20031112Brief.pdf

(1)RECE\VED
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2Ufi3 NOV \ 2 PM \: U.\
BEFORE THE IDAHO PUBLIC UTILITIES COMM ~~FU.3UC
UTIl't'1\tS C0I1MISSlON
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC SERVICE
TO ELECTRIC CUSTOMERS IN THE STATE
OF IDAHO
ADDITIONAL, IF THE COMMISSION
SUSPENDS THE EFFECTIVE DATE OF
RATES AND CHARGES, THE COMPANY
REQUESTS
AN INTERIM UNIFORM PERCENTAGE
INCREASE OF 4.16% IN RATES AND
CHARGES TO RECOVER INCREASED
COSTS TO THE COMPANY AS A RESULT
OF THE COMPLETION OF THE DANSKIN
POWER PLANT, HYDRO RELICENSING
INCREASED DEPRECIATION EXPENSE
AND THE REALLOCATION OF
JURISDICTIONAL NET POWER SUPPLY
OF IDAHO POWER COMPANY'S NEW
RATES AND CHARGES IN
CASE NO. IPC-03-13.
BRIEF
CASE NO. IPC-O3-
CASE NO. IPC-O3-13-
THE INDUSTRIAL CUSTOMERS
IDAHO POWER
COMES NOW the Industrial Customers ofIdaho Power ("ICIP") and pursuant to that
Notice of Application issued by the Secretary of the Idaho Public Utilities Commission
Commission ) on October 28, 2003, and hereby lodges its memorandum on the legal standard
the Commission should use in considering the request by the Idaho Power Company
Company ) for interim rate relief.
It is the position of the ICIP that Idaho Power has not met any of the various legal
standards for granting interim rate relief. Furthermore, the ICIP opposes the Company s request
to create a new standard for such relief based on "good management performance.
Le2;al Standard
This Commission has allowed "interim" rate increases for Idaho Power Company in the
past as noted by the Company in Mr. Gale s testimony at page 2 (IPC-03-13-A). Although
noting that the Commission has authorized such increases in the past, the Company cites no legal
authority supporting the Commission s ability to authorize such interim increases. The source of
the Commission s authority to change rates is found in the Idaho Code at Section 61-501:
Whenever the commission, after a hearing had upon its own
motion or upon complaint, shall find that the rates, fares, tolls
rentals, charges or classifications, or any of them, demanded
observed, charged or collected by any public utility for any service
or product or commodity, . . . are unjust, unreasonable
discriminatory or preferential, or in any wise in violation of any
provision of law, or that such rates, fares, tolls, rentals, charges or
classifications are insufficient, the commission shall determine the
just, reasonable or sufficient rates, fares, tolls, rentals, charges
classifications, rules, regulations, practices or contracts to be
thereafter observed and in force and shall fix the same by order as
hereinafter provided. . ..
Cleary the Idaho Code contemplates that, as a precondition to changing rates, the Commission
must first hold a hearing and make findings as to whether the rates are "unjust, unreasonable
discriminatory or preferential." Here Idaho Power is asking the Commission to make those
Brief of the Industrial Customers of Idaho Power
findings without hearing and without the benefit of conducting even a cursory investigation into
the Company s assertion that its rates are, indeed, unjust and unreasonable. The Commission is
specifically vested with the authority to conduct such investigations:
The commission shall have power, upon a hearing, had upon its
own motion or upon complaint, to investigate a single rate, fare
toll, rental, charge, . . . or the entire schedule or schedules of rates
fares, tolls, rentals, charges, classifications, rules
, . . .
of any public
utility, and to establish new rates, fares, tolls, rentals, charges
classifications. . ..
Idaho Code ~ 61-503.
The Commission is restricted by code to only changing rates after conducting a hearing
and an investigation.
In practice, however the Commission has allowed interim rate relief and the Idaho
Supreme Court has acknowledged such actions in several opinions. For example, in Grindstone
Butte v. Idaho Power 102 Idaho 175 627 P. 2d 804 (1981), the Supreme Court recited the
following:
The Commission issued Order No. 13158, dated May 16, 1977
granting Idaho Power interim rate relief in the form of a 7.09%
uniform increase to all rates and charges. However, this interim
order expressly provided that as for the pending permanent rate
increase application, all issues remained at controversy. . . On
November 28 , 1977, the IPUC issued Order No. 13568, again an
interim order, which generall increased the uniform increase in
billing to 10.3%.
Id. at 177.
The Commission has explained that interim rate relief is appropriate in emergency
situations where the utility is facing economic hardship. Indeed, the Idaho Supreme Court
quoted ttom the Commission s Order in a Utah Power & Light setting the standard and rationale
for granting interim rate relief:
Brief of the Industrial Customers of Idaho Power
We take this opportunity to note that this Commission is not
insensitive to the economic hardship conttonting the utilities
subject to our jurisdiction in these inflationary times. We have
when the occasion warranted it, granted interim relief to companies
facing emergency situations. See Application of Idaho Power Co.,
Case No. U-IO06-117 IPUC Order No. 13158; Application of
Utah Power Light Co.Case No. U-009- 73, IPUC Order No.
12275.
Utah Power & Light v. Idaho Pub. Util. Comm 105 Idaho 822, 833, 673 P.2d 422
(1983). The twin concepts of economic hardship and emergency situations are not the only
standards that must be met before interim rate relief can be granted. It seems clear that the
reasonableness of the interim rate relief must, at a minimum, be reasonably certain. The
California Supreme Court has ruled that interim rate relief is appropriate when required
, "
by a
financial emergency, or that the reasonableness ofthe pertinent costs was undisputed.Toward
Util. Rate Norm. v. Pub. Util. Com., 44 Cal.3d 870, 875, 751 P.2d 787 245 Cal. Rptr. 8 (1988).
In addition to (1) economic hardship; (2) emergency situations; and, (3) certainty of
reasonableness, the only other situation in which interim rate relief may be granted is when a
utility is conttonted with a major addition to ratebase. The California Court articulated the
following test for permitting interim rate relief when a utility is conttonted with major additions
to ratebase:
Those decisions allowed interim rate increases. . . subject to
refund, upon commencement of commercial operation of a major
new generating plant, where at least the following factors are
present: the new plant represented a substantial part of the
company s total capital investment, the new plant's operation
would result in fuel or energy savings, and a considerable period of
time was expected to elapse before final determination of the
prudency ofthe utility s investment in the new plant.
Id. at 876.
Brief of the Industrial Customers of Idaho Power
The California Court's articulation of the standard for interim relief for major new plant is
simply a tool to cure for what the Idaho Commission describes as "regulatory lag." As noted by
the Commission, and quoted by the Idaho Supreme Court, there are adequate tools available to
utilities to prevent regulatory lag and obviate the need for interim rate relief:
In addition, the Idaho Legislature, by its amendment of Idaho Code
~ 61-622, set an outside limit of nine months for Commission
deliberation on requests for rate relief, thereby manifesting its
concern for the prompt disposition of rate cases. This statutory
protection, combined with the right to petition for interim rate
relief, provides a Company with adequate safeguards against the
problem of regulatory lag.
Within this ttamework we encourage timely filing by a Company
when rate relief is necessary.
Utah Power & Light v Idaho Pub. Util Com supra at 833.
In summary, the legal standards for interim rate relief require the following:
Economic hardship caused by an emergency situation
Reasonableness of the rate increase must be certain
. New plant must be a substantial part of the utility s overall investment
A considerable period of time will lapse before a final prudency determination can be
made
The utility must make a timely request for interim relief
As will be shown below, Idaho Power s request for interim relief fails to meet any of the
above criteria.
Brief of the Industrial Customers of Idaho Power
Idaho Power s Request for Interim Relief Should be Denied
Idaho Power seeks interim relief for (1) the construction and operation ofthe Danskin
Power Plant ("Danskin ); (2) the costs associated with re-licensing the Company s Middle-
Snake hydro facilities; (3) the agreed-upon impact ofthe change in depreciation expenses; and
(4) the reallocation of jurisdictional net power supply costs. The total revenue impact of
including all four of these expenses in rates would be a 4.16 percent increase in overall rates.
Lack of Emergency or Economic Hardship
Idaho Power has not alleged that it is faced with an emergency. It is currently earning
well above its dividend payout. Although Idaho Power did recently reduce its dividend, its
current earnings are well above the Company s older, higher, dividend. In addition, the rationale
Mr. Keen provides for the dividend reduction was to give the Company the ability to fund new
capital investments, which, once in place, will actually afford the Company an opportunity to
increase its ratebase and its earnings. Mr. Keen stated at page 28 of his testimony:
Idaho Power s Board of Directors recently made one ofthe most
difficult decisions a board can make by significantly reducing the
common dividend. This decision demonstrates the importance the
Company s Board places on providing the necessary capital to
fund needed investments and maintain financial flexibility
(Emphasis provided).
Clearly, funding future investments and enhancing financial flexibility do not rise to the level of
either an emergency or financial hardship.
Brief of the Industrial Customers of Idaho Power
The Company s earnings have recovered in 2002 over the admittedly poor earnings reported for
2001. The rationale Mr. Keen relies on for interim relief actually makes the case for denial of
the Company s request. Mr. Keen states at page 26 of his direct testimony that:
Despite the decrease (dividend), however, the Company will still
have to rely heavily on the capital markets to fund its capital
expenditure program going forward. The public interest is served
through interim rate relief in this instance in order to compensate
the Company for investments it has already made on customers
behalf and to provide additional cash for additional investments
that must be made on their behalf.
Prepaying for future capital programs cannot be the basis for interim rate relief. In addition
recovery of costs associated with plant not yet constructed is prohibited by Idaho s construction
work in progress statute. Idaho Code ~ 6l-502A.
Reasonableness of Rate Increase is Not Certain
A second criterion for interim rate relief is that the reasonableness of the rate increase
must be certain. Specific expense items may be reasonable. For instance, the parties in a
separate docket have agreed to the increase in depreciation expenses. However, whether Idaho
Power is entitled to an overall increase once all expense and income items have been thoroughly
evaluated is not certain. Reduction in costs or higher projected revenues may well offset the
increase in depreciation expenses - as well as all of the other expense items for which the
Company is seeking interim relief.
The New Plant is an Insignificant Part of the Company s Overall Investment
The investment in Danskin and the hydro re-licensing is equal to less than 2% ofthe
Company s total investment in electric plant. The other expense items are unrelated to
Brief of the Industrial Customers of Idaho Power
investment in utility plant in that they are ongoing expense items. This is not a case where the
utility is bringing on a major single investment such as a coal plant. None of the expenses for
which interim relief is sought are of such magnitude that denial of interim relief would be a
significant financial event for Idaho Power Company.
Timing/Regulatory Lag
Idaho Power is uniquely in control of the timing of its rate case applications. It litigated
the depreciation case to closure earlier this year. The Danskin plant has been on line since 1991.
The timing of the hydro re-licensing costs will be addressed below. The increase in
jurisdictional allocation costs was brought about by the expiration of contracts Idaho Power had
with other utilities. Idaho Power was aware of the timing of their termination years ago.
should have anticipated, and planned for, the economic effects of the termination of those
agreements. As this Commission noted in Order No. 14348 at page 20 (Case No. U-1O09-96),
Whatever problem of "regulatory lag" may be said to exist is largely of the Company s own
making." Idaho Power s failure to seek prompt rate relief for these expenses is largely, indeed
solely, "of the Company s own making.
Hydro Re-Licensing Costs are Not Ripe for Inclusion in Rates
Mr. Gale observes at page 7 of his direct testimony that the licenses for the Mid-Snake
Projects have not yet been issued by FERC. Re-licensing costs should be treated the same as any
other construction work in progress - only after the license is issued by FERC should Idaho
Power be properly allowed to recover those costs ttom its ratepayers. Idaho Code ~ 6l-502A
prohibits the Commission ttom granting a return on construction work in progress. Today
Brief of the Industrial Customers of Idaho Power
ratepayers should not be forced to pay a return on investments (FERC licensees) for the benefit
of future ratepayers.
Recognition for Good Management
Mr. Gale testified at page 13, that because of the Company s "good management
performance" the Commission should grant the requested interim relief. The Company cites
several areas of "good management performance " implying that it should be rewarded for
efforts above and beyond the call of duty. Examples of "good management performance
include, (1) a new business model to better serve customers; (2) focus on demand side
management programs; (3) cost effective debt refinancing; (4) providing reliable service at a fair
price; (5) green power program; and, (6) the implementation of a risk management program.
The ICIP appreciates Idaho Power s management and their efforts to cut costs and to
provide reliable service at a fair price. However, all businesses today are faced with increasing
costs and must engage in activities similar to Idaho Power s efforts to be more efficient. The
reward most businesses reap ttom such efforts is the opportunity to stay in business and be
competitive. Sometime those efforts fail. Several of the ICIP's members have had to close
plants and/or reduce operations due to the difficult economic climate in which we live - caused
in part by Idaho Power s unprecedented rate increases over the past two years. Unlike Idaho
Power, our members do not have a safety net such as a captive customer base and a regulatory
commission that guarantees them an opportunity to earn a fair rate of return. It would be unwise
to expand the legal standards noted above for granting interim rate relief by adding a vague
standard such as "good management performance" to the list.
Brief of the Industrial Customers of Idaho Power
For all ofthe above and foregoing reasons, this Commission should deny Idaho Power
request for interim rate relief.
Respectfully submitted this 12th day of November 2003.
Peter J. Richardson
RICHARDSON & O'LEARY
Attorneys for the Industrial Customers of Idaho Power
Brief of the Industrial Customers of Idaho Power
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the ~day of November, 2003 , a true and correct copy
ofthe within and foregoing BRIEF OF THE CUSTOMERS OF IDAHO POWER, Case No.
IPC-03-13 and IPC-03-13A, was hand delivered to each of the following:
Barton L. Kline
MonicaB. Moen
Idaho Power Company
O. Box 70
Boise, Idaho 83707
John R. Gale
Vice President, Regulatory Affairs
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Lisa Nordstrom
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington
Boise, Idaho 83702
Weldon Stutzman
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington
Boise, Idaho 83702
Certificate of Service - IPC-03-13 and l3A
\l)JJ~m-
~~~
Nina M. Curtis
Legal Assistant