20061024final_order_no_30157.pdf

Office of the Secretary
Service Date
October 24, 2006
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 ORDER NO. 30157
CASE NO. IPC-06-
On April 4, 2006, Idaho Power Company filed an Application requesting an
accounting order from the Commission authorizing the deferral of costs the Company incurred
relating to the development of a regional transmission organization (RTO). Idaho Power alleges
it participated in efforts to develop an RTO, called Grid West, pursuant to orders issued by the
Federal Energy Regulatory Commission (FERC). The Application states that Pacific Northwest
electric utilities have been involved in the RTO development process since 2000, and that the
costs incurred by the utilities were to be repaid through surcharges on customers after the R
became operational. It now appears the development of Grid West is unlikely, and Idaho Power
requests authorization to defer the amounts it loaned to Grid West or expended, with interest, in
the development process.
Idaho Power states its expenditures relating to the development of Grid West fall into
two categories. The first category is loans Idaho Power made to Grid West under a series of
funding agreements. The second category is Idaho Power s internal incremental costs, consisting
of the disbursement of cash and payment of costs in the development process. Idaho Power
states it loaned a total of $1 274 158 to Grid West and expended a total of $2 594 318 in
incremental internal costs. The Idaho jurisdictional allocation of the total amount loaned and
expended is $3 350 874.
On June 29, 2006, the Commission issued a Notice of Application and Notice of
Modified Procedure to process Idaho Power s Application. During the comment period
established by the Notice, written comments were filed by the Commission Staff and by the
Industrial Customers of Idaho Power (ICIP). Both Staff and ICIP support an accounting order
for deferral of the actual amount loaned by Idaho Power to Grid West. Staff and ICIP both
object to the deferral of the internal expenses incurred by Idaho Power. Staff also opposes
deferral of the interest accrued on the loans or a carrying charge on the deferred balance. Staff
ORDER NO. 30157
recommended Idaho Power maintain a separate sub-account for the deferral and begin
amortization of the deferred balance at the conclusion of its next general rate case or on January
, 2010, whichever first occurs, with a five-year amortization period. ICIP recommended the
Commission require amortization of the costs to begin immediately over a three-year period.
On September 22, 2006, Idaho Power filed reply comments in response to the
comments filed by Staff and ICIP. Idaho Power argues that it should be allowed deferral of
interest on the loan amounts, a carrying charge on the deferred balance, and recovery of the
incremental internal costs it identified in its Application. Idaho Power believes Staffs
recommendation regarding amortization is reasonable.
The Commission finds on the record presented that it is appropriate to approve Idaho
Power s Application insofar that it requests authorization to defer the amount the Company
loaned to Grid West. Idaho Power and other electric utilities that own transmission facilities in
the northwest were compelled by FERC orders to participate in the development of an RTO.
successful, the RTO would have acquired control of the companies' transmission facilities and
implemented a surcharge on transmission customers to repay the loans made by the utilities.
FERC's goal was the development of an active wholesale electric market that might have
produced long-term benefits to retail customers. Idaho Power s response to the 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.
The Commission also finds, however, that Idaho Power is not entitled to defer for
future recovery from its retail customers interest charges on the loans or its incremental internal
costs, nor is the Company entitled to a carrying charge on the deferral account. Regulatory
accounting principles require that expenditures to be included in customer rates must be used and
useful; that is, beneficial to customers. The expenditures must also be incurred for a reasonable
purpose at a reasonable amount. The internal costs requested here are the type of expenditure
incurred as ordinary business expenses and are like other regulatory costs for meetings
workshops and proceedings. They are not deferred without prior approval and normally are part
of the Company s overall budget, like other expenses, especially when they extend over
numerous years.
Staff in its comments recommended that Idaho Power be allowed deferral of only the
loan amounts because, although "Grid West ultimately provided no benefits to customers, the
ORDER NO. 30157
expenses were extraordinary and unusual in nature and were mandated by FERC.Staff
Comments p. 2. In response, Idaho Power "disagree(d) with Staffs assessment that RTO West-
Grid West has been a complete failure " asserting its belief that the Company s participation in
the RTO formation process has created value for customers: "A great deal of insight and
experience as to how an independent regional transmission system operator would be chartered
would manage a regional transmission system and a better understanding of the problems, risks
and benefits associated with an independent system operation regime has been gained by the
RTO West-Grid West formation efforts.Idaho Power Reply Comments p. 5. Idaho Power
identified the potential benefit for its customers in the future: "In the Company s opinion the
efforts that went into developing RTO West-Grid West will provide benefits to customers if, in
the future, it is determined that a cooperative, independent regional transmission organization
should be developed and implemented in the Pacific Northwest." Idaho Power Reply Comments
The most persuaSIve argument for deferral of costs and ultimately recovery from
customers is that Idaho Power was compelled to participate in the R TO formation process by
FERC.Presumably FERC believed a northwest RTO would provide some benefit to the
customers of the participating utility companies, including Idaho Power s. Because Idaho Power
participated in the process in good faith, it is fair to allow deferral of the loan amounts. We
agree that the Company s participation in the RTO discussions was prudent and beneficial. That
is why we allow recovery of the loan amounts. It does not follow, because this RTO formation
process was unsuccessful, that Idaho Power s retail customers should bear more than the loan
amounts for the Company s participation in the process. Idaho Power anticipated that RTO
West-Grid West would pay interest on the loans the Company made, but that was never assured.
The internal costs are or should be included in the Company s budget, especially because Idaho
Power has been involved in these types of meetings for nearly a decade. On this record, there
simply is no compelling reason to allow deferral of interest on the loans, or the internal costs
expended by the Company. For the same reason, we do not authorize a carrying charge on the
deferral account. We also find a five-year amortization period to be reasonable, and direct that
the amortization begin as of January 1 , 2007.
ORDER NO. 30157
ORDER
IT IS HEREBY ORDERED that Idaho Power is authorized to defer in a separate sub-
account the principal amount that it loaned to RTO West-Grid West, specifically the amount
allocated to its Idaho jurisdictional services. Idaho Power is authorized to amortize the deferral
over a five-year period, beginning January 1 , 2007.
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. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order ofthe Idaho Public Utilities Commission at Boise, Idaho this .;J. '1M
day of October 2006.
-iJ~
ARSHA H. SMITH, COMMISSIONER
ENNIS S. HANS
ATTEST:
~UJ
Barbara Barrows
Assistant Commission Secretary
O:IPC-06-06 ws2
ORDER NO. 30157