20040525Order No 29506.pdf

Office of the Secretary
Service Date
May 25 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO IMPLEMENT POWER COST ADJUSTMENT
(PCA) RATES FOR ELECTRIC SERVICE FROM
MAY 16, 2004 THROUGH MAY 31 , 2005.
) CASE NO. IPC-04-
) ORDER NO. 29506
On April 15, 2004, Idaho Power Company filed an Application for authority to
implement its annual Power Cost Adjustlllent (PCA) rates. Since 1993 the PCA mechanism has
permitted Idaho Power to adjust its rates upward or downward to reflect the Company s annual
power supply costs." Under the PCA mechanism ratepayers receive a credit when power costs
are low, but are assessed a surcharge when power costs are high.The Company s PCA
Application contained two recommendations. First, the Company requested that the existing
PCA rates that were scheduled to expire on May 16 be extended until May 31 , 2004. Second
the Company proposed to continue the current PCA rates for the 2004-2005 PCA year except for
the anticipated "credit" decreases in PCA rates foLSchedules 7, 19, and 24 customers.
In Order No. 29478 issued April 22, 2004, the Commission approved Idaho Power
request to continue the current PCA rates through May 31 2004. Order No. 29478 also solicited
public comment regarding Idaho Power s proposal to continue the existing PCA rates for another
year with the exception of the three classes mentioned above.On April 28, 2004, the
Commission granted intervention to Micron Technology. As conditioned below, we grant Idaho
Power s Application.
THE PCA MECHANISM
Because of its predominant reliance on hydroelectric generation, Idaho Power
actual cost of providing electricity (its power supply costs) varies from year-to-year depending
on changes in Snake River stream flow and the market price of power. The annual PCA
surcharge or credit is combined with the COlllpany s "base rates l to produce the customers
overall energy rate.
1 Base rates are authorized by the Commission in a general rate case. The Company s new base rates are establishedin Order No. 29505 issued today.
ORDER NO. 29506
The annual PCA mechanism is comprised of three major components. First, PCA
rates are adjusted to compensate for the forecast in Snake River streamflows and storage. In
years of abundant streamflows with correspondingly plentiful, relatively inexpensive hydro-
generation, the Company s power supply costs are usually lower. Conversely, when streamflows
or snow packs are low, Idaho Power must rely increasingly upon its other thermal generating
resources and off-system power purchased in the regional market. The Company s thermal
generating resources (coal and gas plants) and purchased power, are typically more costly than
the Company s hydro-generation. Under the PCA mechanism, the Company may recover 90%
of the difference between the proj ected power costs and the approved base power costs. Order
No. 25880.
Second, because the PCA includes forecasted costs, the preceding year s forecasted
costs are subsequently "trued-up" to account for actual costs. Third, in last year s Order
No. 29334, the Commission added a third component to the PCA mechanism. Beginning with
this PCA year, Idaho Power will calculate its total Idaho jurisdictional power sales made during
the ensuing PCA year rather than use the sales figure from the Company s last general rate case
in 1993. In essence, using normalized sales data will eliminate the under-collection, over-
collection, under-refunding, and over-refunding by "truing-up the true-up." Order No. 29334
4. Consequently, ratepayers will pay for the actual amount of power sold by Idaho Power to
meet native load requirements-no more or no less. This third mechanism is commonly referred
to as the "true-up of the true-up.
THE PCA APPLICATION
In this year s PCA Application, Idaho Power forecasts inflows at Brownlee Reservoir
at approximately 3.13 million acre feet (mat). This is approximately 500/0 below the 30-year
average of 6.3 maf. Based upon the projected water flow and replacement power costs, the
. Company calculated that the projected power supply. costs for the 2004-2005 PCA year are
$129 823 425. This equals 1.0092~ per kWh. The projected power cost is 0.2777~ per kWh
higher than the Commission s approved base ofO.7315~ per kWh. Consequently, the Company
proposes to collect 0.2499~ per kWh (900/0 of 0.2777 ~).
The Company also calculated that the difference between last year s forecasted costs
and the actual costs (the true-up) is 0.3661~ per kWh. Finally, the third PCA rate element is the
new "true-up of the true-up.Last year Idaho Power collected all but $556 693 of the deferral
ORDER NO. 29506
balance.Dividing this amount by the 2003 Idaho jurisdictional sales of approximately
096 872 MWh results in a PCA true-up of the true-up rate element of 0.0046~ per kWh.
Combining the projected power cost of 0.2499~, the true-up component of 0.3661 ~ and the true-
up of the true-up of 0.0046~, results in a total PCA rate for the 2004-2005 PCA year of 0.6206~
per kWh. If approved, this would be an increase of 0.0167~ above the existing PCA rate of
6039~ per kWh.
Although the Company determined that the 2004-2005 calculated PCA rate could
slightly increase, customers in Schedules 7, 19 and 24 would experience a decrease in existing
rates. Last year s PCA included recovery of deferred costs from prior years for these three
customer classes. Elimination of all but a small portion of prior year deferral recovery means
that their PCA rates should decrease.
Because the Company anticipates that its general rate case (Case No. IPC-03-13)
will result in an increase in the Company s base rates, Idaho Power requested that the
Commission "keep the overall PCA rate at the same level as last year (0.6039~ per kWh)." App.
at 5. Idaho Power proposed this "unique rate treatment" to avoid the adverse consequences for
most customers of having both their base rates and PCA rates increase in 2004. Consequently,
the Company is proposing that the current PCA rate schedule remain the same except for the
proposed decreases for Schedules 7, 19 and 24 customers. The table below shows most of the
Company s proposed PCA rates.
Customer Group
Current
PCA
Proposed*
PCA
Residential (Schedule 1)
Small Commercial (Schedule 7)
Large Commercial (Schedule 9)
Industrial (Schedule 19)
Irrigation (Schedule 24)
6039
8477
6039
8217
1.3159
6039
5850
6039
5817
5228
..
All prices shown in cents per kWh.
THE COMMENTS
In response to the Notice of Modified Procedure, the Commission received comments
from the Commission Staff and one customer. On May 18 , 2004 , Idaho Power filed a Reply to
the Staffs Comments. The one customer stated that there should not be a PCA increase this year
ORDER NO. 29506
but also argued that there should be a rate reduction for all customers. The Staff Comments and
Reply Comments are discussed in greater detail below.
A. Staff Comments
The Staff s Comments reviewed the Company s PCA calculations and contained two
other recommendations. In general, the Staff recommended that the Commission adopt the
Company s proposal to continue current PCA rates but adjust the PCA credits for the Schedules
, 19 and 24 customers as discussed below.
1. Reviewing the Calculations. First, the Staff examined the Company s calculations
regarding the three PCA elements. The Staff confirmed the Company s forecast calculation to
be 0.2499~/kWh. The Staff next reviewed Idaho Power s calculation of the PCA true-up. The
Staff agreed that Idaho Power under-collected power supply costs by $44 285 289. The true-up
rate component for the PCA was calculated by both the Staff and the Company to be
3661~/kWh. The Staff also agreed with the Company s calculation rega~ding the true-up of the
true-up. Including the appropriate carrying charge, the Staff and Company calculated that last
year s PCA rates under-recovered the true-up amount by $556 693. This results in a true-up of
the true-up component ofO.0046~/kWh.
The sum of these three components listed above produces a calculated PCA rate of
6206~/kWh. (0.2499 + 0.3661 + 0.0046). Staff Comments at 3. The Staff agreed with th~
Company that customers in Schedules 7, 19 and 24 are entitled to a credit as a result of last
year s stipulation. Staff Comments at 3 , Atch. C, ll. 16-18. The Staff also agreed with the
Company s proposal to continue the existing PCA rate in light of the pending rate case.
2. Adiusting the Credits In Order No.29478 the Commission granted the
Company s request to continue the existing PCA rates for two weeks until May 31 , 2004.
Continuing the existing rate for two weeks would allow the new PCA rates to become effective
at the same time that the Company s base rates are to become effective on June 1 , 2004. Thus
customers will only experience one change in rates. However, by continuing the existing rates
for this two-week period, PCA costs for customers in the three schedules (7, 19 and 24) will be
over-collected. Staff estimated the total amount of over-collection for this two-week period to be
$605 689. Staff Comments at 4, Atch. C, Co!. b, ll. 22-24. This "over-collection" will not be
captured in the true-up of the true-up. Consequently, Staff recommended slightly greater
decreases (more credits) for customers in these three schedules for the 2004-2005 PCA year.
ORDER NO. 29506
3. Valmy Investigation. During the Staffs PCA audit, it became aware that a
significant amount of power purchased last year was attributable to an unexpected outage
V almy' s Unit 2. The Valmy Power Plant is jointly owned by Idaho Power and Sierra Pacific but
is operated by Sierra Pacific. After the Valmy unit was taken off-line for routine maintenance
Sierra Pacific personnel modified the control wiring which defeated specifically engineered
protections intended to prevent accidental energization of the generator. After the maintenance
repairs were completed, the unit was energized without reconnecting the generator breaker
control wiring. The generator sustained severe damage in excess of $2.5 million.
The accident caused the generator unit to be out of service from June 26 through
September 8 , 2002. Because of the outage, Idaho Power was required to purchase replacement
power at rates significantly higher than the variable costs for Valmy. As outlined in the Staffs
Comments and the Company s confidential audit report, the incident was caused by an apparent
failure to follow established safety procedures , a lack of proper supervision and training, and
poor communications between proj ect personnel.
According to the Staff, the outage forced Idaho Power to purchase approximately
133.5 MW every hour, or forego additional power sales between June 26 and September 9. In
response to a Staff production request, the Company estimated that it spent approximately $6.
million for Valmy replacement power. However, Staff stated that this estimate was calculated by
simply using the average daily Mid-C index price during the outage period. The Company
estimate was not based on the actual price it paid for term purchases, running Danskin, or real-
time purchases used to replace Valmy power. Staff contended that the PCA was established to
adjusf for changes in water conditions and variable energy market prices, but was not intended to
automatically flow through costs associated with this type of event. Absent the PCA, these
costs would not even be considered without special application from the Company.Staff
Comments at The . Staff recommended that the Commission initiate an investigation to
determine whether the costs for the Valmy replacement power should be calculated and credited
as an adjustment to next year s PCA.
In summary, the Staff recommended that the existing PCA rates be continued except
for the credits due Schedules 7, 19 and 24. The Staff proposed that the PCA rates for the three
schedules be adjusted to account for the over-collection of PCA rates due to the two-week
extension. Finally, the Staff recommended that the Commission open an investigation to review
ORDER NO. 29506
the financial impacts of the Valmy incident. Staff proposed that the PCA rates become effective
June 1 , 2004, as proposed by the Company.
B. The Company s Reply
The Company first replied to the Staff s recommendation to provide additional credits
to Schedule 7, 19 and 24 customers based on the over-collection during the two-week period.
Based upon Staffs methodology, the Company recomputed the additional credits for Schedules
19 and 24 using actual May 2003 sales. The Company calculated that the over-collection for the
two-week period totaled $476 826 (compared to the Staffs calculation of $605 689).
Incorporating this adjustment, the Company calculated that the effective 2004-2005 PCA rates
for Schedule 7 would be 0.5761~/kWh; the Schedule 19 rate would be 0.5731~/kWh; and the
Schedule 24 irrigation rate would be 0.5054~/kWh. Reply, Atch. 1.
The Company s Reply Comments also addressed the Staffs request for a Valmy
investigation. Although Idaho Power generally concurred with the Staff s summary of events
associated with the outage, it did not agree with the Staff s characterization of the purpose of the
PCA. The Company took issue with the Staff s characterization that the PCA "was established
to adjust for changes in water conditions and energy market prices. In other words, whether
related conditions and power supply costs were beyond the control of the Company.Reply
Comments at 2 quoting Staff Comments at 8. Idaho Power asserted the Staffs characterization
unduly narrows the scope of the PCA, and in doing so , fails to acknowledge that the Company
generating units often perform with a reliability that exceeds industry norms. The Company
believes that the PCA methodology as adopted intended to balance above-average and below-
average performance." Reply at 2.
The Company offered to provide the Commission with additional information
regarding last summer s outage "either informally or formally as part of a new docket." Id. at 3.
COMMISSION FINDINGS
Based upon our review of the Application and the comments, we find that it is
appropriate to grant Idaho Power s request to continue the current PCA rate of 0.6039~ per kWh
except for customers taking service under Schedules 7, 19 and 24. Continuing the current PCA
rate is fair and reasonable given the increase in base rates we approve today in Order No. 29505.
We further find that it is appropriate to adopt the Staffs proposal to adjust the credits for the
2 The Staff agreed with the Company s recalculation of the over-collection.
ORDER NO. 29506
three customer classes to correct for the over-collection during the two-week period from
May 16 through May 31 , 2004. Given the agreement between the Staff and the Company, we
find that the amount of over-collection for the two-week period totals $476 826. Incorporating
this adjustment results in 2004-2005 PCA rates for: Schedule 7 of 0.5761 ~ per kWh; Schedule
of 0.5731 ~ per kWh; and Schedule 24 of 0.5054~ per kWh.
Attachment 1 to this Order shows the cumulative effects of the new base rates
established today in Order No. 29505 and the PCA rates adopted in this Order. For example, the
average rate for residential customers on June 1 will be 6.0879 cents per kWh, or an increase of
5.4%. For Schedule 24 irrigation customers the average rate is 4.7514 cents per kWh, or a
decrease of 5.80/0 from last year. Although the base rate for irrigation increased, the reduction in
the annual PCA rate resulted in an overall rate reduction.
We also believe that the issue of replacement power resulting from the Valmy plant
outage between June 26 and September 8 , 2003 ' warrants further examination. Given the
expedited nature of the annual PCA cases, there is not sufficient time to adequately examine this
issue in this proceeding. Consequently, we shall direct the Staff and the Company to informally
examine this issue in greater detail. We encourage the parties to reach a settlement that is fair to
both the Company and its ratepayers. If necessary, any adjustment in power cost recovery
resulting from the Valmy outage will be carried over to next year s PCA case. Although the
Commission has authorized the continuation of the existing PCA rates and reduced rates for the
three classes, we specifically reserve the recovery of the replacement power due to the Valmy
outage until the parties have completed their examination.
ORDER
IT IS HEREBY ORDERED that Idaho Power s request to continue the existing PCA
rate of 0.6039~ per kWh for all schedules except Schedules 7, 19, and 24 is granted as
conditioned by this Order.
IT IS FURTHER ORDERED that the 2004-2005 PCA rates for customers
Schedules 7, 19, and 24 shall be as follows: Schedule 7-5761~ per kWh; Schedule 19-
5731 ~ per kWh; and Schedule 24-5054~ per kWh.
IT IS FURTHER ORDERED that the PCA rates contained in this Order shall be
effective for service on June 1 , 2004. The Company shall file tariffs in conformance with this
Order.
ORDER NO. 29506
IT IS FURTHER ORDERED that the Staff and Idaho Power examine the cost of
replacement power attributable to the Valmy II outage and advise the Commission whether an
adjustment to next year s PCA is reasonable. Although the Commission has authorized a
continuation of the PCA rates, it specifically reserves the right to make an adjustment to next
year s rate pending the review of the replacement power issue.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. IPC-O4-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
this Case No. IPC-04-Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code 9 61-
626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;L5'*
day of May 2004.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~ill
D. Jewell
Commission Secretary
vld/O:IPCE0409 dh2
ORDER NO. 29506
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