20060512final_order_no_30041.pdf

Office of the Secretary
Service Date
May 12, 2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
OF APPROPRIATE RATEMAKING
TREATMENT OF IDAHO POWER
COMPANY'S S02 ALLOWANCE SALE
PROCEEDS
CASE NO. IPC-05-
ORDER NO. 30041
On April 7, 2006, the parties to this case filed a Stipulation with the Commission
evidencing their agreement upon the disposition of the proceeds from the sale of the Company
excess S02 emission allowances. The parties sought the Commission s adoption and approval
of the Stipulation. With this Order the Commission accepts and adopts the parties' Stipulation as
more fully set forth below.
BACKGROUND
On June 9, 2005, Idaho Power Company (Idaho Power, Company) filed an
Application requesting: (1) blanket authority to sell surplus sulfur dioxide (S02) allowances;
and (2) an accounting order to provide for recording any sale(s) of such allowances. Case No.
IPC-05-20. The Company s Application also suggested that a determination of ratemaking
treatment for the proceeds be made at a later date.
On August 22, 2005 , the Idaho Public Utilities Commission (Commission) approved
the Company s Application. Order No. 29852. The Commission, while reserving the review of
the reasonableness of each sale, granted Idaho Power s request for blanket authority to sell S02
emissions allowances and approved the accounting treatment proposed by the Company, on an
interim basis, until such time as the Commission determines the appropriate ratemaking
treatment of the proceeds from the sale of the S02 allowances. Id. The Company was ordered
to file a report with the Commission within 60 days of the receipt of any S02 proceeds. Id.
Additionally, the Commission ordered that a separate docket be opened for Staff to conduct
workshops and make a recommendation to the Commission regarding the appropriate
ratemaking treatment of S02 proceeds. Id.
This case, IPC-05-, was opened and two workshops were held on November 7
and November 23, 2005 , respectively. During the workshops the parties were unable to reach
agreement upon the ratemaking treatment of the proceeds. On March 6, 2006, the Commission
issued Order No. 29989, establishing a comment deadline of March 31 , 2006, and a subsequent
ORDER NO. 30041
briefing schedule. On March 30, 2006, this comment deadline and briefing schedule were
vacated based upon the parties ' notification that an agreement had been reached. The Industrial
Customers of Idaho Power and Micron were the only parties to petition for intervention, which
was granted.
THE STIPULATION
The parties met on March 23 , 2006, and reached agreement upon an appropriate
ratemaking treatment for the allowance proceeds. The parties signed a Stipulation providing for
the inclusion of the S02 allowance sales proceeds to be included in the Company s annual PCA
with 90% of the net proceeds to be passed on to customers, and 10% of the net proceeds to be
retained as a shareholder benefit. This Stipulation has been filed with the Commission. Idaho
Power has filed a Motion for Approval of the Stipulation asking the Commission to accept the
Stipulation in its entirety without material change or condition.On April 11 , 2006, the
Commission issued a notice of the parties' settlement and established a comment deadline of
April 24, 2006, for interested persons to submit comments regarding the Stipulation.
COMMENTS
The Commission received comments from the Commission Staff, the Northwest
Energy Coalition, the U.S. Department of Energy (DOE), the Idaho Energy Education Project
six customers of Idaho Power, and reply comments from the Company.
Commission Staff filed comments supporting the terms laid out in the Stipulation and
recommending the Commission approve the Stipulation with one change.The Stipulation
reflects the S02 proceeds net of tax. Staff recommended the Commission include a provision for
the gross-up of the benefits allocated to customers when that amount is returned to customers in
the PCA if it approves the Stipulation. DOE filed comments supporting the Stipulation, but also
pointing out that the net of tax credit of $42 101 506 should be grossed up to reflect the tax
savings when that credit is flowed through the PCA, making the customers 90% share
approximately $69 126 518. Idaho Power, in addition to filing a Motion for Approval of the
Stipulation asking the Commission to accept the Stipulation in its entirety without material
change or condition, filed reply comments in which it too supported a clarification to the
Stipulation that the net of tax credit to customers be grossed-up to recognize the tax savings that
will accrue when the credit is actually provided to customers through the PCA.
ORDER NO. 30041
The comments of the Northwest Energy Coalition also supported the proposed
allocation of the sale proceeds set forth in the Stipulation, but proposed that the Commission
consider some alternative uses for some of the proceeds allocated to customers, such as
earmarking some of the proceeds for longer-term conservation and efficiency programs. They
suggested the Commission entertain suggestions on how some of these proceeds might be used
to help foster initiatives that further reduce carbon emissions, promote carbon-reducing
technologies, implementing more programs to reduce peak demand, leveraging funds for
investments in agricultural biodigesters, or enhancing energy-savings weatherization and other
programs for low-income customers.
The Idaho Energy Education Project likewise suggested that the proceeds from the
sale of the S02 allowance be invested in programs aimed at cleaning up the Company s coal
plants, energy efficiency and conservation programs, and renewables. They also suggest that
some money be allocated to energy education programs in the schools.They suggest an
allocation of 10% to Idaho Power investors 10% to the Energy Education Project, and the
remaining 80% to be split among the four Idaho Power ratepayer groups.
The remaining comments from Idaho Power customers all advocated returning the
money back to the public and the customers. They suggested that some money be used for
alternatives such as demand reduction and conservation, renewable energy and energy
efficiency, grants to schools and universities for research and education, as well as returning it to
customers to reduce their power bills. One commenter stated that some portion should be given
to the Company s shareholders, but most should go to the customers.
DISCUSSION
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
its Application, and the issues involved in this case by virtue of Title 61 , Idaho Code, including
Idaho Code 99 61-129, 328, 501-503, 507, 523 , 524, and the Commission s Rules of Procedure
IDAPA 31.01.01.000 et seq. formal hearing is not required and we continue to find it
appropriate to process this case by Modified Procedure. IDAP A 31.01.01.201-204.
Petitions to Intervene in this matter were filed by the Industrial Customers of Idaho
Power (ICIP) and by Micron Technology, Inc. ICIP was granted intervention in Order No.
29978 , and Micron was granted intervention in Order No. 30005.
ORDER NO. 30041
The Commission under its Rules of Procedure must review settlements. IDAP A
31.01.01.274. The Commission may prescribe appropriate procedures for its consideration of the
settlement. !d. The Commission is not bound by settlements, and will independently review
proposed settlements to consider their reasonableness and determine whether it is just, fair, in the
public interest, or otherwise in accordance with law or regulatory policy. IDAP A 31.01.01.276.
Based on our review of the Stipulation signed and filed by the parties to this case, as
well as the file and record to date, we find the methodology proposed in the Stipulation for
dividing and sharing the proceeds of the Company s sale of its excess S02 emission allowances
to be reasonable. Sharing the proceeds, 90% to customers and 10% to shareholders, will
sufficiently align the interests of the Company s shareholders and customers, and provide a
financial incentive to the Company to maximize any S02 allowance sales for the benefit of both
shareholder and customer.
We find that the PCA, which is designed to track and true-up abnormal power supply
costs and revenues, is the logical mechanism to track and distribute proceeds from the sale of
excess S02 allowances. S02 allowances are allocated to the Company based on the ownership
and operation of its thermal/coal powered plants. Excess allowances are a direct result of many
factors associated with the operation of the coal plants including installation of environmental
equipment, the geographic location of the plant, the total time the plant is operated, the nature of
the coal used to fuel the plant, as well as other factors. The allowances accrue as a direct result
of plant operation and ownership in much the same way that energy generated from the plant is
used to meet ratepayer demand and generate surplus sales revenue to offset plant-operating costs.
To the extent that coal costs, environmental costs, and surplus energy sales increase/decrease
these costs/benefits are passed through to the customers. We find it logical that S02 allowances
pass through in a similar manner. Consequently, we approve and adopt the Stipulation as a
. reasonable and logical method to both pass on a major portion of the proceeds to customers as
well as align shareholder and ratepayer interests in obtaining the best possible price for excess
allowance sales.
While we approve and accept the Stipulation including the flow through of current
proceeds in the 2007-2008 PCA period, we note that by approving the Stipulation, which makes
the proceeds a line item part of the annual PCA, we reserve or defer the determination of the
magnitude of the credit for determination in the PCA proceeding. We also note that our approval
ORDER NO. 30041
of the Stipulation is conditioned on the change/clarification that was agreed to in the comments
of Commission Staff, the DOE, and Idaho Power. That change/clarification deals with the fact
that the 90% share of proceeds that is to be distributed to customers is expressed as a net of taxes
number in the Stipulation. While the 10% allocated to shareholders will be subject to income
taxes, the 90% allocated to customers is a tax-timing difference only. Consequently, the
approximately $42.1 million (90%) benefit attributed to customers should be grossed-up when
that amount is returned to customers through the PCA to properly reflect the timing difference
(tax savings).
The Commission finds the Stipulation, with the change regarding gross-up referenced
above, is just, fair, reasonable, in the public interest, and in accordance with law and regulatory
policy. IDAPA 31.01.01.274, 276. Consequently, the Commission approves and adopts the
settlement, as expressed in the Stipulation, by the parties to this case.
ORDER
IT IS HEREBY ORDERED that the Stipulation executed by the parties and filed
with the Commission on April 7 , 2006, is approved and adopted.
IT IS FURTHER ORDERED that the net of tax, 90% portion of the proceeds
allocated to customers in the Stipulation shall be grossed-up to recognize the tax savings that will
accrue when the 90% credit is provided to customers through the PCA. The Company has
authority to defer the future sale proceeds that will be returned to customers. This will eliminate
the need to calculate the net-of-tax amount when received and then gross it up when returned to
customers.
THIS IS A FINAL ORDER. Any person interested in this 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 9 61-
626.
ORDER NO. 30041
DONE by Order ofthe Idaho Public Utilities Commission at Boise, Idaho this 1:J..fl'
day of May 2006.
VI.
SHA H. SMITH, COMMISSIONER
ENNIS S. HANSEN, COMMISSIONER
ATTEST:
O:IPC-O5-26 dw4
ORDER NO. 30041