20040901Comments in Support of Settlement.pdf

.~EC:E!VED
!,""..
!, J
""--
BARTON L. KLINE ISB #1526
MONICA B. MOEN ISB #5734
Idaho Power Company
1221 W. Idaho Street
O. Box 70
Boise, Idaho 83707
Phone: [phone]
FAX: [phone]
Attorneys for Idaho Power Company
::'
~LED
ZHOlj SEP f AftJ iO:
" ,) ,
UfiL!T IES COr.oJr"1ISSiON
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT POWER COST
ADJUSTMENT RATES FOR ELECTRIC
SERVICE TO CUSTOMERS IN THE STATE
OF IDAHO FOR THE PERIOD MAY 16, 2004
THROUGH MAY 31 2005
CASE NO. IPC-04-
COMMENTS OF IDAHO
POWER IN SUPPORT OF
ACCEPTANCE OF
SETTLEMENT
COMES NOW , IDAHO POWER COMPANY ("Idaho Power ), by and
through its attorney, Barton L. Kline , and in response to the Notice of Proposed
Settlement, Notice of Modified Procedure and Notice of Comment/Protest Deadline
issued on August 18, 2004 , submits the following comments.
BACKGROUND
On August 16, 2004, Idaho Power and the Staff of the Idaho Public
Utilities Commission ("the Parties ) filed a Joint Motion requesting that the Commission
approve a settlement agreement negotiated by the Parties. The settlement agreement
was memorialized in a Stipulation which was included with the Joint Motion. In the
Stipulation , the Parties agreed to resolve a number of issues that the Commission had
COMMENTS OF IDAHO POWER IN SUPPORT OF ACCEPTANCE OF SETTLEMENT, Page
directed the Staff and Idaho Power to examine. Those issues are generally described
as follows:
(1 )In Order No. 29506 issued in this case on May 25, 2004, the
Commission authorized the Company to implement Power Cost Adjustment ("PCA") rates
that included the power supply expenses Idaho Power incurred to replace Valmy
generation that was interrupted from June 26, 2003 through September 9, 2003 due to an
inadvertent energization of the Valmy Plant Unit No.2 generator. In Order No. 29506, the
Commission directed the Staff and Idaho Power to examine the cost of obtaining
replacement power resulting from the Valmy Unit No.2 outage and to advise the
Commission whether an adjustment to next year s PCA based on the cost of replacement
power would be reasonable under the circumstances.
(2)In Idaho Power s general rate case , Case No. IPC-03-, Staff and
Idaho Power addressed one of the components of the Company s PCA calculation, the
. .
exp~nse adjustment rate for growth ("EARG"). In Order No. 29505 issued in Case No.
IPC-03-, at the request of both the Staff and Idaho Power, the Commission directed
Idaho Power and Staff to initiate a separate proceeding to address this component of the
PCA calculations.
(3)In 2001 , Idaho Power filed its federal income tax return including a
non-recurring income tax deduction created by its accounting method change for
capitalized overhead costs. Since that tax return filing, the Parties have discussed several
regulatory accounting matters they seek to resolve.
COMMENTS OF IDAHO POWER IN SUPPORT OF ACCEPTANCE OF SETTLEMENT, Page 2
Description of Settlement
As might be expected, during the settlement negotiations the Parties had
significant differences of opinion as to the respective merits and values that ought to be
attributed to each of the above-referenced items.
In the end, the Parties agreed that rather than assigning a value to each of
the three issues, a comprehensive settlement which results in Idaho Power providing a
$19.3 million revenue credit to Idaho Power s customers in the Company s PCA was a
reasonable compromise of all the disputed claims. The Parties agreed that under the
circumstances, it was in the public interest to utilize the PCA and a comprehensive
settlement to resolve the outstanding issues.
As noted in the Stipulation, the comprehensive settlement consists of the
following:
(1 )The EARG would continue at its existing value, 16.84 mills per kWh
untiLthe next general revenue requirement case in which'theCompany re-sets the base
rates for PCA computation purposes.
(2)Idaho Power will provide a $19.3 million revenue credit to Idaho
Power customers in the Company s PCA. This revenue credit will be a separate $804 166
monthly line item for the months June 2004 through May 2006 in the PCA true-up
calculation and includes interest from June 1 2004 at the PCA carrying charge rate, which
is currently one (1) percent.
The Settlement Is Fair. Just. Reasonable
and in the Public Interest
For each of the three issues described above, Idaho Power believes there
are compelling reasons for the Commission to approve the settlement negotiation by the
COMMENTS OF IDAHO POWER IN SUPPORT OF ACCEPTANCE OF SETTLEMENT , Page 3
Parties and commence the flow of benefits to customers on the schedule set out in the
Stipulation. Those reasons are more particularly described as follows:
Valmv Two Outa~
Idaho Power estimates that the cost of replacement power attributable to
the Valmy Two outage was between $6 million and $7 million. Idaho Power is a co-
owner of the Valmy Project, but Sierra Pacific Power Company, the other co-owner
operates the Valmy Project pursuant to the terms of the Val my Operating Agreement.
The Valmy Operating Agreement was reviewed by the Commission at the time the
Commission approved Idaho Power s acquisition of an its interest in the Valmy Project.
Under the terms of the Valmy Operating Agreement, Idaho Power does not direct the
day-to-day operation and maintenance activities at the Valmy plant. This is an
appropriate arrangement as the Valmy plant is located in Sierra Pacific s control area
and its real-time operation has a major impact on Sierra Pacific s system operations.
Idaho Power has retained outside legal counsel and expert consulting engineers to
review the facts and the law to determine if Idaho Power has any recourse against
Sierra Pacific for the replacement power cost associated with the outage. If the
Company ultimately concludes that it would be cost-effective to pursue a claim against
Sierra Pacific, the ultimate determination of whether Sierra Pacific breached the Valmy
Operating Agreement would not be finally determined for a number of years.
In addition, maintaining symmetry in the PCA process should also playa
role in the Commission s consideration of this settlement. Over its life, the Valmy plant
has maintained an availability that exceeds national averages. It is not fair to consider
COMMENTS OF IDAHO POWER IN SUPPORT OF ACCEPTANCE OF SETTLEMENT, Page 4
disallowances for isolated instances of less-than-optimal operation without also
considering long-run superior performance.
In light of the risk of an adverse outcome and the lengthy delay associated
with a legal determination of fault and the need to maintain equity in the PCA process
Idaho Power submits that it is prudent to settle this matter thereby providing immediate
benefits to customers.
flggulatorv Accountinq Issues
The 2001 non-recurring income tax deduction described above resulted in
an income tax refund in 2002. To settle the regulatory accounting issues associated
with the refund , the Parties have agreed that a portion of this refund will be credited to
customers. In addition , because the Internal Revenue Service audit cycle takes years
to complete, there is still a possibility that the IRS could contest the Company s income
tax deduction and trigger an income tax deficiency in a future test year. Idaho Power
has agreed not to seek recovery in its revenue requirement of an IRS deficiency
assessment related to the one-time adjustment associated with the capitalized
overhead cost tax method change for the years 1987 through 2000.
EARG
The EARG value of 16.84 mills per kWh has been unchanged since the
inception of the PCA. Recognizing the substantial workloads for both Company and
Staff personnel and that the 16.84 mills per kWh amount roughly splits the difference
between the Company s position and the Staff's position, the Parties agreed it is in the
COMMENTS OF IDAHO POWER IN SUPPORT OF ACCEPTANCE OF SETTLEMENT, Page 5
public interest to maintain the EARG at its existing level until the next time the Company
files for general rate relief.
Finally, Idaho Power has contacted counsel for each of the Parties that
participated in both this case and in the Company s general rate case (IPC-03-13). The
United States Department of Energy has signed the Stipulation. All of the other Parties
have authorized Idaho Power to represent to the Commission that they do not object to the
Commission accepting the proposed settlement. Idaho Power believes the complete lack
of opposition to the settlement embodied in the Stipulation strongly supports the
conclusion that the settlement is fair, just and reasonable and in the public interest.
Consequently, Idaho Power urges the Commission to issue its order
granting the Joint Motion and issuing its order approving the settlement Stipulation.
Respectfully submitted this 1st day of September, 2004.
BAR . KLINE
Attorney for Idaho Power Company
COMMENTS OF IDAHO POWER IN SUPPORT OF ACCEPTANCE OF SETTLEMENT, Page 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 1 st day of September, 2004 , I served a
true and correct copy of the within and foregoing COMMENTS OF IDAHO POWER IN
SUPPORT OF ACCEPTANCE OF SETTLEMENT upon the following named parties by
the method indicated below, and addressed to the following:
Donald L. Howell , II
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Randall C. Budge
Eric L. Olsen
. Racine, Olson, Nye, Budge & Bailey
O. Box 1391; 201 E. Center
Pocatello, ID 83204-1391
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Anthony Yankel
29814 Lake Road
Bay Village, OH 44140
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Peter J. Richardson
Richardson & 0' Leary
99 East State Street, Suite 200
O. Box 1849
Eagle, ID 83616
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Don Reading
Ben Johnson Associates
6070 H ill Road
Boise , I D 83703
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Lawrence A. Gollomp
Assistant General Counsel
U. S. Department of Energy
1000 Independence Avenue, SW
Washington , D.C. 20585
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
CERTIFICATE OF SERVICE, Page
Dennis Goins
Potomac Management Group
5801 Westchester Street
Alexandria, VA 22310-1149
Hand Delivered
S. Mail
Overnight Mail
FAX
Conley E. Ward
Givens , Pursley LLP
601 W. Bannock Street
O. Box 2720
Boise , ID 83701-2720
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Dennis E. Peseau, Ph.
Utility Resources, Inc.
1500 Liberty Street S., Suite 250
Salem , OR 97302
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Dean J. Miller
McDevitt & Miller LLP
O. Box 2564
Boise, ID 83701
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Jeremiah Healy
United Water Idaho, Inc.
O. Box 190420
Boise, ID 83719-0420
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
William M. Eddie
Advocates for the West
O. Box 1612
Boise , ID 83701
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Nancy Hirsh
NW Energy Coalition
219 First Ave. South, Suite 100
Seattle, WA 98104
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Brad M. Purdy
Attorney at Law
2019 N. 17th Street
Boise, I D 83702
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Michael Karp
147 Appaloosa Lane
Bellingham , W A 98229
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
CERTI FICA TE OF SERVICE, Page 2
Michael L. Kurtz, Esq.
Kurt J. Boehm , Esq.
Boehm, Kurtz & Lowry
36 East Seventh Street , Suite 2110
Cincinnati , OH 45202
Kevin Higgins
39 Market Street, Suite 200
Salt Lake City, UT 84101
Thomas M. Power
Economics Department, LA 407
University of Montana
32 Campus Drive
Missoula, MT 59812
Richard E. Malmgren
Micron Technology, Inc.
8000 S. Federal Way
Boise , ID 83716-9632
CERTIFICATE OF SERVICE, Page 3
Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
Hand Delivered
S. Mail
Overnight Mail
FAX
Hand Delivered
S. Mail
Overnight Mail
FAX
Hand Delivered
S. Mail
Overnight Mail
FAX
Ui06L
BARTON L. KLINE