20070105Brief on reconsideration.pdf

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IDAHO~POWER(B)
An IDACORP Company
ZOOl JAN -5 Pt1 3: 49
BARTON L. KLINE
Senior Attorney IDAHO F:UdUC
. .
UTILITIES CO"'tI!1ISSIOi
January 5, 2007
Jean D. Jewell , Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise, Idaho 83720-0074
Re:Case No. IPC-06-
Application of Idaho Power Company for an Accounting Order
Addressing the Deferral of Costs Related to the Development of Grid
West
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of Idaho
Power Company s Brief on Reconsideration in the above-referenced matter.
I would appreciate it if you would return a stamped copy of this transmittal
letter in the enclosed self-addressed, stamped envelope.
Barton L. Kline
BLK:sh
Enclosures
O, Box 70 (83707)
1221 W. Idaho St,
Boise, ID 83702
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BARTON L. KLINE ISB #1526
MONICA B. MOEN ISB #5734
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Phone: [phone]
FAX: [phone]
bkline ~ idahopower.com
mmoen ~ idahopower.com
2007 JAN -5 PH 3: 49
IDAHn ;JJ:~lLj(-'
UTILITI ES c'O),iV! ISSIO,
Attorneys for Idaho Power Company
Express Mail Address
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER ADDRESSING
THE DEFERRAL OF COSTS RELATED
TO THE DEVELOPMENT OF GRID WEST
) CASE NO. IPC-06-
) IDAHO POWER COMPANY'S BRIEF
) ON RECONSIDERATION
STATEMENT OF THE CASE
On October 24, 2006 , the Commission issued Order No. 30157
addressing Idaho Power Company s ("Idaho Power" or "the Company ) application for
an accounting order to allow the deferral of expenses the Company had incurred to help
develop a Regional Transmission Organization ("RTO") initially named RTO West and
ultimately known as Grid West. In that Order, the Commission acknowledged that
Idaho Power had incurred the Grid West expenses in response to a FERC order and
that the Company participation in the RTO discussions had been prudent and
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 1
beneficial. (Order No. 30157 p. 3). However, in Order No. 30157, the Commission
denied recovery of the Idaho jurisdictional portion of the $2 594 318 in incremental
internal costs incurred by the Company to participate in the RTO discussions. The
Commission also determined in the Order that Idaho Power would be permitted to defer
the principal amount that it had loaned to RTO West-Grid West, specifically the amount
allocated to its Idaho jurisdictional services." (Order No. 30157 p. 4).
In Order No. 30157, the Commission referred to the principal loaned
amount as being $1 274 158. (Order No. 30157 p. 1). That amount includes Idaho
Power s accrued carrying costs or interest on the Grid West loans totaling $190,409
and excludes the Idaho portion of the $7 580 final cash distribution made by Grid West
on October 3, 2006. The Idaho jurisdictional share of the $190,409 interest amount is
$164 933 and the Idaho jurisdictional amount of the $7 580 final cash distribution is
$6,566.
In allocating Grid West costs among its three jurisdictions , Idaho Power
used an allocation percentage of 86.62% for Idaho rather than the higher 94.1 % for
Idaho used in the Company s Jurisdictional Separation Study. The 86.62% figure is the
Idaho jurisdictional share of the Company s total system transmission capacity. Using
that percentage, the resulting dollar amount allocated to the Idaho jurisdiction would be
$932 177. The $932 177 amount excludes accrued interest on the loaned amount and
includes the $6 566 share of the final cash distribution from Grid West.
1 This amount was determined by applying the interest rate specified in 18 CFR 35.19a; this is the FERC
interest rate for utility refund requirements.
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 2
The Commission disallowed any carrying costs on the amount to be
deferred and required amortization of the deferral balance over a five-year period
commencing on January 1 2007.
In Order No. 30192 issued in this case on November 30 , 2006 , the
Commission granted Idaho Power s Petition for Reconsideration and gave the Company
the opportunity to submit a brief to provide additional legal authority and argument to
support the Company s position that it should be allowed to include carrying costs in the
deferral balance the Commission authorized in Order No. 30157.
ARGUMENT
Including carrying costs on deferral balances benefits both
customers and utilities.
Deferred accounts provide a means to address utility expenses or revenues
outside a general rate case proceeding and are a well accepted exception to the
general prohibition against retroactive ratemaking. The use of deferred accounts allows
a utility to track current costs or benefits to be passed to customers at a later time , as
authorized by the Commission.
For many years, the Commission has used deferred accounting to benefit both
customers and utilities. A current example of where deferral accounting has benefited
customers is the ongoing PCA credit which includes the benefits associated with good
water conditions and the proceeds of the sales of surplus SO2 emission allowances. As
discussed in C below, customers are currently receiving the benefit of a carrying charge
added to the deferred PCA balance.
When , as in this case, the Company has made expenditures found to be in the
public interest, but recovery in rates of those expenditures has been deferred , the
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 3
Commission in its orders has consistently recognized the need to compensate the
Company for the financial cost of money by authorizing a carrying charge. Failing to
compensate the Company for the time-value of its money is confiscation of the
Company s assets.
The Idaho Code recognizes that allowing carrying charges on
deferral balances is in the public interest.
The Idaho Legislature has recognized that allowing utilities to receive carrying
charges or interest on deferred amounts is in the public interest. Idaho Code 961-502A
explicitly requires that if construction work in progress is excluded from rate base and
thereby excluded from current recovery in customer rates, the Commission must allow
the utility to include a carrying charge in the construction investment ultimately approved
for inclusion in rates.
The annual Power Cost Adjustment includes a carrying charge in the
deferred balance.
It is the routine practice of the Commission to require interest or a carrying
charge as a part of the Company s Power Cost Adjustment ("PCA") mechanism. In the
Order establishing a PCA for Idaho Power, Order No. 24806, issued on March 29 , 1993
in Case No. IPC-92-, the Commission found that interest should be calculated and
added to all amounts deferred for later true-up. This finding was premised on the
necessity to compensate the customers or the Company (depending upon whether
power supply costs had been over-collected or under-collected) for the use of their
respective funds. (Order No. 24806 p. 22).
In addressing a revision to the PCA in 2003, the Commission, in Order No.
29334 in Case No. IPC-03-, summarized the rationale supporting its prior decisions
to recognize the financial cost of money in deferral situations:
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 4
Thus, the parties have agreed to include a carrying charge
on the unamortized balance during true-up collections and
refunds using the same interest rate the Commission
annually determines to be appropriate for the true-up
deferral balance accumulation.
The Commission finds this provision will add symmetry to
portions of the PCA mechanism that have not allocated
costs evenly in years past. Moreover, carrying charges
recognize the financial cost of money that is owed by the
Company to customers and vice versa. The Commission
finds that this permanent change to the carrying charge for
true-up collections and refunds will fairly allocate this cost.
(Emphasis added). (Order No. 29334 p. 3).
Numerous Commission orders recognize the requirement for
carrying charges on deferrals that the Commission has determined
to be in the public interest.
The Commission has on numerous occasions ordered the deferral of Idaho
Power expenditures. Upon determination that deferral of those expenditures was in the
public interest, the Commission has then authorized the addition of interest or a carrying
charge to the deferral balance. The rate of interest has varied depending primarily upon
the amortization period, but a carrying charge has always been included. The following
Commission orders are illustrative of the Commission s consistent practice:
(1 )In Case No. IPC-92-, in Order No. 24572 , issued on November 1992
the Commission held that costs deferred under the Company s Power Quality Program
would include a carrying charge.
Therefore , we will allow Idaho Power to defer the costs and to accrue interest on
the deferred costs related to the Power Quality Program , as requested in the
Company s Application, until December 1 , 1993." (Order No. 24572 p. 5). In this case
the allowed carrying charge was equal to the Company s over-all rate of return.
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 5
(2)In Case No. IPC-97-, in Order No. 27660 , issued July 31 , 1998, the
Commission addressed deferred Demand Side Management ("DSM") expenditures:
We have already found that circumstances unique to DSM
and to Idaho Power warrant a different treatment of the
Company s investment in DSM. By the same token , we find
that it would be consistent and reasonable for us to consider
the reduction in risk attributable to a shorter DSM recovery
period in selecting a carrying charge. Because we have
decided to allow the Company to shorten DSM recovery to
12 years, we find that a carrying charge of 7.25% based on
utility bond rates would be appropriate." (Order No. 27660 p.
9).
(3)In Case Nos. IPC-02-2 and IPC-02-, in Order No. 29026 , issued May
13, 2002, the Commission addressed energy cost deferrals in the context of the 2002-
2003 PCA. In that Order, the Commission stated:
However, the Commission also recognizes the additional
costs associated with large deferral balances - particularlythose extending beyond the traditional one-year PCA
recovery period. Thus, the Commission finds in this instance
that it is appropriate for the Company to receive a higher
interest rate than the current customer deposit rate of 4% on
the $11.5 million that will be deferred for recovery beyond
one-year. The Commission finds that 6% is a reasonable
rate. This carrying charge is higher than the deposit rate
and short-term debt rate but lower than the rate of return.
This rate is also reasonable given that it was the customer
deposit rate applicable in the 2001 PCA year when the
deferral amounts were incurred." (Order No. 29026 p. 19).
(4)In Case No. IPC-01-34 on remand, in Order No. 29669, issued on
December 29, 2004, the Commission found , in the context of an appeal of the
Commission s decision on lost revenues:
Based upon our review of the comments and our prior
Orders, we find it reasonable for Idaho Power to recover
carrying charges during the pendency of the appeal and up
to the time that it will begin to recover its lost revenue in the
2005 PCA year. The Supreme Court set aside our Orders
and awarded the Company lost revenue. It would be
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 6
unreasonable and inappropriate to deny the Company
carrying charges for that period of time.
Although we find that the Company is entitled to carrying
charges from April 1 , 2002 through May 31 , 2005, we find
that Idaho Power has used the wrong rate to calculate the
carrying charges. Typically, the carrying charges are appliedto deferral accounts that are normally recovered the
following year, e., the PCA mechanism.
While we recognize that the carrying charges have
decreased since 2001 , we also recognize the Company has
not been able to recover its lost revenue. Balancing the
decline in carrying charges with the longer period before
recovery, we find that the appropriate interest rate for the
carrying charges given the unique facts of this case should
be 4%. Consequently, we find that it is appropriate for the
Company to recover carrying charges at 4% from April 1
2002 through May 31 , 2005 in the amount of $1,467 695.
(Order No. 29669 pp. 11-12).
(5)In Case No. IPC-01-41 in Order No. 28975 issued on March 28 , 2002
in discussing the deferral of the cost of increased security measures at the Company
facilities , the Commission found:
Carrvinq Charqes. Staff next recommended that the
Company receive no carrying charges on the accrued
deferral balances to be allowed. For its part, the Company
maintained that it should be entitled to earn interest on the
deferred account balance. We find it reasonable that Idaho
Power earn interest on the deferred balance at the rate
authorized for customer deposits pursuant to the Utility
Customer Relations Rule 106., IDAPA 31.21.01.106.02.
(Order No. 28975 p. 5).
In summary, the Commission has repeatedly recognized that a carrying charge is
required to be included in an authorized deferred balance to make either the utility or its
customers whole. If the deferral is for one year, the Commission has customarily used
a carrying charge at the rate authorized for customer deposits. If the deferral period is
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 7
for longer than a year, the carrying charge has been at a higher rate. In this situation it
is reasonable to use the Company s overall rate of return because the deferral period
will be five years. Use of this carrying charge rate would also be consistent with the
final action taken by the Oregon Commission on the Company s application for deferral
of Grid West expenses in the Oregon jurisdiction. (Order No. 06-483 , Docket
1259).
Denying carrying charges on the Grid West deferral balance deprives
Idaho Power of the time-value of its funds.
As noted in the cases cited above , on multiple occasions the Commission has
acknowledged that in deferral accounting, the time-value of money is a cost that either
the Company or its customers will incur. When, as in the case of the current PCA
credit , a deferral is booked to provide a credit to customers and a carrying charge
allowed , a carrying charge should also be applied to deferral balances that compensate
Idaho Power for the use of its money and credit.
The record in this case , as augmented herein , supports the
authorization of a carrying charge on the deferral balance.
In Order No. 30157 , the Commission acknowledged that Idaho power was
compelled by FERC order to participate in the development of an RTO. (Order No.
30157 p. 2). The Commission also found in that Order that "Idaho Power s response to
FERC orders, and the loans it made to Grid West, were prudent and in the public
interest. It would be unfair to disallow deferral of the amount Idaho Power loaned to
Grid West." (Order No. 30157 p. 2).
On page 3 of Order No. 30157, the Commission acknowledged that the
Company s participation in the RTO discussions was prudent and beneficial. (Order No.
30157 p. 3).
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 8
Order No. 30157 also provides "On this record there simply is no compelling
reason to allow deferral of interest on the loans , or the internal cost expended by the
Company. For the same reason, we do not authorize a carrying charge on the deferral
account." (Emphasis added). (Order No. 30157 p. 3). Idaho Power must respectfully
disagree for the following reasons: First, the Commission s findings in the order that
Idaho Power s participation in the RTO discussions was compelled by FERC and the
loans made to Grid West were prudent and beneficial to customers, constitute a
substantial record which supports the inclusion of a carrying charge in a deferral that the
Commission has determined to be in the public interest. Second , the Commission
longstanding history of allowing carrying costs on deferral balances described in the
cases cited herein , adds further support in the record. Third , the historical record
presented in this brief demonstrates an even-handed approach that recognizes the
time-value of money contributed by both customers and utilities. Finally, in light of the
Commission longstanding policy of allowing carrying charges on deferred
expenditures made in the public interest, the Commission s decision in this instance to
deny the recovery of carrying charges on approved deferred expenses without any
specific reason given to support the denial , is arbitrary, capricious and confiscatory.
Conclusion
Recognizing that reconsideration in this proceeding is limited to the issue of a
carrying charge on the authorized deferral balance, the Commission should take the
following action:
The Commission should order that the amount to be deferred in the Idaho
Jurisdiction is $932 177.
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 9
The deferred balance of $932 177 would have a carrying charge applied
at the Company s overall rate of return of 8.1 %2, commencing April 1 , 2006.
Amortization of the deferred balance with carrying charges would
commence January 1 , 2007 and continue for five years as provided in Order No. 30157.
The above actions would be consistent with prior Commission precedent
regarding the application of carrying charges to deferral balances once the Commission
has found, as it has in this case, that deferral is in the public interest.
Respectfully submitted this day of January 2007.
BARTO~I
Attorney for Idaho Power Company
2 Commission Order No. 30035, case No. IPC-05-28.3 Grid West ceased operation on March 31 2006.
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION -
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this day of January 2007 , I served a true and
correct copy of the within and foregoing document upon the following named parties by
the method indicated below, and addressed to the following:
Commission Staff
Weldon B. Stutzman
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington (83702)
O. Box 83720
Boise, Idaho 83720-0074
Hand Delivered
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Overnight Mail
FAX
Email weldon.stutzman~uc.idaho.
Industrial Customers of Idaho Power
Peter J. Richardson, Esq.
Richardson & O'Leary
515 N. 2ih Street
O. Box 7218
Boise, Idaho 83702
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FAX
Email eter~ richardsonandolea com
Don Reading
Ben Johnson Associates
6070 Hill Road
Boise, Idaho 83702
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FAX
L Ema' dreadin ~minds rin com
Barton L. Kline
IDAHO POWER COMPANY'S BRIEF ON RECONSIDERATION - 11