a different categorization for each.
Response to 2(g):
The Palo Verde trading problem was corrected by returning to the Commission approved PCA methodology and adjusting the deferral account.  Removal of the 80%/20% adjustment used in the calculation of the weighted average secondary price constitutes a change from the Commission ordered PCA methodology.
Request 2(h):
If you categorize the 80%/20% adjustment problem differently than you categorize the heavy load/light load hydro generation pricing problem, please explain the differences between the two problems and how you arrived at a different categorization for each.
Response to 2(h):
I catagorize them both the same.  To the extent that they are problems, they both require changes to Commission approved methodology to fix.
Request 2(i):
Please identify the specific PCA rules that would not allow an adjustment for past time periods for a correction of the heavy load/light load hydro generation pricing problem.
Response to 2(i):
There is no “specific PCA rule” that precludes adjustments for past time periods.
Request 2(j):
Please identify the specific PCA rules that would not allow an adjustment for past time periods for a correction of the 80%/20% adjustment problem.
Response to 2(j):
There are no “specific PCA rules” that preclude adjustments for past time periods.
Request 2(k):
If you are unable to identify specific PCA rules that would not allow adjustments for past time periods, please state and explain your opinion on whether or not the Commission could allow adjustments for past time periods in this case.
Response to 2(k):
The Commission cannot allow adjustments for past time periods, even when deferred accounting is approved, if the calculation of those adjustments relies upon a methodology other than that approved for deferred accounting.  Deferred accounting is not globally approved for all possible PCA applications, it is only approved for the specific methodology established by the Commission.
WWP Request No. 3:
Mr. Hessing states at page 3 beginning at line 10 of his direct testimony that:
“The Commission Staff also believed that a PCA would bring equity to the situation where the Company had been allowed to surcharge its customers to maintain its financial ratings in extremely poor water years but did not return excess earnings for extremely good water years.”
Request 3(a):
Would the Staff agree to terminate the PCA if the Company were not allowed to surcharge its customers in extremely poor water years?  Please explain why or why not.
Response to 3(a):
Staff believes that such an agreement may not always be in the best interest of customers.  If there were no PCA and the Company was precluded from requesting a surcharge, an extremely poor water year could cause a down grade in the Company’s bond rating which could cost customers more than a single year surcharge designed to prevent the down grade.  Staff believes it to be in everyone’s best interest to continue a properly designed PCA.
WWP Request No. 4:
Mr. Hessing states at page 9 beginning at line 4 of his direct testimony that:
“First, the traditional PCA calculation price, the “Weighted Average Secondary Price”, is based on 80% of the difference between actual and base as specified by Commission Order, while the “fix” calculation is based on full market price.”
Request 4(a):
Please identify the differences between the “Weighted Average Secondary Price” used in the traditional PCA calculation and the full market price used in the company’s “fix.”
Response to 4(a):
The calculation of the weighted average secondary price is as shown on Staff  Exhibit 101 page 5 of 5.  The results of that calculation methodology are shown on line 21 for the various months of 1997. The methodology begins with the calculation of the average monthly market price experienced by the Company.  That market price is then compared to the base price and 80% of difference is added back to the base to obtain the results on line 21 that are used in the remaining PCA calculations.
The Company’s calculations for 1997 are shown on Company Exhibit 1.  Line 35 shows the difference between the average heavy load hour and the average light load hour price.  My understanding of these two prices is that they are monthly average market clearing prices for the two separate conditions from the Company’s records.
The main difference in the prices, other than the hours that they average the price over, is that the order establishing the traditional PCA methodology required an 80%/20% sharing of the difference between authorized and actual which is included in the calculation of the weighted average secondary price and is not included in the “fix” calculations.
Request 4(b):
Please explain how any differences between the “Weighted Average Secondary Price” in the traditional PCA calculation and the secondary price in the company’s “fix” might change the value of the adjustment calculated by the company’s “fix.”
Response to 4(b):
If the secondary price used in the Company’s “fix” were to conform to the 80%/20% split required by the Commission between the authorized base and the actual market prices experienced, the value of the adjustment would be different.  It is inconsistent to allow the price calculation to be done one way in the traditional PCA and another way in the “fix”.
WWP Request No. 5:
Mr. Hessing states at page 9 beginning at line 8 of his direct testimony that:
“The second incompatibility between the “fix” and the existing PCA is that the fix always sells above normal hydro generation, or the same amount of some other resource that is displaced by the additional hydro, at the market price while the PCA dispatches Company resources to meet load and to make sales and purchases.  In the existing PCA process, above normal hydro generation most often goes to meet load which can eliminate purchases or displace other Company resources.  Displaced resources can then be sold or not run depending on the weighted average secondary price.”
Request 5(a):
Please explain how the company’s “fix” changes how company resources are dispatched in the existing PCA process to meet load or to make sales and purchases.
Response to 5(a):
The traditional PCA uses actual hydro generation and calculated weighted average secondary price to dispatch available resources to meet the Company’s loads and obligations.  From that dispatch power supply costs are determined.  When water conditions are above normal, additional hydro generation goes first to meet load, and once load is met, the remainder of the energy is sold at the weighted average secondary price.  My understanding of the “fix” proposed by the Company, is that above normal hydro generation is split into heavy load and light load components and sold at market price.  Since no consideration is given to the fact that in most cases the traditional PCA has already assigned that same excess hydro power to meet load, I say that the fix is a different dispatch or a redispatch of this above normal hydro.  The problem that I see is that the traditional PCA calculations assume one dispatch of resources and the calculations that I call the Company’s “fix” assumes a different dispatch of the same resources.
Request 5(b):
Please explain how the heavy/light load hour shape of the hydro generation might affect how company resources are dispatched.
Response to 5(b):
At any given point in time, during heavy load hours or light load hours, the amount of hydro generation affects the dispatch decisions for all other resources.  The amount of hydro generation at any given point in time is the result of the Company’s efforts to shape its hydro.  In general, more hydro generation in a given time period reduces fuel costs and purchase power expenses and increases secondary sales revenues.  Less hydro generation does the opposite.  This is true in heavy load hour periods, light load hour periods or average months.
DATED at Boise, Idaho, this              day of October 1998.
______________________________________
Scott Woodbury
Deputy Attorney General
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