20050712_1261.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:KIRA DALE PFISTERER
DATE:JULY 8, 2005
RE:APPLICATION OF IDAHO POWER COMPANY FOR BLANKET
AUTHORITY TO SELL AIR EMISSION ALLOWANCES AND FOR AN
ACCOUNTING ORDER. CASE NO. IPC-05-20.
On June 9, 2005, Idaho Power Company filed an Application with the Commission
for (1) blanket authority to sell surplus sulfur dioxide ("S02") allowances obtained by the
Company under the provisions of the Federal Clean Air Act Amendments of 1990; and (2) an
accounting order to provide for recording any sale(s) of such allowances.
BACKGROUND
Title IV of the Clean Air Act Amendments of 1990 establishes a national program for
the reduction of acid rain. 42 USCA ~~ 7651 et seq. The centerpiece of the Title IV acid rain
program is the incentive- or market-based
, "
cap and trade" S02 emission program. Under the
cap and trade program, the Environmental Protection Agency (EP A) sets a cap or ceiling on the
total amount of S02 emissions allowed nationwide. The EP A then allocates this amount among
utility generating units through annual emissions allowances. Each allowance provides the
authority to emit one ton of S02.
The EP closely monitors the emissions of each utility generating unit to ensure
compliance with the program. A utility that emits less S02 than its annual emissions allowances
in a given year may save the surplus allowances or trade them in the open market or through
EP A-sponsored auctions. A utility that holds insufficient allowances to cover its annual
emissions is automatically fined and must surrender future year allowances to cover the shortfall.
The theory behind the "cap and trade" system is that it ensures environmental quality while
preserving free choice and creating market incentives to reduce emissions.
DECISION MEMORANDUM
THE APPLICATION
Idaho Power has an ownership interest in five thermal power plants in the western
United States. Three of these power plants are coal fired and receive allocations of S02
allowances from the EPA. These plants are: (1) Jim Bridger Units 1 through 4 (113 interest); (2)
North Valmy Units 1 and 2 (112 interest); and (3) Boardman (1110 interest). Idaho Power
believes that, after retaining sufficient allowances, including a reasonable cushion for change and
contingencies, it can make surplus S02 allowances available for sale. However, in order to
effectively participate in the S02 allowance trading market, Idaho Power must have regulatory
approval prior to the sale(s). In addition, Idaho Power seeks an accounting order to track the
potential proceeds from any such sale(s).
In this Petition, Idaho Power does not seek a Commission decision regarding how the
revenue from an S02 allowance sale shall be treated; the Company simply seeks the authority to
sell and to track the revenues obtained through any potential sale of the S02 allowances. The
Company anticipates a subsequent filing in the near future to address the issue of how to treat the
revenue obtained from the future sale of S02 allowances.
STAFF RECOMMENDATION
Staff recommends that the Petition be processed under Modified Procedure with a 21-
day comment period.
COMMISSION DECISION
Should Idaho Power Company s Application for blanket authority to sell S02
allowances and an accounting order to provide for recording any sale( s) of such allowances be
processed under Modified Procedure with a 21-day comment period?
rfJ. If-
Kira Dale Pfi,terer
M:IPCEO520 kdp
DECISION MEMORANDUM