20081013IPUC Intervention and Protest.pdf

UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
BONNEVILLE POWER ADMINISTRATION
(WP-O7 SUPPLEMENTAL RATES)Docket No. EFO6-2011-002
NOTICE OF INTERVENTION AND PROTEST OF THE
IDAHO PUBLIC UTILITIES COMMISSION
The Idaho Public Utilities Commission ("Idaho PUC") files this Notice of Intervention
and Protest in response to the Federal Energy Regulatory Commission s ("Commission
September 29 2008 Notice of Filing of Bonneville Power Administration s ("BPA") proposed
FY 2009 supplemental wholesale power rates (WP-07 supplemental rates) in the above
referenced docket. BP A requests "interim and final confirmation and approval" of the proposed
WP-07 rates effective October 1 , 2008. Section 7(a)(2) of the Pacific Northwest Electric Power
Planning and Conservation Act ("Northwest Power Act" or "NP A") authorizes the Commission
to review and approve BPA's proposed WP-07 supplemental rates. 16 U.C. ~ 83ge(a)(2).
In its transmittal letter dated September 26, 2008, BP A seeks interim approval of its WP-
07 supplemental rates for FY 2009. Transmittal Letter at 1. BP A also requested in a Motion
filed concurrently with its Application that the Commission waive its administrative regulations
requiring BP A to file its rates at least 60 days prior to the requested effective date of October 1
2008.18 c.F.R. ~ 300.10(a)(3)(ii). The Idaho PUC does not object to the Commission
approving BPA's WP-07 supplemental rates on an interim basis effective October 1 , 2008
because interim rates are subject to refund pursuant to 18 C.R. ~ 300.20(c). However, the
Idaho PUC does protest the proposed rates and final decisions made by BP A which adversely
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affect BP A's calculation of the Residential Exchange Program (REP) benefits pursuant to
Section 5(c) of the Northwest Power Act. 16 US.C. ~ 83ge(c).
BP A states that its "enabling statutes underscore the importance of cost recovery as a
primary goal" and that "BPA must recover those costs through its rates." WP-07-05 at 26;
BPA-000583. To wit, the Flood Control Act mandates that federal Power Marketing
Agencies (PMAs) must implement "rate schedules. . . having regard to the recovery. . . of the
cost of producing and transmitting such electric energy, including the amortization of the capital
investment allocated to power over a reasonable period of years." 16 U.C ~ 825s.
BPA's actions in this case have dangerously imperiled its ability to meet its treasury
payment obligation. As explained more fully below, the Idaho PUC argues that BP A acted in an
arbitrary and capricious manner by submitting rates that run afoul of a fundamental principle of
ratemaking, i.e. rule against retroactive ratemaking, and by utilizing an illegal deemer
mechanism to calculate future REP benefits for Investor Owned Utilities (IOUs). If the WP-
Supplemental rate schedule is overturned then BP A will be in serious jeopardy of not being able
to forward payment to the US Treasury pursuant to its obligation to repay the federal capital
investment in the Columbia River hydroelectric system.
I. COMMUNICATIONS
All pleadings, correspondence or communications related to this proceeding should
be addressed to the following persons:
Donald L. Howell, II
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington
PO Box 83720
Boise, Idaho 83720-0074
Telephone: [phone]Fax: [phone]
IDAHO PUC INTERVENTION AND
PROTEST
Lou Ann Westerfield, Policy Strategist
Idaho Public Utilities Commission
472 West Washington
PO Box 83720
Boise, Idaho 83720-0074
Telephone: [phone]Fax: [phone]
E-mail: louann. westerfield~puc.idaho. gov
Docket No. EF06-2011-002
E-mail: don.howell~puc.idaho.gov
II. NOTICE OF INTERVENTION
Pursuant to Rule 214 of the Commission s Rules of Practice and Procedure, 18 c.F.
~ 385.214(a)(2), the Idaho PUC hereby intervenes in the above-entitled matter. The Idaho PUC
actively participated in BP A WP-07 proceeding by submitting testimony and briefs. BP A Final
Record of Decision (FROD) 1 at ix, 16-, 23 , 25, 27 et al. The Idaho PUC also regulates the
Idaho retail electric rates of A vista, Idaho Power Company and PacifiCorp - utilities that file
ASC data necessary to participate in the REP.
The Idaho rue's Notice of Intervention, Protest and Request for Hearing is timely. The
Commission s Notice of Filing set an intervention deadline of October 13 2008.
III. PROCEDURAL HISTORY OF THIS FILING
In September 2006, the Commission granted interim approval of BP A's WP-07 rates for
FY 2007-2009. WP-07-BPA-, p. 1; BPA-000583. Subsequent to that filing, BPA
discovered minor errors in the proposed rates and BP A filed a motion to stay the rates to allow
BP A to correct the errors. Id. While the stay was in effect, the Ninth Circuit issued two opinions
overturning BPA's 2000 REP Settlement Agreements. The Court also held that BPA improperly
included the costs of the REP Settlement Agreements in BPA's WP-02 wholesale power rates.
Because BP A had allocated the costs of the REP Settlement Agreements in the same fashion in
the WP-07 rates which were stayed, BP A requested and the Commission approved continuance
of the stay of the WP-07 rates.The stay allowed BP A to conduct the present WP-
supplemental rate proceeding. On September 29, 2008 , BP A filed its proposed supplemental
wholesale power rates for interim and final approval.
1 Hereinafter, BPA's Final Record of Decision will be denoted as FROD.
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IV. PROTEST
The Bonneville Power Administration (BP A) has no express legal authority to engage in
retroactive ratemaking or provide retroactive relief in this proceeding.Consistent with its
authority in Section 7 of the Northwest Power Act, BPA should only set rates prospectively. The
successful petitioners in the two circuit appeals failed to avail themselves of established stay
procedures and thus should only be accorded prospective relief.In addition, the deemer
accounting mechanism is not authorized by the Northwest Power Act and deemer balances
should not be included in the "Lookback" mechanism. Consequently, the Administrator should
reject the Lookback mechanism as unlawful , arbitrary, and not in conformance with sound
ratemaking principles.
BACKGROUND
A. The Ninth Circuit Opinions
On May 3 , 2007, the United States Court of Appeals for the Ninth Circuit issued two
opinions in consolidated appeals challenging BPA's Residential Exchange Program (REP)
Settlement Agreements and certain rates in BPA's WP-02 Wholesale Rate proceeding.
Portland General Electric Co. v. Bonneville Power Admin. ("PGE"
),
501 F.3d 1009 (9th Cir.
2007), cert. denied US. -' 128 S.Ct. 2902 (2008), the Court held that BPA's REP
Settlement Agreements with the six regional investor-owned utilities (IOUs) were contrary to the
Northwest Power Act, 16 U.C. ~~ 839-839h. The Court also held that BPA improperly
included these "settlement costs" in the rates paid by preference customers in violation of
Section 7(b)(2) and (3) of the Northwest Power Act, 16 U.C. ~ 83ge(b)(2) and (3). PGE 501
3d at 1036. The Court held "that BPA was bound by the power exchange requirements of the
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(NPA), and that BPA exercised its settlement authority contrary to those requirements.Id.
1013. It granted the petitions for review.
In the companion appeal Golden Northwest Aluminum, Inc. v. Bonneville Power Admin.
Golden Northwest
),
501 F.3d 1037 (9th Cir. 2007), cert. denied sub nom. Portland General
Electric Co. v. Public Power Council u.S. -' 128 S.Ct. 2902 (2008), three groups of
petitioners also challenged BPA's WP-02 preference power rates. Two groups argued that the
established preference rates were too high. More specifically, the first group asserted that BP
inappropriately allocated the costs of supplying power to the DSls to the preference rates. The
second group insisted that BP A erroneously allocated REP settlement costs to the preference
rates. The Ninth Circuit held against the first group but held for the second group. Golden
Northwest 501 F.3d at 1040-41. In granting the petition of the second group, the Court stated
that the holding in PGE was dispositive in this case: BP A improperly allocated the costs of the
REP Settlement Agreements in the rate paid by preference customers. Id.at 1048.
The third group of petitioners ("the Tribes ) argued the preference rates were too low for
BP A to meet its fish and wildlife obligations. The Court agreed. Id.at 1052-53. The Court
therefore remand ( ed) to BP A to set rates in accordance with this opinion Id. at 1053
(emphasis added). On October 5, 2007, the Court denied petitions seeking rehearing and en banc
on the two opinions.
B. Remand to BP A
Following the two Circuit opinions, BPA suspended REP payments to the IOUs effective
June 2007. BP A later acknowledged "the Ninth Circuit provided little guidance to BP A in its
(two) decisions regarding the subsequent actions BP should take in response to those
opinions." BPA Response to APAC's Motion to Strike , WP-07-BPA-, p. 5. Settlement
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negotiations were unsuccessful and BP subsequently issued its Federal Register Notice
reopening this WP-07 case.73 Fed.Reg. 7 539 (Feb. 8, 2008).Because BPA's WP-
proceeding used the same methodology that the Court overturned in the WP-02 proceeding,
BP A's response to the opinions2 is to "correct both the WP-02 rates and the WP-07 rates and
response to the Court's rulings." WP-07-BPA-, p. 2, 1.14.
ARGUMENT
BP A'S LOOKBACK MECHANISM IS
UNLAWFUL RETROACTIVE RA TEMAKING
A. BP A Cannot Correct the WP-O2 Rates
Despite BPA's intent to correct the WP-02 rates, these rates have been superseded.
Indeed, the WP-02 rates expired September 30, 2006. On September 21 , 2006, the Federal
Energy Regulatory Commission (FERC) granted interim approval of BPA's new WP-07 rates
effective October 1 , 2006 (subject to refund). Order Approving Rates on an Interim Basis and
Providing Opportunity for Additional Comments Docket No. EF06-2011-000, 116 F.R.C. Rec.
~ 61 264 (Sept. 21 , 2006).The WP-07 interim rates currently remain in effect pending
completion of this supplement proceeding and final FERC approval. On March 4, 2008, BP A
moved FERC to continue the previously granted Stay of the WP-07 rates through September 4
2008.
As the chronology above clearly demonstrates, the WP-02 rates no longer exist because
they have been superseded by the interim WP-07 rates as of October 1 , 2006. The only
retroactive" relief that the consumer-owned utilities (COUs) may be entitled to is the "refund
with interest" of the interim WP-07 rates if these interim rates are determined to be too high.
2 In October 2007, the Ninth Circuit also issued a third opinion addressing the 2004 amendments to the
REP Settlement Agreements. Public Utility Dist. No.1 of Snohomish Cty, Wash. v. Bonneville Power
Admin.506 F.3d 1145 (9th Cir. 2007).
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R. ~ 300.20(c); see also 18 C.R. ~ 300.21(g) ("if a rate collected by any power marketing
administration on an interim basis exceeds the rate which is confirmed and approved by (FERC)
as a final rate, the Administrator. . . must refund with interest any rate collected during the
interim period which exceeds the final rate.). Thus, BP A cannot correct the WP-02 rates.
B. The Court Did Not Order BP A to Provide Retroactive Relief
There is nothing in the Ninth Circuit's two decisions that requires BP A to provide
retroactive relief to the prevailing parties in the PGE and Golden Northwest cases. In Golden
Northwest the Court "remand(ed) to BPA to set rates in accordance with this opinion." 501 F.3d
at 1053. BP A has reopened the WP-07 proceeding with its interim rates still in effect. Because
BP A has requested an extension of the existing Stay of the WP-07 interim rates, BP A should
simply proceed to set lawful rates.
In neither case did the Ninth Circuit vacate the BPA rates. Indeed, given the Court'
findings in Golden Northwest that the rates were both too high and too low, the Court remanded
the matter back to BP A "to set rates in accordance with this opinion.Id. This is consistent with
the well-established rule that Courts do not set rates - they are empowered to set aside agency
action. 5 U.C. ~ 706(2). It is BP A that is vested with the authority to "establish, and
periodically review and revise, rates for the sale and disposition of electric energy and capacity
. . ..
Section 7(a)(1), 16 U.C. ~ 83ge(a)(1). Moreover, it is for BPA to first establish rates
and then submit those rates for "confirmation and approval by" FERc. Section 7(a)(2), 16
C. ~ 83ge(a)(2).
C. BPA has no Statutory Authority to Engage in
Retroactive Ratemaking or Provide Retroactive Relief
The law is clear: a federal agency must have express statutory authority before it can
engage in retroactive ratemaking or provide a retroactive remedy such as reparations or refunds.
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In Bowen v. Georgetown University Hospital 488 U.S. 204, 109 S.Ct 468, 102 LEd.2d 493
(1988), the United States Supreme Court declared that "(r)etroactivity is not favored in the law.
Thus, congressional enactments and administrative rules will not be construed to have retroactive
effect unless their language requires this result." 488 US. at 208, 109 S.Ct at 471. Indeed
because it is not a sound business practice to retroactively increase rates, the Court requires that
Congress expressly permits such a practice in no uncertain terms. Bowen 488 U.S. at 208, 109
Ct. at 472.3
The power to require re-adjustments for the past is drastic. It... ought not to be
extended so as to permit unreasonably harsh action without very plain words.Id., quoting
Brimstone R. Co. v. United States 276 US. 104, 122 48 S.Ct. 282, 287, 72 LEd. 487 (1928). In
particular, IOU customers are not a fungible mass where future customers may be substituted for
past customers to make up for past rate deficiencies. Utah Power Light Co. v. Idaho Public
Utilities Commission 685 P.2d 276, 285 (Idaho 1984). Even the BP A witness panels recognize
that "residential customers of the IOUs are those who will ultimately bear the entire brunt of the
application of the Lookback Amounts to reduce future REP benefits paid." WP-07-BP A- 76-
CCl , p. 96, 11. 7-
There is no authority in Section 7 of the Northwest Power Act which expressly permits
BP A to engage in retroactive ratemaking. On the contrary, the ratemaking scheme embodied in
3 In addition to the prohibition of retroactive ratemaking, Bowen also forbids retroactive rulemaking. 488 U.S. at
208, 109 S.Ct. at 471. In Bowen the Secretary of Health and Human Services promulgated a rule that had a
retroactive application. On appeal, the Circuit Court of Appeals for the District of Columbia held as a general
matter that the Administrative Procedures Act, 5 U.C. ~~ 551 , 553 et seq.forbids retroactive ratemaking.
Georgetown University Hospital v. Bowen 821 F.2d 750, 757 (D.C. Cir. 1987) (the AP A is clear and "equitable
considerations are irrelevant to the determination of whether the Secretary s rule may be applied retroactively
The Supreme Court affmned. Bowen 488 U.S. at 208 , 109 S.Ct. at 471. The Court held that "a statutory grant of
legislative rulemaking authority will not, as a general matter, be understood to encompass the power to promulgate
retroactive rules unless that power is conveyed by Congress in express terms.Id. at 208, 109 S.Ct. at 472. "Even
where some substantial justification for retroactive rulemaking is presented, courts should be reluctant to find such
authority absent an express statutory grant." Id. at 209, 109 S.Ct. at 472. BPA has no authority empowering it to
provide reparation, refunds or any similar retroactive remedy.
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Section 7 contemplates that rates will be set prospectively. In particular, the Administrator shall
establish rates and such rates shall be "revised to recover, in accordance with sound business
principles, the costs associated with the acquisition, conservation, and transmission of electric
power. . .." Section 7(a)(1), 16 U.C. ~ 83ge(a)(1) (emphasis added).
The rates established by BPA are also subject to FERC approval. Section 7(a)(2), 16
C. ~ 83ge(a)(2). The Ninth Circuit has declared that "One of the fundamental tenets in
FERC jurisprudence is the rule against retroactive ratemaking.Public Utilities Comm 'n ofCal.
v. FERC 456 F.3d 1025 , 1061 (9th Cir. 2000) citing Arkansas Louisiana Gas Co. v. Hall 453
S. 571 , 578 101 S.Ct. 2925, 2930-, 69 LEd.2d 856 (1981); see also Consolidated Edison
Co. of New York, Inc. v. FERC 347 F.3d 964, 966 (D.C. Cir. 2003)(Agreeing with FERC'
assertion that it "lacked the authority under (section 205 of the) the Federal Power Act to revise
rates retroactively.
In Consolidated Edison the D.C. Circuit Court recognized certain exceptions to the
general rule against allowing utilities a retroactive recovery. Id. at 969. According to the Circuit
Court, the bar against retroactive ratemaking can be satisfied "when parties have notice that a
rate is tentative and may be later adjusted with retroactive effect, or where they have agreed to
make a rate effective retroactively.Id.
The exceptions outlined by the Circuit Court are not applicable to this rate proceeding.
As explained above, the FY 2002-2006 rates that BP A seeks to reconstruct in the instant case are
not interim, nor are they tentative. See supra p. 4. To the contrary, the FY 2002-2006 rates
4 The Court referred to tariffs with an established rate formula as "a practical application of this principle" because
such rates would be perpetually subject to changes consistent with the filed rate formula. Id. (citing Pub. Utilities
Comm v. FERC 254 F.3d 250, 254 (D.Cir.2001)). To its credit, BPA has not attempted to characterize the so-
called "Lookback Amounts" it seeks to recover from IOU customers via this supplemental rate proceeding or the
reconstructed PF Exchange Rate for FY 2002-2006 as even remotely related to filed rate tariffs with formulas.
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received full FERC approval and expired prior to the Ninth Circuit decisions that precipitated the
instant proceeding. See WP-07-, Vol. 1 , p. 35-, ll. 18-1; BPA-000I04 (p. 35-36).
BP A's proposal to undergo a wholesale reconstruction of previously approved rates
stands in stark contrast with FERC's recognized authority to order refunds for egregious or
fraudulent violations of the Federal Power Act. See California ex rei. Lockyer v. FERC 383
3d 1006, 1018 (9th Cir. 2004). BPA's proposal is more analogous to the fact pattern presented
to the D.C. Circuit Court in Columbia Gas Transmission Corp. v. FERC 895 F.2d 791 (D.C. Cir.
1990). In Columbia Gas a group of pipeline customers petitioned for redress after FERC
allowed certain gas pipeline sellers to recoup past costs over a three-year period through a
retroactive mechanism" devised and approved by the Commission and referred to as purchase
gas adjustment clauses.Id. at 793.The aggrieved pipeline customers ' objections to the
retroactive recovery centered mainly upon the unrebutted fact that the customers that would be
forced to absorb the newly authorized costs were "not representative of those who, during those
three years, had purchased the gas that was subject to the deferred costs.Id.
Ultimately, the Circuit Court held that FERC had violated the clear and express language
of the Natural Gas Act which mandates that rate changes be made prospectively only. 895 F.2d
at 797. The Circuit Court rejected FERC's argument that on a finding of "sufficient cause" it
could waive the filed rate doctrine and stated emphatically that "once a rate is in place with
ostensibly full legal effect and is not made provisional, it can then be changed only
prospectively.Id.; see also Southern California Edison Co. v. FERC 805 F.2d 1068, 1070 n.
(D.C. Cir. 1986) ("Derived from the filed rate doctrine is the rule against retroactive ratemaking
. . .
). Finally, any change to the filed rate can be made only if notice was given to the ratepayers
that said rates "were provisional only and subject to later revision.Id.
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Similar to the pipeline customers in Columbia Gas millions of non-representative
residential and small farm customers throughout the Pacific Northwest will be, under BPA'
proposal, forced to absorb the deferred costs of participating in the Residential Exchange
Program (REP). BP A does not dispute this intergenerational inequity. Rather, the Agency
clearly supports this inevitable outcome, stating that "reductions of future REP benefits paid (to
IOU customers) due to Lookback Amounts is a direct transfer of dollars from one class of
customers to another. . ." WP-07-76-CCl , p. 4; BPA-008332.
The rule against retroactive ratemaking arose amid concerns over allowing utilities to "set
rates to recover for past losses." James C. Bonbright et al.Principles of Public Utility Rates
(2d.Ed. 1988) p. 198. BPA claims that its Lookback Analysis does not occur in the "typical
context in which retroactive ratemaking issues arise." WP-07-BPA-76-CCl , p. 3; BPA-
008332. BPA states that it is merely responding to the Ninth Circuit decisions by "re-
running its rate models for the specific purpose of determining the Lookback Amounts for the
IOUs that will be dealt with on a prospective, and not retrospective, basis.Id. These claims fly
in the face ofBPA's own admission that this supplemental rate proceeding is essentially an effort
to reconstruct the PF Exchange Rate for FY 2002-2006. See WP-07-BPA-53-CCl , p. 9; BPA-
003325.
In summary, BP A argues that while the process of calculating the "Lookback
Amounts" for each of the IOUs is, by definition, a procedure that is retrospective in nature, this
process cannot be defined as retroactive ratemaking simply because the Agency will seek to
recover the purported overpayments, or Lookback Amounts, made to the IOUs and disburse
those amounts "to the consumer-owned utilities (COUs) through future reductions to the
Preference rate." WP-07-BPA-76-CCI at 5; BPA-008332. This is a distinction with no
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real difference. In fact, it is hard to imagine any scenario where a ratemaking authority would
run afoul of the rule against retroactive ratemaking because recovery for past losses will nearly
always be on a going forward basis. If this sort of Carrollian logic is allowed to define the
parameters of "retroactive ratemaking" then the term would quickly be robbed of its meaning.
D. The Prevailing Parties in PGE and Golden Northwest Failed to
Exercise Measures that would have Protected Their Interests
Even though BP A has no power to grant a retroactive remedy , the prevailing parties in
PGE and Golden Northwest could have preserved the fruits of their appeal by obtaining a stay of
BPA's WP-02 Order from BPA or the Court. Judicial review of final BPA actions under the
AP A expressly provides for such a procedure. 5 US.c. ~ 705 (an agency "may postpone the
effective date of action taken by it, pending judicial review. "). 6
Likewise, Rule 18 of the Federal Rules of Appellate Practice provides for a stay pending
appellate review. Under Rule 18, a petitioner must ordinarily first move BP A for a stay pending
review of its decision or final order. FRAP 18(a)(1). In addition, this rule provides that a motion
for stay may be made to the Ninth Circuit or one of its judges. FRAP 18( a)(2). As indicated in
WP-07-ID-CCI-ATl , no parties to the underlying appeal sought a stay from BPA, FERC or
the Ninth Circuit.
Because BPA's WP-02 rates were not stayed, they remained lawful and valid through the
judicial review process consistent with "the well-established rule that an appeal will not affect
the validity of a judgment or order during the pendency of an appeal, absence a stay or
5 As noted previously, the Administrator must issue refunds if the final FERC-approved WP-07 rates are
less than the interim WP-07 rates. 18 c.F.R. 9 300.21(g).
6 Section 705 further provides: "On such conditions as may be required and to the extent necessary to
prevent irreparable injury, the reviewing court, including the court to which a case may be taken on
appeal from or on application for a certiorari or other writ to a reviewing court, may issue all necessary
and appropriate process to postpone the effective date of an agency action or preserve status or rights
pending conclusion ofthe review proceedings." 5 D.C. 9 705.
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supersedeas.Combine Metals Reduction Co. v. Gemmill 557 F.2d 179, 190 (9th Cir. 1977).
failing to stay the effects of the WP-02 rate order, the petitioners put themselves at risk of losing
the fruits of their appeal. "(Thus a party who chooses to appeal but fails to obtain a stay
injunction pending appeal risks losing its ability to realize the benefits of a successful appeal."
Holloway v. United States 799 F.2d 1372, 1374 (9th Cir. 1986) (emphasis added and citations
omitted), quoting Matter of Combined Metals Reduction Co.557 F.2d 179, 188 (9th Cir. 1977);
United States v. Peterson 19 F.3d 1442, 1444 (9th Cir. 1994) (unpublished disposition). That
risk has now materialized.
THE "DEEMER" MECHANISM IS CONTRARY TO THE NP
A. Introduction and History
Section 5(c) of the Northwest Power Act (NPA) authorizes BPA to enter into power
exchanges with the six regional IOUs for the purpose of providing rate relief to residential and
small farm customers of the IOUs. H.R. Report No. 96-976(1) at 60, 1980 US.c.A.N. 5989;
FROD at 7-, BPA-000583. The power exchanges were intended to provide the IOUs with
access to lower-cost federal power. When it enacted Section 5( c), Congress recognized that the
exchange mechanism may not result in parity between the retail rates of BPA's preference
customers and the retail rates of the IOUs' eligible customers
, "
but it should equalize the
wholesale costs of the electric power with a resulting benefit to investor-owned utilities
customers.Id.
The REP is the mechanism used to calculate the level of monetary benefits for the
exchanging utilities, e., the six regional IOUs in the Pacific Northwest: Avista, Idaho Power
Northwestern, PacifiCorp, Portland General Electric Company, and Puget Sound Energy. There
are three components to the REP mechanism. First, there is the calculation of each utility
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average system cost (ASC) using the approved ASC methodology'? Second , is the establishment
of the PF Exchange rate in this docket. See BPA-001321 (p. 9). Third, BPA and the
exchanging utilities must negotiate new Residential Purchase and Sales Agreements (RPSAs)
containing the calculations for new REP benefits in BP A Docket No. PS-
The Ninth Circuit has often explained how the residential exchange operates. In PGE
the Court stated that "Section 5(c) permits IOUs to exchange power they have purchased or
generated for lower-cost power generated by BPA." 501 F.3d at 1015 (emphasis added); Golden
Northwest 501 F.3d at 1047; Washington Utilities and Transp. Comm 'n v. FERC 26 F.3d 935
936-37 (9th Cir. 1994); PacifiCorp v. FERC 795 F.2d 816 818-19 (9th Cir. 1986). Under the
Section 5(c) Residential Exchange Program (REP), a regional IOU may elect to sell power to
BPA at the IOU's average system cost (ASC) and then purchase and exchange an equivalent
amount ofBPA power at a lower price. 16 US.C. ~ 839c(c)(7). "The REP essentially acts as a
cash rebate to the IOUs where the IOUs' power costs exceed those of BPA.PGE 501 F.3d at
1015 (emphasis added). Section 5(c)(3) of the Northwest Power Act requires that utilities pass
through any BP A exchange benefits to the utilities' residential and small farm customers. PGE
501 F.3d at 1015; 16 U.C. ~ 839c(c)(3).
B. The Deemer Mechanism
In addition to the three factors mentioned above, there is a fourth factor which determines
whether an IOU is eligible to receive benefits under the REP. The fourth factor is whether the
exchanging utility has a negative "deemer" balance. The deemer mechanism is a remnant of the
1981 RPSAs between BP A and three of the IOU s. Section 10 ("Election to Equalize Rates ) of
the respective RPSA for Avista, Idaho Power and Northwestern provided that when the IOU'
7 The proposed 2008 ASCM is the subject matter of another docket: EF08-20 11-000.
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ASC was lower than the BP A PF Exchange rate, the IOU may elect to have its ASC "deemed
equal" to the PF rate.8 In the Final ROD, BP A explains the deemer mechanism in the following
manner:
When a utility s ASC is less than the PF Exchange rate, the utility may elect to
deem its ASC equal to the PF Exchange rate. By doing so, it avoids making
monetary payments to BP A. The amount that the utility would otherwise pay
BP A is tracked in a deemer account." At such time as the utility s ASC is
higher than BPA's PF Exchange rate, benefits that would otherwise be paid to
the utility act as a credit against the negative "deemer balance." Only after the
positive benefits" have completely offset the "negative balance," bringing the
negative "deemer account" to zero, would the utility again receive monetary
payments from BPA. Avista Corporation (Avista), Idaho Power Company, and
North Western Energy have deemer balances. The issue of deemer balances
with Idaho Power Company and A vista is currently in dispute.
WP-07-05 at 115 , BPA-000583 (citations omitted).In calculating the Lookback
Amounts BP A determined that the deemer balances must first be offset against reconstructed
REP benefits. Id. at 217. Deemer balances , including interest, under BPA's construct are offset
on a company-specific basis against any benefits that accrued to that company under exchange
agreements until the deemer balances are satisfied. Id. BP A asserts that REP benefits would not
be available to the three IOUs with deemer balances (Avista, Idaho Power, and Northwestern)
until the deemer balances are satisfied. BP A initially calculated that as of October 1 , 2007
Avista s deemer balance was $99.3 million and Idaho Power s deemer balance was $245.
million.BPA-004189 (p.18).Consequently, the presence of deemers affects the
calculation ofthe REP benefits. E.g., WP-07-FS-BPA-08 (Avista p. 267).
C. The Deemer Mechanism is not Authorized by the NPA
There is no statutory authorization for BP A to utilize the deemer mechanism or engage in
deemer accounting. As construed by the Ninth Circuit, the Northwest Power Act contemplates
8 The phrase "deemed equal" appears to be the source of the term "deemer.
IDAHO PUC INTERVENTION AND
PROTEST Docket No. EF06-2011-002
that BPA and the IOUs would exchange when an IOU's ASC was above BPA's cost. Section
5(c), 16 U.C. ~ 839c(c). In this fashion , IOUs would receive the lower-cost benefits of the
federal hydropower system. There is nothing in the Northwest Power Act or its legislative
history that suggests that the exchange benefits should flow in the opposite direction - from the
three IOUs to BP A. Indeed, Section 5( c) was intended to provide residential and small farm
customers "a share in the economic benefits of the lower-cost federal system " i., lower rates.
R. Report No. 96-976(1) at 27 , 60, 1980 US.A.N. at 5993, 6026. Instead of conferring a
benefit, the operation of the deemer mechanism turns Section 5 on its head. As the facts in this
case bear out, the "phantom" accounting of accruing negative deemer balances simply because
the IOUs' ASC was subsequently lower than BPA's PF rate is extremely detrimental to IOU
ratepayers, especially to the more than 400 000 eligible customers of Idaho Power. Under
BPA's proposal to collect Idaho Power s accumulated deemer balance of $245 million, Idaho
Power s current and future customers in Idaho and Oregon would not be eligible to receive REP
benefits for the next 20 years. In fact, Idaho Power s deemer account has merely accrued interest
since FY 1985. The deemer mechanism is simply contrary to the plain reading and intent of
Section 5(c) of the Northwest Power Act, 16 US.C. ~ 839c(c).
Although BP A acknowledged that the NP A does not expressly allow a deemer
mechanism, it asserts that the Act does not prohibit one. BPA-000583 (p.219).In the
absence of expressed statutory guidance" or a court decision, BP A found it reasonable to assume
the deemers are valid. Id. However, it enacting Section 5 of the NP A, Congress intended that
the "exchange will permit residential customers of investor-owned utilities to share in the
benefits of the lower-cost federal resources.
. . .
By providing these residential customers
wholesale rate parity with residential customers of preference utilities, the amendment serves in a
IDAHO PUC INTERVENTION AND
PROTEST Docket No. EF06-2011-002
substantial way to cure a major part of the allocation (of benefits) problem." 1980 U.A.N.
at 5995. Rather than providing benefits to the IOUs, the deemer mechanism turns Section 5 on
its head. In the case of A vista and Idaho Power, benefits flow in the opposite direction than
Congress intended.
As the Court stated in PGE whenever BP A engages in a purchase and exchange of
power - whether on a yearly basis, under an REP program, or pursuant to a settlement agreement
BPA acts pursuant to its ~ 5(c) authority, and is thus subject to the congressionally imposed
limitations on that authority as expressed in ~ 5(c) and ~ 7(b)." 501 F.3d at 1032. "(W)henever
BPA exchanges power with a Pacific Northwest utility, it (must) act pursuant to its ~ 5(c)
power(.
)"
Id. at 1028. BPA's deemer accounting mechanism is well outside the REP program
that Congress created in the Northwest Power Act. 16 U.C. ~ 839c(c).
D. Collection of the Deemers is Barred by Regulation
Although BP recognizes that the deemer balances are not cash obligations of the
utilities, it asserts that "BP A may contractually set off (the deemer balances) against future REP
benefits." WP-07-BPA-, BPA-008332 (p. 72) (emphasis added). Despite BPA'
assertion to the contrary, the Department of Energy (DOE) has promulgated a regulation that
prohibits BP A from offsetting the deemer balances against future REP payments. In pertinent
part, the DOE regulation states:
Unless otherwise provided by law administrative offset of payments under
the authority of31 US.C. 3716 to collect a debt may not be conducted more
than 10 years after the Government's right to collect the debt first accrued
unless fact materials to the Government's right to collect the debt were not
known and could not reasonably have been known by the official or officials
of the Government who were charged with the responsibility to discover and
collect such debts.
IDAHO PUC INTERVENTION AND
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10 C.R. ~ 1015.203(a)(4) (emphasis added). In addition, 31 US.C. ~ 3716(e)(I) prohibits the
Government from pursuing an administrative offset for claims that have been outstanding for
more than 10 years. Section 3701 defines a "claim" as "any amount of funds. . . owed to the
United States" including over-payments (e., REP benefits). 31 U.C. ~ 3701 (b)(1)(C).
In its Final ROD, BP A argues that the deemers are not "due , thus, there is no bar to the
administrative setoff. BPA-000583 (p.240-41). However, BPA recognized that this issue
is not without question" and it remains open to settlement this issue must be resolved in another
forum. Id. At 242.
E. The Use of Different Methods to Calculate Deemer Interest is Arbitrary
Although the 1981 RPSA contracts for Avista, Idaho Power and Northwestern are
identical, BP A used different methods of calculating the interest on the deemer balances. For
Idaho Power and Northwestern, BP A used compounded interest to calculate the respective
deemer balances, but for A vista it used simple interest to calculate A vista s deemer balance.
BPA-009809 (p. 196); BPA-000I04 (p. 90 at 11.2). Idaho PUC witness Westerfield
testified that BP A's use of simple versus compound interest has a significant effect on the
calculations of the deemer balances. For example, Avista s purported deemer balance grew 2.
times from the accumulation of only interest between January 1987 and October 1 , 2007 (to
$99.3 million). BPA-004189 (p. 18). In comparison, BPA's use of compound interest
increased Idaho Power s purported deemer balance 4.2 times (interest only) between January
1987 and October 1 , 2007 ($245.36 million). Id.
When asked to explain why A vista s deemer balance was calculated using simple interest
but Idaho Power s deemer balance was calculated using compound interest, BP A witnesses
offered no explanation other than the wording of the utilities' respective Suspension Agreements
IDAHO PUC INTERVENTION AND
PROTEST Docket No. EF06-2011-002
(BPA-- 007117, 007126). WP-07-, Vol. 1 , p. 90-, BPA-TR _000104. Avista
principal deemer balance has not changed since January 1987 and the growing balance merely
represents the accrual of simple quarterly interest at the prime rate. BP A-0007092 (p. 8);
WP-07-ID-On the other hand, BPA's Excel spreadsheet for the calculation of Idaho
Power s deemer balance (WP-07-ID-4) reflects that using the compound method, interest is
added to the principal and this "new" subtotal or principal balance is then subject to quarterly
interest at the prime rate. BPA-007092; WP-07-ID-
The use of two different interest rates (i., simple versus compound) for similarly
situated utilities is arbitrary and discriminatory. There is no evidence in the record and BP A did
not offered a convincing explanation why BP A uses simple interest to calculate A vista s deemer
balance, but used compound interest to calculate Idaho Power s deemer balance. BPA states in
the Final ROD that it relied on the Settlement Agreements. BP A-000583 (p. 229-30).
However, the circumstances between the two companies are indistinguishable yet BP A has
intentionally treated them differently in calculating their deemer balances. The use of difference
interest methodologies to calculate the deemer balances in this instance is clearly unreasonable
and arbitrary. 5 U.C. ~ 706(2)(a).
Applying compound interest to Idaho Power s deemer balance also has a punitive effect.
By adding the purported deemer balances to the Lookback amount, more than 400 000 Idaho
Power residential and small farm customers will be deprived of any REP benefits for more than
20 years into the future. BPA-004189 (p. 12); BPA-TR _000104 (p. 95-96). Is it
inequitable to withhold REP benefits from present and future customers because past customers
received the benefit ofBPA's inappropriate rates.
IDAHO PUC INTERVENTION AND
PROTEST Docket No. EF06-2011-002
F. BPA'S Failure to Record the Deemer Balances in its Financial
Books Violates Generally Accepted Accounting and Ratemaking
BPA acknowledges that it follows FERC's Uniform System of Accounts in maintaining
its financial books and records. BPA-TR-000000104 (p. 98). BPA also follows the U.
Department of Energy s (DOE's) accounting order RA 6120., entitled "Power Marketing
Administration Financial Reporting," which states: "Power system financial statements will be
prepared in accordance with generally accepted accounting principles." BPA-004189 (p.
16); Order Confirming and Approving Rates Docket No. EF03-2011-000, 107 FERC ~ 61138
2 (May 10, 2004). Additionally, Section 7(g) of the Northwest Power Act requires BPA to
employ generally accepted ratemaking principles in the determination of rates.16 u.S.
~83ge(g).
However, by BPA's own admission, the deemers have never been recorded in BPA'
books and accounts. BPA-004219 (BPA's response to Data Request PU-BPA-5). BPA'
failure to record the deemer balances in its financial records is contrary to generally accepted
accounting principles, as well as ratemaking principles. Neither generally accepted accounting
principles, nor FERC's Uniform System of Accounts , nor DOE's accounting order RA 6120.
sanction "off the books" accounting for transactions. BP A-004189 (p. 17). Therefore
BP A cannot now propose to include these "off the books" amounts in the Lookback Analysis
and, thus, in rates in violation of accounting and ratemaking principles.
CONCLUSION
The Idaho PUC does not object to the Commission granting interim approval of the WP-
07 supplemental rates effective October 1 , 2008. The Idaho PUC requests that the Commission
provide an additional period of time for parties to file comments regarding final confirmation
IDAHO PUC INTERVENTION AND
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and approval in the same manner as the Commission ordered in September 2006 when BP A filed
its initial WP-07 rates. 116 F.R.C. 61 264 (Sept. 21 , 2006). For all the reasons above, the
Idaho PUC requests that the Commission deny confirmation and approval of BPA's WP-
Supplemental Rates on a final basis and remand the supplemental rates to BP A for modification
consistent with this Protest.
Respectfully submitted this 13th day of October 2008.
For the Idaho Public Utilities Commission
Donald L. Ho 11, II
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington (83702)
PO Box 83720
Boise, ID 83720-0074
Idaho Bar No. 3366
N :FERC _EFO6-20II-OO2 - dh _Intervention-Protest
IDAHO PUC INTERVENTION AND
PROTEST Docket No. EF06-2011-002
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 13th day of October 2008, served the
foregoing Notice of Intervention and Protest, in FERC Docket No. EF06-2011-002 , by
e-mailing a copy thereof to the Applicant below.
Timothy A. Johnson
Assistant General Counsel
Bonneville Power Administration, LP- 7
905 NE 11 th Avenue
PO Box 3621
Portland, OR 97208-3621
E-mail: tajohnson~bpa.gov
Donald L. Howe!, I
Deputy Attorney General