20040928Reconsideration Order No 29600.pdf

Office of the Secretary
Service Date
September 28, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO IMPLEMENT POWER COST ADJUST-
MENT (PCA) RATES FOR ELECTRIC
SERVICE FROM MAY 16, 2004 THROUGH
MAY 31 , 2005.
CASE NO. IPC-04-
ORDER NO. 29600
On April 15 , 2004, Idaho Power Company filed an Application for authority to
implement its annual Power Cost Adjustment (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. In Order No. 29506 issued on
May 25, 2004, the Commission authorized Idaho Power to implement PCA rates that included
the power supply expenses Idaho Power incurred to replace Valmy generation that was
unavailable from June 26 through September 9, 2003 due to an inadvertent energization of the
Valmy Plant Unit No.2 generator. In that Order, the Commission directed Staff and Idaho
Power to advise the Commission whether next year s PCA should be adjusted to recover the cost
of the replacement power.
On August 16, 2004, Idaho Power and Commission Staff (the "Parties ) filed a Joint
Motion for Acceptance of Settlement to resolve the Valmy 2 replacement power expense issue.
In addition, the stipulation resolves two other issues: the expense adjustment rate for growth
EARG"component of the Company s PCA calculation 1 and certain regulatory accounting
issues related to the Company s 2001 non-recurring income tax deduction created by its
accounting method change for capitalized overhead costs.
On August 18 , 2004, the Commission issued a Notice of Proposed Settlement and
sought comments from the public and other parties to the PCA case about whether the
Commission should adopt the settlement proposed by Idaho Power and Staff. Order No. 29568.
After reviewing the record comments and the provisions of the Settlement Stipulation, the
1 In Order No. 29505 issued in Case No. IPC-03-, the Commission directed Idaho Power and Staff to initiate a
separate proceeding to address the EARG component of the PCA calculation.
ORDER NO. 29600
Commission accepts the Stipulation as a fair, just and reasonable resolution to the Valmy
replacement power costs, the EARG growth adjustment, and the 2001 non-recurring income tax
deduction issues remaining in this case.
THE PROPOSED SETTLEMENT
In their Stipulation, the Parties agreed on a single comprehensive settlement amount
to resolve all the outstanding issues identified in the Stipulation. First, the Parties propose the
EARG would continue at its existing value, 16.84 mills per kWh, until the next general revenue
requirement case in which the Company resets the base rates for PCA computation purposes.
Second, Idaho Power will also 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 of one percent (1
%).
This $804 166
monthly credit is in addition to the $2 000 000 annual credit currently being provided to Idaho
customers in conjunction with the settlement of Case No. IPC-01-16. Exhibit 1 to the Settlement
Stipulation shows how the monthly revenue credit will be accrued and paid.
Finally, the Parties acknowledge that the June 2003 Valmy Unit No.2 inadvertent
energization incident was an atypical event at least in part beyond the control of Idaho Power
Company. The Parties agree that under the specific circumstances of this case, it is in the public
interest to utilize the PCA and comprehensive settlement to resolve the outstanding issues
associated with this event.
The Parties ask that the Commission accept this Stipulation without material change
or condition. The Parties agree that the Stipulation is in the public interest, claiming it is a fair
just and reasonable resolution of multiple issues affecting the Company s PCA.
COMMENTS
In response to its request for comments from the public and parties to the PCA case
the Commission received supporting comments from Idaho Power and the Commission Staff.
No other comments were received.
Idaho Power
Idaho Power estimates that the cost of replacement power attributable to the Valmy 2
outage was between $6 million and $7 million. If the Company concludes that it would be cost-
effective to pursue a claim against Valmy 2's operator, Sierra Pacific, the ultimate determination
ORDER NO. 29600
of whether Sierra Pacific breached the Valmy Operating Agreement would not be finally
determined for a number of years. In light of the risk of an adverse outcome, 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.
To settle the regulatory accounting issues associated with the 2002 refund of a 2001
non-recurring income tax deduction, 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 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.
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 Staffs position, the Parties agreed it is in the public interest to maintain the EARG at its
existing level until the next time the Company files for general rate relief.
Idaho Power further noted that it had contacted counsel for each of the Parties that
participated in both this case and in the Company s general rate case (IPC- E-03-13). The United
States Department of Energy has agreed to and signed the Stipulation. All of the other Parties
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 approve the Settlement
Stipulation.
Commission Staff
Staff believes that the stipulated resolution of these contested issues is a reasonable
compromise of the Parties' divergent claims and results in a comprehensive settlement amount of
$19.3 million without specifically attributing a dollar amount to any single issue. While the
ORDER NO. 29600
cause of the Valmy outage is not in dispute, several issues complicate any possible recovery
from the responsible party, and mitigate the responsibility of Idaho Power. Those issues include
the magnitude of the replacement power costs, the inability of Idaho Power to control the events
the uncertainty and difficulty of cost recovery from the operating utility (Sierra Pacific) and the
nature of the PCA (which passes through the benefits of superior plant performance as well as
the costs of poor plant performance). These considerations influenced Staff s decision to settle
this issue as part of the Stipulation, which establishes a significant credit for customers through
the PCA.
The EARG level of 16.84 mills agreed to by Staff and Idaho Power as part of this
Stipulation continues the EARG adjustment originally approved by the Commission when the
PCA was first established. Staff asserted, absent approval of the Stipulation and pending further
proceedings on this issue, it is likely that the existing EARG would remain in place anyway.
Consequently, Staff believes that including the EARG in the comprehensive settlement at the
$16.84/MWh level is consistent with Commission Orders, is roughly half way between the
proposals of the parties, and assisted in compromise between the Parties on the other issues
resolved in the Stipulation. Moreover, the settlement on EARG modification is essentially for an
interim period until the next general rate case that is anticipated to be filed within two years.
Both Staff and the Company believe that EARG modification can be more properly identified
and included upfront as an issue in that case.
The dispute between the Parties regarding the 2001 non-recumng income tax
deduction includes multiple regulatory accounting concerns associated with the dollar amount
and regulatory accounting treatment.By including this issue as part of a comprehensive
settlement, the Parties can resolve these contentious issues without fully determining the
magnitude of any expense reduction or the merits of an out-of-test year regulatory adjustment.
Staff believes that both Parties reasonably compromised on the 2001 non-recurring income tax
deduction issue, and that this compromise is reflected in the comprehensive settlement.
COMMISSION FINDINGS AND DISCUSSION
Pursuant to Commission Rule 274 we shall decide whether to accept the Stipulation
and Settlement Agreement based on the record currently before us. IDAP A 31.01.01.274. The
facts of the issues resolved by this Stipulation are not in dispute and all parties that materially
participated in this docket have either signed this Agreement or did not actively oppose it.
ORDER NO. 29600
Accordingly, we find further proceedings are not necessary for us to determine whether we
should accept this Agreement.
As Staff noted in its comments, the issues included in the comprehensive settlement
are complex in that they involve difficult accounting, tax reporting and third-party subrogation
issues. Staff and Idaho Power took widely divergent stances on how these issues should be
resolved. We find that the potential for resource consuming formal proceedings, and the risk to
each party of unfavorable resolution on each issue, is high for both Parties. The Commission
finds that the compromise embodied in the Stipulation serves the best interest of Idaho Power
ratepayers and the parties involved. Moreover, the resulting $19.3 million customer credit
benefits customers and will promote rate stability over the next two years.
The Commission finds that this Stipulation finally resolves the Valmy 2, EARG and
regulatory tax accounting issues. We further find that this Stipulation has been made to
compromise contested claims and is entered largely for the purpose of avoiding expense
inconvenience, and uncertainty of further litigation. Finally, pursuant to Commission Rule 275
we find that the Parties have carried their burden of showing that the Stipulation is just, fair and
reasonable, in the public interest, and in accordance with the law and regulatory policy of this
State. IDAP A 31.01.01.275. Accordingly, we accept and approve the Stipulation as proposed
by the parties without modification.
ORDER
IT IS HEREBY ORDERED that the proposed Stipulation is just, fair and reasonable
in the public interest, and in accordance with the law and regulatory policy of this State.
Accordingly, we accept and approve the Stipulation as proposed by the parties in settlement of
the Valmy 2, EARG and regulatory tax accounting issues identified therein. Thus, the Joint
Motion for Acceptance of Settlement is granted.
IT IS FURTHER ORDERED that the parties shall comply with all terms contained in
the Stipulation.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by this
Order or other final or interlocutory Orders previously issued in this Case No. IPC-04-9 may
appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho
Appellate Rules. See Idaho Code ~ 61-627.
ORDER NO. 29600
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho, this ;Lgfl..
day of September 2004.
, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSEN, COMMISSIONER
ATTEST:
D. Jewell
ission Secretary
O:IPCE0409 In settlemnt
ORDER NO. 29600