20040426Post Hearing Brief.pdf

Peter J. Richardson
RICHARDSON & O'LEARY PLLC
99 East State Street
Eagle, Idaho 83616
Telephone: [phone]
Fax: [phone]
peter(illri chardsonando I eary. com
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Attorneys for the Industrial Customer of Idaho Power
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA ITER 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
POST HEARING BRIEF
OF THE INDUSTRIAL
CUSTOMERS OF IDAHO
POWER
CASE NO. IPC-03-
COMES NOW the Industrial Customers ofIdaho Power ("ICIP") by and through its
attorney of record and submits its Post Hearing Brief in this matter. As per Commissioner
Smith's admonishment from the bench at the close of hearings in this matter, this post hearing
brief is limited to matters of a legal nature. It is not intended to constitute a summary of the
positions taken by the ICIP's witnesses nor is it intended to serve as an argument on those issues.
Therefore silence on those additional non-legal issues should not be construed as acquiescence
by the ICIP.
SUMMARY
The ICIP argued that the Danskin plant should not be included in ratebase because it
became apparent that it would be an imprudent investment prior to its completion. Idaho Power
should have ceased construction on the plant and mitigated for any losses by selling items that
POST HEARING BRIEF JCIP
are fungible in the marketplace such as boilers and generator sets. This Commission is
empowered to authorize Idaho Power to recover prudently incurred costs - but is prohibited from
including in ratebase plant that is not used and useful. Idaho Power s attorney on cross
examination of Dr. Reading left the impression that this Commission is legally prohibited from
allowing recovery of (as opposed to recovery on) the Company s investment in the Danskin plant
up to the summer of 2001.
THE COMMISSION IS ON SOUND LEGAL FOOTING
TO DENY RATEBASE TREATMENT FOR DANSKIN
This case is remarkably similar to the situation faced by the Commission when Idaho
Power sought ratemaking treatment for its Valmy II plant in Northern Nevada. One difference is
that the Commission Staff was in the lead in opposing full ratebase treatment for that plant. Staff
witness Stephanie Miller s testimony was summarized by the Commission in its order thusly:
While she believed that the Company was reasonable in its decision to begin
construction, she argued that sometime between issuance of the certificate and the
completion of the plant the Company should have known that the plant would be
unnecessary and should have taken appropriate steps to protect its and its ratepayers
interests.
Order No. 20610
This is the same argument that Dr. Reading makes in his testimony at Tr. 1335 - 1336.
On cross-examination by Company attorney, Mr. Kline, it was inferred that the Commission
would violate Idaho law if it ordered the Company to disallow ratebase treatment for Danskin.
At Tr. 1356 Mr. Kline asked the following questions of Dr. Reading:
Q. All right, I know you ve been around this business a long time, Dr. Reading, so I'm going
to ask you this question not seeking your legal opinion, but are you aware of the statute in
1 Order No. 20610 was issued in June 1986 in Case No. 1006-265. The pagination is not available on the
Commission s web site. The table of contents indicates this passage appears in the hard copy between the pages of
92 and 103 of the Order.
POST HEARING BRIEF JCIP
the State ofIdaho in which a company s construction work in progress - - construction
work in progress for electric utilities, that the Commission is not permitted to allow a
utility construction work in progress, are you familiar with that statute?
A. Generally.
Q. And isn t it true that under that statute that facilities that are not currently used and useful
aren t going to be permitted into rates, do you recall that?
A. Yeah.
The statute Mr. Kline was referring to is Idaho Code Section 61-502A which provides:
(T)he commission is hereby prohibited. . . from setting rates for any utility that grants a
return on construction work in progress. . . or property held for future use and which is
not currently used and useful in providing utility service.
While successful at poisoning the well, Mr. Kline s question was not helpful to clarify for
the Commission exactly what its legal authority is with regard to abandoned plant. As noted
above, Danskin may have been a reasonable concept at the time the Commission issued its
certificate of convenience and necessity, however, over the course of the spring of2001 and into
the early summer, its lack of usefulness had become apparent.
Nothing in the Idaho Code prohibits exactly the treatment Dr. Reading advocated. The
used and useful" provisions of ~502A prohibit allowing a return on investment that is not used
and useful. It does not prohibit allowing the utility to obtain a return of its investment while
disallowing a return on that investment. This apportionment of risk between shareholders and
ratepayers is exactly what this Commission did in the Valmy case cited earlier. In fact, this
Commission s language in that case is very instructive:
Our statutory charge to establish "just and reasonable" rates, I.C. ~61-622, directs us to
balance the legitimate competing interest of both shareholders and ratepayers. See
Intermountain Gas Company v. Idaho Public Utilities Commission, 97 Idaho 113 , 127 540
2d 275 , 289 (1975). When faced with similar considerations in cases involving abandoned
plants, we have consistently found it "fair, just, and reasonable to assign part of the costs of
POST HEARING BRIEF ICIP
such plants to both shareholders and ratepayers." Investigation of the Washington Water
Power Company's Participation in WPPSS-, Order No. 20208 (February 3, 1986), Case No.
1O08-204, at p. 14. The rationale supporting those decisions is applicable to this case
where the plant in question will not be economically useful in providing service to ratepayers
for a number of years:
Certainly shareholders must bear some portion of such costs; any other view
would remove all incentive for efficient management and destroy the
raison d'etre of investor-owned, as opposed to publicly- owned
utilities.
On the other hand, it must be recognized that investor-owned
utilities do not function in a normal competitive market, and their
plant investment decisions are not entirely unilateral. In every state
governmental authorities regulate and supervise the rates, service
obligations, and construction and financing plans of inves-
tor-owned utilities. This public supervision and public decision
making necessarily implies a measure of public responsibility for the
consequences.
, at p. 15. We can add little to this statement, except to note that its converse is also
true: If either shareholders or ratepayers are immunized from the financial consequences
of utility plant decisions, the result would be an open invitation and potent incentive to
irresponsible conduct by the protected party at the time plant decisions are made.
Order No. 20610.2
The Commission s wise and even handed treatment of the Valmy investment should be
replicated here. Indeed, such treatment of abandoned plant is routine and widely accepted
throughout the regulated community. See Rodney Wilson Ratemaking Treatment of Abandoned
Generating Plant Losses 8 William Mitchell Law Review 343 (1982).
It was not prudent for Idaho Power to proceed with the construction of Danskin.
forecasting the need for Danskin, Idaho Power ignored the fundamental principle of elasticity of
demand. Indeed, Mr. Wilson in the above cited law review article observed that many
abandoned plants result from a lack of appreciation of elasticity of demand: "The elasticity of
demand for electricity is greater than some utility forecasters believed. For a period of time
POST HEARING BRIEF ICIP
forecasters continued to extrapolate the old linear growth rates of past demand on into the
future.Id. at 344. That is exactly what Idaho Power did when it forecast future electricity
prices. It simply extrapolated the old and assumed it would be the norm. Dr. Reading properly
observed such a mistake may have been understandable in the early spring, but by the time Idaho
Power started construction on the plant it was no longer a reasonable assumption.
The ICIP urges this Commission to, once again, strike a reasonable balance between
ratepayers and shareholders by disallowing from ratebase all of the Danskin plant costs.
ERRATA
Mr. Henderson provided rebuttal testimony in this matter reflecting his belief that time of
use rates would cause Lamb Weston s facilities operating in Idaho to pay more that they would
have paid without time of use rates. After additional consultations with Idaho Power it became
apparent that, in fact, the Lamb Weston plants in Idaho would actually pay less under Idaho
Power s proposed time of use rates than they would pay without time of use rates. Mr.
Henderson s understanding of the impact ofthe proposed time of use rates was based on an
erroneous assumption in his calculations. The ICIP apologizes for the error. However, the fact
that the error occurred at all reflects very poorly on the level of communication Idaho Power
engaged in prior to rolling out its proposed time of use rate proposal.
RICHARDSON & O'LEARY PLLC
BY:
~~
Peter J. Rich dson, ISB #3195
2 Approximately at page 103.
POST HEARING BRIEF ICIP
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 26th day of April, 2004, I caused a true and
correct copy of the foregoing Post Hearing Brief to be served by the method indicated below
and addressed to the following:
Jean Jewell
Idaho Public Utilities Commission
472 West Washington Street
Post Office Box 83720
Boise, Idaho 83720-0074
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Barton L. Kline
Monica B. Moen
Idaho Power Company
PO Box 70
Boise, ID 83707-0070
bklinecmidahopower. com
mm oen(illidahopow er. com
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Lisa Nordstrom
Weldon Stutzman
Deputy Attorney Generals
Idaho Public Utilities Commission
PO Box 83720
Boise, ID 83720-0074
lnordstcmpuc.state.id. us
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John R. Gale
VP - Regulatory Affairs
Idaho Power Company
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Boise, Idaho 83707-0070
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Randall C. Budge
Eric L. Olsen
Racine, Olson, Nye, Budge, Bailey, Chartered
PO Box 1391
Pocatello, ID 83204-1391
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Anthony Yankel
29814 Lake Road
Bay Village, OH 44140
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Lawrence A. Gollomp
Assistant General Counsel
United States Department of Energy
1000 Independence Ave., SW
Washington, DC 20585
lawrence. gollompcmhQ .doe. gOV
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Dennis Goins
Potomac Management Group
5801 Westchester Street
Alexandria, VA 22310-1149
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Dean J. Miller
McDevitt & Miller LLP
PO Box 2564
Boise, ID 83701
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Jeremiah J. Healy
United Water Idaho, Inc.
PO Box 190420
Boise, Idaho 83719-0420
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William M. Eddie
Advocated for the West
PO Box 1612
Boise, ID 83701
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Nancy Hirsch
NW Energy Coalition
219 First Ave. South
Suite 100
Seattle, W A 98104
nancycmnwenergY.org
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Conley Ward
Givens Pursley LLP
601 W. Bannock Street
PO Box 2720
Boise, Idaho 83701-2720
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Dennis E. Peseau, Ph.
Utility Resources, Inc.
1500 Liberty Street SE, Suite 250
Salem, OR 97302
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Brad M. Purdy
Attorney at Law
2019 N. 17th Street
Boise, Idaho 83702
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Michael Karp
147 Appaloosa Lane
Bellingham, W A 98229
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Don Reading
Ben Johnson Associates
6070 Hill Road
Boise, Idaho 83703
dreading(illmindspring. com
Michael L. Kurtz, Esq.
Kurt J. Boehm, Esq.
Boehm, Kurtz & Lowry
36 E. Seventh Street, Suite 2110
Cincinnati, OH 45202
mkurtzlawcmaol.com
Thomas M. Power
Economics Department
Liberal Arts Bldg. 407
University of Montana
32 Campus Drive
Missoula, MT 59812
tom.powercmmso.umt.edu
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Signed ~ f/...l'D G...!hsb
Nina . Curtis