20040901Comments on Settlement.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO IMPLEMENT POWER COST ADJUST
ME NT (PCA) RATES FOR ELECTRIC
SERVICE FROM MAY 16, 2004 THROUGH
MAY 31, 2005.
CASE NO. IPC-04-
COMMENTS OF THE
COMMISSION STAFF
ON PROPOSED SETTLEMENT
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Donald L. Howell, II, Deputy Attorney General, and files these comments in
response to the Notice of Proposed Settlement, Notice of Modified Procedure and Notice of
Comment and Protest Deadline issued in Order No. 29568 on August 18 2004.
BACKGROUND
In Order No. 29506 issued on May 25 2004, the Commission authorized Idaho Power
Company to implement Power Cost Adjustment ("PCA") rates that included recovery of power
supply expenses Idaho Power incurred when Valmy generation was unavailable during June 26
through September 9 2003. The Valmy plant was shut down due to an erroneous energization of
the Plant Unit No.2 generator following scheduled maintenance. In that Order, the Commission
directed Staff and Idaho Power to advise the Commission whether it should adjust the PCA in
STAFF COMMENTS
ON PROPOSED SETTLEMENT SEPTEMBER 1 2004
2005 to credit customers for the recovery of 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 not only the Valmy 2 replacement power expense issue, but the expense
adjustment rate for growth ("EARG") component of the Company s PCA calculation as weiL
This comprehensive settlement also addresses regulatory accounting issues related to the
Company s 2001 non-recurring income tax deduction created by its accounting method change
for capitalized overhead costs.
The settlement formalized through the Parties' Stipulation is an integrated document that
resolves the following outstanding issues, more specifically described below.
1) Valmy Unit No.2 replacement power expenses. In Order No. 29506 issued in this
case on May 25 2004, the Commission authorized the Company to implement PCA rates that
included the power supply expenses Idaho Power incurred to replace Valmy generation that was
unavailable from June 26 2003 through September 9 2003. The Commission directed the Staff
and Idaho Power to examine the cost of obtaining replacement power resulting from the outage
and to advise the Commission whether an adjustment to next years ' PCA would be appropriate
since the outage resulted from an inadvertent energization of the Valmy Plant Unit No.
generator.
2) Modification of the expense adjustment rate for growth (EARG) component of the
Company s PCA calculation addressed by both Staff and the Company in Idaho Power s general
rate case, Case No IPC-03-13. In Order No. 29505 issued in the case, at the request of both
the Staff and Idaho Power, the Commission directed the parties to initiate a separate proceeding
to address this component of the PCA calculations.
3) Regulatory accounting issues related to the Company s 2001 non-recurring income
tax deduction created by its method change for capitalized overhead costs. Although not
necessarily associated with any specific case, the issue of out-of-test year regulatory treatment of
the non-recurring tax deduction has been the subject of continued discussion between Staff and
Idaho Power.
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.
STAFF COMMENTS
ON PROPOSED SETTLEMENT SEPTEMBER 1 , 2004
STAFF ANALYSIS
The Stipulation requires that Idaho Power provide a $19.3 million revenue credit to Idaho
Power customers through the Company s PCA. This revenue credit will consist of a separate
line item of $804 166 each month for 24 months for the period of June 2004 through May 2006
in the PCA true-up calculation. The credit will be in addition to any other credit provided
through the PCA and will include interest from June 1 2004 at the PCA carrying charge rate
which is currently (1) percent.
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. Staff believes that resolution of these issues in
one comprehensive settlement, as set forth in the stipulation and as more fully described below
is in the public interest and should be approved by the Commission.
Valmy Unit No.
In Order No. 29506, issued in Case No. IPC-04-, the Commission stated with respect
to the Valmy Unit No.2 outage:
. . .
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 will be carried over to next years' PCA case.
After informal examination of the issue in greater detail and additional discussions with
the Company, Staff believes resolution of the Valmy issue as part of this comprehensive
settlement complies with the Commission order and is in the public interest. While the 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
STAFF COMMENTS
ON PROPOSED SETTLEMENT SEPTEMBER 1 2004
this issue as part of the Stipulation, which establishes a significant credit for customers through
the PCA.
EARG
Modification of the EARG was originally addressed by the Company in prefiled direct
testimony submitted as part of the Company s general rate case, Case No. IPC-03-13. The
EARG's purpose is to subtract from actual power supply costs in a given year those power
supply costs associated with customer growth beyond normalized levels established in the last
general rate case. Company witness Said proposed that the PCA EARG be reduced from its
current level of$16.84 per Megawatt hour (Mwh) to $7.30/Mwh to more appropriately reflect
base PCA expenses embedded in customer rates. Staff witness Hessing countered in his rate
case prefiled direct testimony that the EARG should be increased to $29.71/Mwh to reflect the
average annual marginal cost of energy. No other party to the case addressed this issue.
Both parties agreed that given the large discrepancy between the two positions
modification of the EARG would be best addressed outside the general rate case. The
Commission agreed stating in Order No. 29505:
. . .
The Commission at hearing granted Staff s motion for a separate proceeding
to address Expense Adjustment Rate for Growth component of the PCA formula.
The Commission also indicated that the proceeding could be handled in a workshop setting
without formal hearing. Although structured workshops were not actually held on the EARG
issue, a notice of settlement discussions was transmitted and discussions were held with
interested parties.
The EARG level of$16.84 agreed to by Staff and Idaho Power as part of this stipulation
continues the EARG adjustment originally approved by the Commission when the Idaho Power
PCA was first established. In fact, 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 halfway 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
STAFF COMMENTS
ON PROPOSED SETTLEMENT SEPTEMBER 2004
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. Staff believes that including resolution of the
EARG modification issue in the Stipulation is appropriate and that maintaining the existing
EARG level until the next Idaho Power general rate case is reasonable.
Regulatory Tax Accounting
The issue associated with the 2001 non-recurring income tax deduction, created by the
accounting method change for capitalized overheads, addresses the manner in which the
Company for regulatory purposes, accounted for the 2002 out-of-test year income tax refund.
The Company maintained that many expenses, including income taxes, fluctuate from year-to-
year outside of rate case test years and thus are not necessarily recaptured for regulatory
purposes. Staff maintained, in fairness to ratepayers, the one-time reduction in income taxes that
occurred in 2001, that will reverse in the future, was an extraordinary event subj ect to special
consi derati on.
The dispute between the parties 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, created by the accounting method change for capitalized
overheads, and it is reasonably reflected in the comprehensive settlement.
CONCLUSION
The issues described above and included as part of the comprehensive settlement are
highly technical and complicated, involving difficult accounting, tax reporting and third-party
subrogation issues. In addition, Staff and Idaho Power have taken widely different positions on
how these issues should be individually resolved. The potential for costly, time consuming
formal proceedings, and the risk to each party of unfavorable resolution on each issue, is high for
both parties. In Staffs view, the settlement and proposed stipulation serves the best interest of
Idaho Power ratepayers.
STAFF COMMENTS
ON PROPOSED SETTLEMENT SEPTEMBER 1 2004
The proposal represents thoughtful compromise of cost responsibility for the Valmy Unit
No.2 outage, maintains the EARG at current levels until the next rate case and secures ratepayer
benefits associated with reduced Company expenses in 2001. The overall resulting customer
credit of $19.3 million passed through the PCA aids in rate stability over the next two years and
removes the uncertainty created by continued and lengthy litigation. Staff fully supports the
comprehensive settlement and recommends that the Commission approve the Stipulation as filed.
Respectfully submitted this day of September 2004.
wf1~
Donald L. Howell, II
Deputy Attorney General
Technical Staff:Randy Lobb
i:umisc/comments/ipcO4.9dhrl settlement
STAFF COMMENTS
ON PROPOSED SETTLEMENT SEPTEMBER 1 , 2004
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 1st DAY OF SEPTEMBER 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF ON
PROPOSED SETTLEMENT IN CASE NO. IPC-04-, BY MAILING A COpy
THEREOF POSTAGE PREPAID TO THE FOLLOWING:
BARTON L KLINE
MONICA MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
GREGORY W SAID DIRECTOR
REVENUE REQUIREMENT
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
CONLEY E WARD
GIVENS PURSLEY LLP
PO BOX 2720
BOISE ID 83701-2720
RICHARD E MALMGREN
MICRON TECHNOLOGY INC
8000 S FEDERAL WAY
BOISE ID 83716-9632
SECRET ARt
CERTIFICATE OF SERVICE