20050822final order no 29852.pdf

Office of the Secretary
Service Date
August 22, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ORDER AUTHORIZING THE BLANKET
SALE OF AIR EMISSION ALLOWANCES
AND FOR AN ACCOUNTING ORDER.
CASE NO. IPC-O5-
ORDER NO. 29852
On June 9, 2005, Idaho Power Company filed an Application with the Commission
seeking (1) blanket authority to sell surplus sulfur dioxide ("S02") allowances obtained by the
Company under the provisions of the federal Clean Air Act Amendments of 1990; and (2) an
accounting order to provide for recording any sale(s) of such allowances. On July 15 , 2005, the
Commission issued a Notice of Application and Modified Procedure. See Order No. 29821.
Comments were received from the Commission Staff and two private citizens. After reviewing
the Application and the filed comments, the Commission grants Idaho Power s Application as set
forth in greater detail below.
BACKGROUND
Title IV of the Clean Air Act Amendments of 1990 establishes a national program for
the reduction of acid rain. 42 U.C. gg 7651 et seq. The centerpiece of the acid rain program is
the incentive- or market-based "cap and trade" S02 emission program. Under the cap and trade
program, the Environmental Protection Agency (EP A) sets a cap or ceiling on the total amount
of S02 emissions allowed nationwide. Based on this cap, EP A allocates a certain number of
S02 emissions allowances to thermal power plant owners. Each allowance provides the
authority to emit one ton of S02.
Each year a thermal power plant owner must hold sufficient allowances to cover
actual S02 emissions. A thermal power plant owner holding insufficient allowances to cover its
annual emissions must purchase additional allowances or it is automatically fined and must
surrender future year allowances to cover the shortfall. A thermal power plant holding surplus
S02 allowances in a given year may save the surplus allowances or sell them. S02 emissions
allowances are fully marketable commodities and can be traded on the open market or in special
EP A-sponsored auctions.
ORDER NO. 29852
THE APPLICATION
Idaho Power has an ownership interest in three thermal power plants in the western
United States that receive S02 allowances from the EP A. Application at 2. These plants are:
Jim Bridger Units 1 through 4 (1/3 interest); North Valmy Units 1 and 2 (1/2 interest); and
Boardman (1/10 interest). Id. Idaho Power believes that, after retaining sufficient allowances to
cover the S02 emissions for its facilities and providing a reasonable cushion for unexpected
changes and contingencies, it can make surplus S02 allowances available for sale. Id. at 3.
Idaho Power maintains that it cannot effectively participate in the S02 market unless
it has the Commission s prior approval. Id. at 3-4. Therefore, the Company seeks blanket
authority to sell the S02 allowances to avoid any potential "regulatory cloud" on their
marketability. Id. at 4.
Idaho Power asserts that Idaho Code g 61-328 is not applicable to the sale of S02
allowances. Id. at 4. Pursuant to Idaho Code g 61-328, an electric utility must get Commission
approval prior to selling or transferring any property that the utility owns, controls, or operates
and which is "used in the generation, transmission, distribution, or supply of electric power and
energy.Idaho Code g 61-328(1). Further, prior to approving the transaction, the Commission
must find that: (1) the transaction is consistent with the public interest; (2) the cost of and rates
for supplying the service will not be increased due to the transaction; and (3) the applicant for
such acquisition or transfer must have the bona fide intent and financial ability to operate and
maintain the property in the public service. Idaho Code g 61-328(3).
Idaho Power also requests an accounting order to provide for the recording of any
proceeds received from such sales. Application at 5-6. The Company acknowledges that the
Commission has jurisdiction over the Idaho portion of the S02 sale proceeds. Id. at 5.
However, until the Commission makes a determination regarding the ultimate ratemaking
treatment of these proceeds, Idaho Power proposes to book the proceeds in Account 254 (Other
Regulatory Liabilities). More specifically, the funds would be assigned to Account 131 (Cash)
flowing to Account 236 (Taxes Accrued) and Account 254 (Other Regulatory Liabilities). Id.
At this time, Idaho Power does not seek a Commission determination regarding the
appropriate ratemaking treatment of the allowances. Instead, Idaho Power offers to provide a
report with the Commission within sixty (60) days of receiving any proceeds from an S02 sale.
Id. The Commission may determine the appropriate ratemaking treatment at a later date. Id.
ORDER NO. 29852
CO MMENTS
Public Comments
Two private citizens filed comments on Idaho Power s Application. One comment
opposed the Application, and the other expressed concerns regarding the Application but did not
explicitly oppose it. Both comments focused on the environmental effects of S02 emissions.
Lee Halper commented that the environment already has excessive SOx and NOx
levels. According to Mr. Halper, allowing Idaho Power to sell surplus allowances would simply
allow more pollutants to be released.
Jerry Jayne expressed concern for the people living in the vicinity of a power plant
that buys surplus allowances to emit additional S02. Mr. Jayne also expressed concern that
allowing S02 trading might facilitate the construction of coal-fired plants in Idaho, an outcome
he finds undesirable. In addition, Mr. Jayne asked the Commission to consider making a
recommendation to the Idaho Legislature to limit S02 emissions to their current levels to prevent
any environmental degradation.
Staff Comments
Staff recommended that the Commission approve Idaho Power s Application. Staff
further recommended that the Commission retain the power to determine whether each sale of
S02 emissions is reasonable and to proceed expeditiously with workshops to determine the
appropriate ratemaking treatment of any proceeds from the sale of S02 emissions.
Staff concluded that blanket authority to sell S02 emissions was appropriate and
Idaho Power need not seek Commission approval prior to each transaction in which it sells S02
emissions allowances. Staff also determined that, while S02 allowances are the by-products of
Idaho Power s ability to generate electricity from its thermal generating plants, the S02
allowances are not directly used in the "generation, transmission, distribution, or supply of
electric power and energy" as contemplated in Idaho Code g 61-328. Therefore, Staff concluded
that Idaho Code g 61-328 does not apply to the sale of S02 allowances, and the Commission
may grant blanket authority to Idaho Power to sell the S02 allowances. Nonetheless, Staff
suggested that the Commission retain the authority to evaluate the reasonableness of each
transaction for ratemaking purposes.
Staff also supported Idaho Power s proposed accounting treatment of the proceeds
until a ratemaking determination is made. However, rather than wait up to sixty (60) days after
ORDER NO. 29852
the first sale of S02 emISSIons before determining appropriate ratemaking treatment, Staff
suggests that the Commission proceed expeditiously with workshops to determine the
appropriate ratemaking treatment of any proceeds acquired through the sale of surplus S02
emissions allowances. Staff suggested that these workshops involve Idaho Power, Staff, and any
other interested parties.
COMMISSION FINDINGS AND CONCLUSIONS OF LAW
Based upon our review of the Application and comments, the Commission finds it is
reasonable to grant Idaho Power blanket authority to sell S02 emissions allowances. The
Commission further finds that Idaho Code g 61-328(1) does not apply to the sale of S02
emissions allowances and that blanket authority will allow Idaho Power the discretion to react
quickly to changes in the price of S02 allowances and obtain the highest prices available.
Nonetheless, the Commission will review the reasonableness of each sale. The Commission
anticipates that this review will be part of future ratemaking proceedings.
The Commission finds that Idaho Power s proposed initial accounting treatment is
reasonable until the Commission makes a determination regarding the appropriate ratemaking
treatment of the proceeds. The Commission directs Staff to conduct workshops as soon as
practicable in order to make a recommendation to the Commission regarding the appropriate
ratemaking treatment of such proceeds. When the Commission has made a determination
regarding the ratemaking treatment of any future proceeds, the initial accounting treatment
approved herein will no longer be applicable.
The Commission declines to make a recommendation to the Idaho Legislature to set
S02 standards that are more stringent than the EP A'standards. The Department of
Environmental Quality and not the Public Utilities Commission is the more appropriate state
agency to make such a recommendation if reasonable and necessary.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power for blanket
authority to sell air emission allowances and for an accounting order is granted. The Company
shall file a report with the Commission within 60 days of receipt of any S02 proceeds.
IT IS FURTHER ORDERED that the interim accounting treatment proposed by the
Company is reasonable until such time as the Commission determines the appropriate
ratemaking treatment of the proceeds from the sale of surplus S02 allowances.
ORDER NO. 29852
IT IS FURTHER ORDERED that Staff conduct workshops as soon as practicable in
order to make a recommendation to the Commission regarding the appropriate ratemaking
treatment of S02 proceeds. The ratemaking treatment shall be determined in a separate docket
and Notice for the workshop shall be provided under separate cover.
THIS IS A FINAL ORDER. Any person interested in the Order 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. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code gg 61-
626 and 62-619.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this J..
day of August 2005.
MARSHA H. SMITH, COMMISSIONER
IS S. HANSEN, COMMISSIONER
ATTEST:
ORDER NO. 29852