20080903IPUC Exceptions Brief.pdf

UNITED STATES OF AMERICA
S. DEPARTMENT OF ENERGY
BEFORE THE
BONNEVILLE POWER ADMINISTRATION
2007 SUPPLEMENTAL WHOLESALE
POWER RATE ADJUSTMENT PROCEEDING ) BP A DOCKET WP-07 SUPP
BRIEF ON EXCEPTIONS
OF THE
IDAHO PUBLIC UTILITIES COMMISSION
Filed: September 3, 2008 WP-07-ID-
BRIEF ON EXCEPTIONS
OF THE
IDAHO PUBLIC UTILITIES COMMISSION
T ABLE OF CONTENTS
RETROACTIVE RA TEMAKING ISSUES .............................................................................. 1
1. BPA is not Exempt from the Rule Against Retroactive Ratemaking ................................
2. BPA's Lookback Approach is Retroactive in Nature Because it Seeks to Extract REP
Benefit Amounts Already Awarded to its IOU Customers ...............................................
3. The IOUs did not have Adequate Notice that Their Benefits under the REP were Subject
to Change...........................................................................................................................
4. The WP-02 Rates were "Final Rates" Because They were Declared Final by FERC ...... 8
ISSUES ASSOCIATED WITH THE DEEMER MECHANISM............................................. 9
1. Idaho Power s "Reconstructed REP Benefits" .................................................................. 9
2. Draft Decision Issue No 1 , ~ 8.11.................................................................................... 10
3. Final Determination of Disputed Deemer Issues .............................................................
4. Calculation of the Deemer Balances................................................................................
5. Compound Interest for Avista after 1993 ........................................................................
INTEREST ON THE LOOKBACK AMOUNTS.................................................................... 15
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
UNITED STATES OF AMERICA
S. DEPARTMENT OF ENERGY
BEFORE THE
BONNEVILLE POWER ADMINISTRATION
2007 SUPPLEMENTAL WHOLESALE
POWER RATE ADJUSTMENT PROCEEDING ) BP A DOCKET WP-07 SUPP
BRIEF ON EXCEPTIONS
OF THE
IDAHO PUBLIC UTILITIES COMMISSION
RETROACTIVE RA TEMAKING ISSUES
1. BP A is not Exempt from the Rule Against Retroactive Ratemaking. BP A has
boldly proclaimed in the Draft ROD that, as a Power Marketing Administration ("PMA"), it is
absolutely exempt from the well-settled restrictions ofthe filed-rate doctrine and the rule against
retroactive ratemaking. DROD1 at 17, 21-, and 34-38. In support of this claim, BPA cites
several cases, including Central Electric Power Cooperative, Inc. v. Southeastern Power
Administration (SEPA), 338 F.3d 333 (4th Cir. 2003), where courts have allowed federal PMAs
to "recover revenue shortages incurred during prior rate periods.Id. at 335. However, BPA has
conveniently failed to mention that the exemptions contained in these court decisions2 have all
been premised upon the presence of unanticipated additional costs leading to revenue shortages.
In Central Electric the Fourth Circuit Court ruled that SEP A did not act in an
arbitrary and capricious manner when it asked its preference customers to either amend their
I The Draft Record of Decision is designated as WP-07-03. For citation purposes, the Draft ROD is cited in this
Brief as "DROD.
See also Southeastern Power Admin.49 F.C. ~ 62 109 (1989); Southeastern Power Admin.55 F.c. ~
016 (1981); Southwestern Power Admin.18 F.C. ~ 61 052 (1982); Southeastern Power Admin.23 F.
~ 61 403 (1983).
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
fixed-rates" contracts with SEP A or pay a "surcharge" in the next rate period in order to recover
unexpected revenue shortfalls.Id. at 337-38. SEPA was able to secure the assent of 168 out
of 174 of its preference customers to modify their contracts with the federal agency and
immediately pay an increased "short-term" rate to recover their portion of the revenue shortfall.
Id. at 336. SEP A then added a surcharge in the next rate filing to those preference customers
who previously declined to modify their contracts to recover the portion of the revenue shortage
attributable to them. Id. The non-agreeing preference customers protested and asserted inter
alia that the surcharge was discriminatory and constituted retroactive ratemaking. Id.
Ultimately, SEP A was permitted to deviate from the rate schedule designated in its
power supply contracts because a "severe drought" created river conditions that "forced SEP A to
make separate power purchases in order to honor its power supply contracts.Central Electric
338 F.3d at 335.3 "These extra power purchases in turn caused SEPA to incur costs exceeding
those contemplated by (SEP A's 1985-1990) rate schedule.Id.
In contrast, BP A is not seeking, in this Section 7(i) rate proceeding, to impose a
surcharge" in order to recover certain unanticipated costs but rather it has proposed a full-scale
recalculation of the REP benefits already awarded to IOUs during the 2002-2006 rate period as
part of its WP-07 supplemental proposal. DROD at 15. The Lookback approach, developed in
3 Similarly, in Southeastern Power Admin.55 F.C. ~~ 61016 61045 (1991), SErA was permitted to modify its
rates retroactively in order to "meet its cost of providing service" and rectify its "revenue shortfall" which occurred
as the result of a prolonged drought that affected its ability to deliver hydroelectric power to its customers. Jd.
Oxx. SErA approached its customers with a proposal to raise its rates prospectively, even though "Southeastern
contracts with its customers limited its ability to adjust rates until the end of the then-existing five year rate approval
period.Id. at 61 Oxx (emphasis added). The factual record shows that 167 out of 173 of SErA's customers
consented and allowed SErA to breach this provision of the contract. Id. at 61 Oxx. SErA then proceeded to
increase its rates yearly to recover its costs of providing service. I d.
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
response to the Ninth Circuit's PGE and Golden Northwest decisions 4 is unrelated to its duty
under the Flood Control Act of "recovering revenue shortages.Central Electric 338 F.3d at
337.Instead of recovering revenue shortfalls, BP A's actions are concerned solely with
extracting past REP benefit amounts already awarded to its IOU customers and reapportioning
them amongst its preference customers. Id.
In addition, BPA's Lookback approach does not coincide with any demonstrated need
by BP A "to ensure recovery of both costs of producing power and (recovering) the Federal
investment" Southeastern Power Admin., 55 F.C. ~~ 61016 61045 (1991). BPA does not
labor, as SEPA did, under a revenue shortage or revenue shortfalLS BPA has not suddenly been
presented with unanticipated or additional costs associated with the 2000 REP Settlement
Agreements for which BP A must recover or risk not being able to make its Treasury Payment on
time.In fact assuming arguendo that BP A's interpretation of the Ninth Circuit's remand
instructions in PGE and Golden Northwest is an accurate one, those decisions merely invalidate
BPA's determination of which customer group should bear those costs. See DROD at 15 citing
PGE 501 F.3d at 1009.
BP A cannot be heard to argue that its actions fall under the mandate found in Section
5 of the Flood Control Act of 1944 "to protect the public fisc" while it currently possesses $1.
billion in its reserve account going into FY 2009, $1.031 billion of which represents reserves
available for risk. DROD at 24 264-65 quoting Us. v. City of Fulton 475 u.S. 657, 668 (1986);
see also 16 U.C. ~ 825s. This reserve amount, available for risk, is set aside in order to ensure
Portland Gen. Elec. Co. v. BPA ("PGE'
),
501 F.3d 1009 (9th Cir. 2007), cert. denied - U.S. (2008); Golden
Northwest Aluminum Inc. v. BPA ("Golden Northwest'
),
501 F.3d 1037 (9th Cir. 2007), cert. denied sub nom. PGE
- U.(2008).
5 The terms "revenue shortage" and "revenue shortfall" appear in the Draft ROD on pages 24-, 45, and only in
the context of the cases cited by BPA.
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
that BPA meets its one-year Treasury Payment Probability (TPP) Standard goal of97.5%. Thus
it is clear BP A's actions in this case could not be more factually inapposite to the scenario
presented in the aforementioned SEP A cases.
In summary, the Flood Control Act does not represent an absolute shield against the
application of the rule against retroactive ratemaking. PMAs can avail themselves of this
protection only in cases where they propose to implement rates that are the "lowest possible
consistent with sound business principles and will generate sufficient revenues to pay the cost of
producing the power and repay the Federal investment with interest in a timely manner." 55
C. at ~ 6l xxx. BPA's predicament (i., the proper allocation of the 2000 REP Settlement
Agreement costs) is of its own making and does not require that it collect additional revenues in
order to meet those costs. Thus, BP A does not merit the protection of the Flood Control Act for
its otherwise impermissible retroactive remedy.
2. BPA's Lookback Approach is Retroactive in Nature Because it Seeks to Extract
REP Benefit Amounts Already Awarded to its IOU Customers . BPA's argument in the Draft
ROD that the "Lookback Proposal does not have retroactive effect, in the legal sense, because it
does not 'render unlawful. . . an act lawful at the time it was done'" is disingenuous. DROD at
28 quoting Ralis v. RFE/FL Inc.770 F.2d 1121 1127 (D.C. Cir. 1985). BPA readily admits in
its Draft ROD that its interpretation of the PGE and Golden Northwest decisions compels it to
institute "some sort of retrospective relief." DROD at 22 (emphasis added). It is difficult to
fathom how BP A can admit on one hand that it has fashioned a retrospective remedy and argue
on the other that said remedy "does not have a retroactive effect." Id. at 28.
Equally vexing is BP A's argument that the 2000 REP Settlement Agreements with
the IOUs are "void ab initio and thus
, "
in legal terms , no past transaction or consideration to
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
which a new duty or disability could attach.Id. at 28. Neither the PGE nor the Golden
Northwest decision contained any language suggesting that the Ninth Circuit had voided the
2000 Settlement Agreements. The Court certainly had the opportunity to do so. Instead, the
Ninth Circuit chose to simply grant the petitions , rule that the "settlement agreements entered
into between BP A and the IOUs are inconsistent with the NWP A " and remand the case with an
instruction that BPA "set rates in accordance with this opinion.Golden Northwest 501 F.3d at
1053; PGE 501 F.3d at 1037.
BP A's actions (e.g. recalculating and reapportioning past REP benefits in response to
the Ninth Circuit decisions) are retrospective/retroactive in nature. BP A can adhere to the rule
against retroactive rulemaking and comply with the remand order. The two mandates are not
mutually exclusive.
3. The IOUs did not have Adequate Notice that Their Benefits under the REP were
Subject to Change. In order to justify its Lookback approach, BP A has been forced to argue that
the WP-02 rates were not final because they were subject to a "timely challenge" after FERC'
approval. This argument flies in the face of both Commission rules of procedure and established
precedent. The case cited by BPA Exxon Co., Us.A. v. FERC 182 F.3d 30, 49 (D.C. Cir.
1999), in support of this contention can easily be distinguished from the WP-02 rate proceeding
by simply reviewing the extensive remand history of the case.
In Exxon the parties were deemed "on adequate notice that some specific issue may
cause a later adjustment to the rate collected" because the D.C. Circuit had remanded the case
and "in response to the (Court's) opinion, FERC initiated settlement proceedings regarding these
remanded issues.Id. at 36 quoting Natural Gas Clearinghouse v. FERC, 965 F.2d 1066, 1075
(D.c. Cir. 1992).
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
The Circuit Court reiterated that "the goals of equity and predictability are not
undermined when the Commission warns all parties involved that a change in rates is only
tentative and might be disallowed.Id. quoting OXY, USA Inc. v. FERC 64 F.3d 679, 699 (D.
Cir. 1995). The Court ultimately vacated the Commission s decision to implement the parties
settlement on a prospective basis only and remanded the case for further proceedings. Id. at 34.
The Court held that a retroactive application was warranted because the parties lacked any
reasonable and detrimental reliance" and FERC failed to offer an "adequate explanation" as to
why it declined to make the effective date of its valuation method and rate adjustments
retroactive. Id. at 50.
Contrary to the parties in the cases cited in BPA's Draft ROD, the IOUs and their
small farm and residential customers, and the state utility commissions received no such warning
and thus lacked "adequate notice" that the WP-02 rates were subject to change. The approval of
the WP-02 rates by the Commission allowed these parties to reasonably rely that they would be
effective and, in fact, the rates remained effective throughout their term and eventually expired in
2006. Additionally, the parties were not involved in an ongoing settlement of any issues
pertaining to the WP-02 rates, much less a remand order and subsequent proceeding.
BPA's reliance upon Natural Gas Clearinghouse v. FERC 965 F.2d 1066 (D.C. Cir.
1992) is also misplaced because the case is clearly distinguishable upon its facts.
Clearinghouse FERC allowed retroactive surcharges as an exception to the filed-rate doctrine.
As the u.S. Supreme Court has acknowledged, the filed-rate doctrine "forbids a regulatory entity
to charge rates for its services other than those properly filed with the appropriate federal
regulatory authority.Arkansas Louisiana Gas Co. v. Hall 453 U.S. 571 , 577, 101 S.Ct. 2925
2930 (1981). The Court in Clearinghouse noted that the case illustrated one of the exemptions to
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
the filed-rate doctrine in that the parties had noticed that FERC approved tariffs "subject to" a
pending appeal before the Court.Clearinghouse 965 F.2d at 1075.In the underlying
administrative case FERC approved tariff rates that were subject to the outcome of (the
applicant s rate J proceeding and, accordingly, will require that the rates proposed here be
subject to the outcome of those proceedings.Id. at 1076 (emphasis original). The Circuit Court
found that the "filed rate doctrine simply does not extend to cases in which buyers are on
adequate notice that resolution of some specific issue may cause a later adjustment to the rate
being collected at the time of service.Id. In other words, the parties were clearly on notice that
the rates could be subsequently adjusted depending on the outcome of the pending proceeding.
The facts of the current BP A proceeding are precisely inapposite. The rates in the
WP-02 case became final when FERC granted "final approval of the WP-02 rates on July 21
2003." WP-07-BPA-53 at 6 (emphasis added). The WP-02 rates expired September 30, 2006
(about six months before the germane Ninth Circuit opinions in this case). The WP-02 rates
were superseded by the WP-07 rates which received interim approval by FERC on September
, 2006. 116 FERC Rec. ~ 61 264 (2006). Parties to this case had no notice that the rates were
not "final" because no party sought a stay of the WP-02 rates. 5 u.S.C. ~ 705 (a court may
preserve status or rights pending conclusion of the Oudicial) review proceedings
);
see also
RA.P. 18 (stay pending appellate review).
In addition, the terms of the REP Settlement Agreements further support that the
parties - BP A and the individual IOUs - did not anticipate the rates were subject to future
change or repayment. Indeed, the REP Settlement Agreements provided:
In the event the United States Court of Appeals for the Ninth Circuit
finally determines, after all appeals and requests for reconsideration, that the
Settlement Agreement (or payment of monetary benefits under the Settlement
Agreement) is unlawful, void, or unenforceable, then: . . . (B) the Parties
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
hereby agree that the provisions of section 3(a) above shall be of no further
force or effect. In the event of the court's final determination the Parties
intend and agree that: (1) the cash payments pursuant to section 4 of this
Agreement and the Monetary Benefits provided under the Settlement
Agreement provided prior to such final determination shall be retained by (the
IOUl;and (2) the satisfaction of BPA's obligation to (the IOU) under section
5(c) of the Northwest Power Act prior to such final determination shall be
preserved, to the maximum extent permitted by law.
REP Settlement Agreement ~ 3(b)(1 & 2) (emphasis added). Clearly, both BPA and the IOUs
executing the REP Settlement Agreements did not contemplate that any legal challenge would
necessitate a change in rates. In fact, their Agreements contemplated that the IOUs "shall retain
previous cash payments. There is no mention of a future offset, correction, or repayment.
4. The WP-02 Rates were "Final Rates" Because They were Declared Final by
FERC . BP A strains credulity when it argues that the expired WP-02 rates never qualified as
final rates" because they were "never affirmed by a Court." DROD at 124. BPA purports to
make a distinction between what it refers to as "final rates" and "final actions under Section 9(
of the Northwest Power Act." Id. at 26-27.6 However, BP A cites no legal authority establishing
this novel and legalistic distinction. Its argument that BP A rates that receive Commission
approval are not final unless and until they are affirmed by a court of law is disingenuous and
would lead to an illogical result.
Despite the paucity of law to support BP A's claim of a distinction, a wealth of
precedent and statutory guidance see 16 u.S.C. ~ 839f(e)(4)(D), exists defining when BPA rates
become final. Congress has granted FERC final confirmation and approval authority over BP
rates submitted for approval under section 7(a) of the Northwest Power Act. See 16 u.S.C. ~
6 Implicit in
this ultra-fine distinction is the tacit acknowledgement by BP A that the submission of its WP-02 rates
qualified as a "final action.
For example, if BPA's rate submissions to FERC under Section 7(a) of the NWPA are never challenged or
appealed to the Ninth Circuit does that mean that these rates are never fmal?
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83ge(i); 16 U.C. ~ 839f(e)(4)(D)("rate determinations pursuant to section 7 shall be deemed
final upon confirmation and approval by (FERCJ. ")( emphasis added); see also 18 c.F .R. ~
300.21.
In Fulton the Supreme Court found that a PMA's interim rates were final after the
assistant secretary submitted the "proposed rates to FERC for final confirmation and approval."
Fulton 475 U.S. at 663. "A 'final action' under the Regional Act exists when a decision made
by the BP A is not subject to any further review by the BP A or the Federal Energy Regulatory
Commission (FERC).City of Seattle v. Johnson 813 F.2d 1364 1367 (9th Cir. 1987).
ISSUES ASSOCIATED WITH THE DEEMER MECHANISM
1. Idaho Power s "Reconstructed REP Benefits " On page 177 in the last paragraph
the Draft ROD states "BPA's Lookback calculations indicate that Idaho Power has zero
reconstructed REP benefits ' over FY 2002-2008." DROD at 177 (emphasis added); see also
Draft Table 15.1.14. However, the "Workshop_082708 REP" Excel spreadsheet (Tab "2002-
06 REP") provided to the parties by BP A via e-mail on August 28, 2008 shows that Idaho
Power s reconstructed ASC for FY 2002 is higher than the PF Exchange rate for the same year.
Although the spreadsheet does not indicate a REP benefit for Idaho Power in 2002, performing
the calculation using the data on BP A's spreadsheet results in a reconstructed REP benefit for
Idaho Power in FY 2002 of about $9.574 million, as shown below.
Idaho Power ACS $44.
PF Exchange Rate 43.
1.47
Residential Load 512,942
REP Benefit = $9.574 million
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Consequently, it is incorrect to assert that the Lookback "calculations indicate that Idaho Power
has zero 'reconstructed REP benefits' for FY 2002-2008.DROD at 177.
BP A may assume that Idaho Power would not participate in the REP and sign the
2000 RPSA "due to its large deemer balance and relatively low ASC.DROD at 175. However
none of the six IOUs signed a RPSA in 2000 because they all (including Idaho Power) executed
REP Settlement Agreements. In this instance, it is reasonable and fair to credit Idaho Power
deemer balance in draft Table 15.3 (Column D) with the projected $9.574 million REP payment
for FY 2002. This is consistent with BPA's policy guidance to staff and the Draft ROD that
states "reconstructed REP benefits are first applied to reduce a utility s deemer balance each year
until the deemer balance is exhausted.DROD at 174; WP-07-BPA-52 at 14. In addition, the
calculated "Settlement Payments (Idaho Power) would receive" in draft Table 15., line 3
columns J and K, should also be applied to any deemer balance of Idaho Power. Alternatively,
BPA should credit Idaho Power s 2002 REP benefits and the 2007-2008 settlement payments to
Idaho Power s Lookback amount. Draft Table 15.1.19, col. L.
2. Draft Decision Issue No 1, & 8.. On page 179 of the Draft ROD, the "Draft
Decision" on Issue No.1 states "BPA will reflect the Deemer Balances as of October 1 , 2001
and the provisions of the 2000 RPSAs in the calculation of the IOUs' Lookback amounts and FY
2009 rates." DROD at 179 (emphasis added). The reference to the "2000 RPSAs" should be
removed from this Draft Decision because it is irrelevant. None of the IOUs executed a 2000
RPSA - they all entered into REP Settlement Agreements.
On page 177 of the Draft ROD, BP A also observed that no party opposed the deemer
mechanism on grounds that it was not authorized by the Northwest Power Act. However, Avista
noted in its 2000 RPSA comments that "there is no mention of a deemer account in the
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
Northwest Power Act." 2000 RPSA ROD at 52. The "provisions of the 2000 RPSAs" have no
bearing on the calculation of any deemer balance and the phrase should be removed from the
Draft Decision on page 179.
3. Final Determination of Disputed Deemer Issues . The Draft ROD states on page
179 that BP A's "decisions in this proceeding do not constitute final determination of disputed
deemer issues. . . .DROD at 179. BP A makes similar assertions in other parts of Section 8.
(Issues Associated with Deemer Balances). Id. at 176, 178. Despite BP A's assertions that it is
not making "final" determinations, it nevertheless is making determinations which affect the
calculation of the deemer balances and Lookback amounts. More specifically, in draft Table
15., lines 5 and 25 , BPA has applied REP benefits to deemer accounts. Line 65 of draft Table
15.3 indicates that BPA applied $76.51 million of the reconstructed REP benefits between FY
2002 and 2007 to Avista s and Northwestern s Lookback amounts. In addition, BPA applied
$34.02 million for FY 2008, for a total of $110.53 million for "REP benefits applied to Deemer
Account." Draft Table 15.1.65 , col. K&L. The application of calculated REP benefits to the
deemer accounts has the effect of reducing BPA's cash outlay for REP benefits in the region by
$121. 96 million, or 10% of total REP benefits. In light of the continuing dispute over the
legality and calculation of the deemer amounts discussed above, the proposed application of such
a significant amount, $121. 96 million, to the deemers in this rate case raises serious concerns.
Although BP A insists that it is only making "assumptions" about the deemers, its
calculation concerning the deemer offset has monetary consequences to A vista and
Northwestern, as well as for Idaho Power in FY 2002 discussed above. These actions constitute
final decisions. The mere possibility that BP A might discuss the merits of the deemer issues in
future "negotiations, other processes or litigation" does not transform BPA's final ratemaking
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
decisions in this proceeding to non-final decisions. R Public Power Agency v. BP A 297
3d 833 , 840 (9th Cir. 2002). Although the Idaho PUC stands ready to engage in serious
negotiations regarding deemer issues , these issues have remained unresolved for more than two
decades. The public interest requires that the deemer issues finally be resolved.
4. Calculation of the Deemer Balances. In the Draft ROD, BP A asserts that it used
the deemer balances cited in the respective Suspension Agreements to calculate its assumptions
about the current deemer balances for Idaho Power and A vista for inclusion in their Lookback
amounts. DROD at 182-83. More specifically, the Draft ROD states that "A vista and Idaho
Power agreed to the existing deemer balances. . .. In view of these undisputed facts, BP A does
not believe it is arbitrary to base its deemer balances assumptions on terms and conditions that
were voluntarily agreed to. . . .Id. at 184 (emphasis added). However, when that section of the
Suspension Agreement is read in its entirety, what is undisputed is that the parties agreed to
disagree on the deemer balances. While the Idaho PUC recognizes that the two Suspension
Agreements contain specific deemer amounts, BP A has overstated the validity of the calculations
and failed to acknowledge that neither party - both BP A and A vista/Idaho Power - consented to
the manner in which the amounts were calculated. The very same section of the Agreements
quoted in the Draft ROD at page 183 goes on to state:
Notwithstanding the parties ' agreement to the aforementioned deemer
account balances, which is a compromise neither party, by entering into this
Suspension Agreement shall be deemed to have in any way approved,
accepted, or consented to the facts, principal methods, or theories employed
by either party in arriving at the stated balances for each jurisdiction of the
deemer account as of July 31 , 1988.
Suspension Agreement at ~ 4, E- ID-A T6 and A T7 (emphasis added). Thus, the expressed
provisions of the Suspension Agreements undercut BP A's unconditioned reliance on the
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
specified deemer amounts. Moreover, BP A witnesses were unable at the hearing to substantiate
the calculation or derivation of the cited deemer balances. TE, Vol. I, p. 137, 11.1-
5. Compound Interest for A vista after 1993 . On page 185 of the Draft ROD, BP A
argues that the record "strongly supports applying compound interest to both the deemer
balances of Avista and Idaho Power" after they terminated their RPSAs in 1993. DROD at 185
(emphasis original). Despite having acknowledged in the preceding pages of the Draft ROD that
BP A has a right to adopt different interest mechanisms in the two Suspension Agreements (i.
compound interest for Idaho Power and simple interest for A vista), BP A subsequently states that
it "could reasonably assume that compound interest was intended to apply to both A vista and
Idaho Power s deemer balances from 1993 to the present." Id. (emphasis original). In other
words, BP A suggests that it is reasonable to assume that compound interest was intended to
apply to A vista after 1993. The lack of substantial evidence in the record does not support this
assumption for three reasons.
First, it is illogical to assume that A vista would agree to increase its simple interest
set out in its 1987 Suspension Agreement to compound interest in its 1993 Termination Notice.
IPUC witness Westerfield discusses the significant monetary difference between using simple
versus compound interest to calculate the deemer balances. WP-07-ID-2-at 8-9. Why would
A vista voluntarily agree to a dramatic increase in its deemer balance by using compound interest
when it and BP A agreed to employ simple interest for the prior six years? BP A has pointed to
no substantial and competent evidence in the record which would support such an inference. The
record in this case does not support BP A's assumption that compound interest should apply to
A vista s deemer balance after 1993.
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
Second, the chronological sequence of facts does not support BP A's assumption. On
September 21 , 1993 , BP A's counsel suggested specific "compound interest" language to the
counsels for Avista and Idaho Power for inclusion in their respective Termination Notices. WP-
07-ID-ATlO. Despite this suggested language, Avista s September 29, 1993 Termination
Notice does not contain the suggested "compound interest" text or even reference Section 10 of
the RPSA. WP-07-ID-AT8. In other words, despite being supplied with BPA's preferred
language that included a compound interest provision, Avista s Termination Notice does not
contain the requested language. Given the absence of any mention of compound interest in
Avista s Termination Notice, BPA responded to Avista s Termination Notice on October 19 and
, 1993. BPA's October 19 letter to Avista states that termination of Avista s RPSA without
continuing compound interest "is unacceptable to BP A as not meeting the requirements of the
Company s RPSA and Suspension Agreement." DROD at 185 citing WP-07-ID-ATl1.
BP A did not offer and the record does not indicate that A vista replied to these letters or
consented to the inclusion of compound interest post-1993.
Finally, one day after it submitted its Termination Notice to BP A, A vista also filed a
Notice of Termination of Rate Schedule" with FERc. FERC's Notice of October 26 , 1993
invited "(a)ny person desiring to be heard or to protest said filing should file a motion to
intervene or protest with" FERC on or before November 10, 1993. WP-07-ID-AT13.
Despite the apparent dispute between Avista and BPA on the issue of compound interest post-
1993 , BPA did not comment, protest or intervene in the FERC proceeding. WP-07-ID-
A T14, at 1. BP A did not avail itself of the opportunity to address the issue in the FERC
proceeding. In addition, BP A sought no rehearing after FERC approved termination of the
Agreement. In other words, BP A simply sat on its hands and allowed the dispute to continue.
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
It is clear that this evidentiary record does not support BPA's assumption that Avista
consented to compound interest when it terminated its RPSA in 1993. Quite the opposite, A vista
rejected BPA's suggestion about the compound interest and BPA did not advise FERC of this
dispute when it had an opportunity to do so. BP A should remove the two full paragraphs and the
block quotation from page 185 of the Draft ROD.
INTEREST ON THE LOOKBACK AMOUNTS
In Section 8.10 of the Draft ROD , BPA notes that it has no duty to pay interest on the
Lookback amounts owed to the COUs. DROD at 167. Nevertheless, BPA believes that the facts
of this case warrant the payment of interest at "an inflationary rate" for FY 2002 through 2008.
Given BPA's Draft Decision to reduce the recovery period for the Lookback amounts from 20
years to 7 years, (DROD at 211), the Idaho PUC suggests that there be no interest applied to the
Lookback amounts. Accelerating the recovery of the Lookback amounts negates the need for
IOUs to pay inflationary interest. See Draft Table 15.3, n.3. Again as noted in the Draft ROD
BP A has no legal obligation to award interest at all. Id.
If BP A believes that inflationary interest payments are warranted for FY 2002-2008
the Idaho PUC suggests that this interest revenue be obtained from BPA's reserves. BPA has
calculated the inflationary interest to be $91.02 million for the period of FY 2002 to 2007. Draft
Table 15., co1. L, 11.68-69. We would recommend the same action for the post-2009 period.
See DROD ~ 8.10., at 171-73.
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-
Respectfully submitted this 3rd day of September 2008.
FOR THE IDAHO PUBLIC UTILITIES COMMISSION
D. Neil Price
Deputy Attorneys General
PO Box 83720
472 W. Washington Street (83702-5918)
Boise, ID 83720-0074
Idaho State Bar Nos. 3366 and 6864
Telephone No. [phone]
E-mail: don.howell~puc.idaho.gov
neil.price~puc.idaho.gov
N:BPA- WPO7-Supp_Exceptions Brief
IDAHO PUC BRIEF ON EXCEPTIONS WP-07-ID-