20060814Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
RECEIVED
20Gn AUG \ 4 PM \2: '8
IDAHO PUi~\\C
UTILITIeS COkir,1\SSIOr~
Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5983
Attorney for the Commission Staff
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.COMMENTS OF THE
COMMISSION STAFF
CASE NO. IPC-O6-
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through
its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the
Notice of Application and Notice of Modified Procedure issued in Order No. 30082 on
June 29 , 2006, submits the following comments.
BACKGROUND
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, now 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
STAFF COMMENTS AUGUST 14 2006
RTO 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, with interest, in the
development process. An accounting Order authorizing deferral of costs does not represent the
final determination of reasonableness or the amount of the costs ultimately recovered in rates.
Idaho Power states its expenditures relating to the development of Grid West fall into two
categories. The first category is costs incurred in the form of loans to Grid West under a series
of funding agreements. The second category ofldaho Power s development costs are internal
incremental costs, which consist of the disbursement of cash and payment of costs in addition to
amounts loaned to Grid West. Idaho Power states it has loaned a total of$1 274 158 to Grid
West and expended a total of $2 594 318 in incremental internal costs. Idaho Power states the
Idaho jurisdiction of the total amount loaned and expended is $3 350 874.
STAFF REVIEW
Staff has reviewed the Company s Application as well as FERC Order No. 888 and
FERC Order No. 2000. FERC Order No. 888 instructs utilities to open their transmission lines
to competitors in an effort to reduce wholesale electricity prices and ultimately bring lower
prices to ratepayers. FERC Order No. 2000 placed the impetus on transmission owners to
develop an RTO or explain why such an organization could not be created. Staffis satisfied that
Idaho Power s participation in Grid West was compliant with the intentions ofFERC.
On a case-by-case basis, this Commission has generally allowed deferred accounting
treatment for expenses that are extraordinary and unusual in nature, mandated by regulatory
authority and which provide benefits to customers. Though Grid West ultimately provided no
benefits to customers, the expenses were extraordinary and unusual in nature and were mandated
by FERC. Staff recommends that the Commission authorize Idaho Power to transfer the
principal amount of the funding agreements with Grid West to account 182.3 (Other Regulatory
Assets). A separate sub-account should be maintained, facilitating Staffs audit of these
expenses in a future rate case. Staff also recommends that the recovery of these costs and the
amortization period used for recovery be addressed in the Company s next general rate case
filing. As the Commission has previously noted on numerous occasions, a deferred accounting
Order does not constitute Commission approval to recover these costs from Idaho Power
customers. The incremental internal costs are discussed separately below, along with the interest
on the funding agreements, carrying charges and amortization period absent a rate case.
STAFF COMMENTS AUGUST 14, 2006
Incremental Internal Costs
Idaho Power is the only one of the three Idaho electric utilities participating in Grid West
that deferred incremental internal costs in account 186 (Miscellaneous Deferred Debits). Both
Avista and PacifiCorp expensed these costs as they were incurred. Idaho Power deferred these
expenses without any agreement with Grid West that these expenses would be reimbursed.
Idaho Power states in response to Audit Request No.4 that it "did fully believe that it would be
allowed to include an amortization of the deferred internal incremental costs in its annual
transmission revenue requirement that would be reimbursed by Grid West." Idaho Power further
states that this belief was based upon the letter received from FERC that confirmed it was
acceptable for Idaho Power to book these expenses in account 186, and not based on any
correspondence from Grid West itself. Idaho Power included a copy of this letter with its
Application.
The instructions for account 186 state that this account is to be used for expenditures that
are not provided for elsewhere, such as miscellaneous work in progress and unusual and
extraordinary expenses, and items where the proper disposition is uncertain. Even with FERC
approval to use account 186 for the incremental internal expenses, there is no guarantee that
these expenses would be amortized or reimbursed. Furthermore, the letter from FERC, which
the Company included with its Application, goes on to state that its approval to use account 186
is for accounting purposes only and does not constitute a finding that the costs are just and
reasonable, prudently incurred, or otherwise approved for rate making treatment." The letter
offers no guarantees that Idaho Power would be able to recover the incremental internal expenses
from Grid West.
Without any agreement from Grid West for reimbursement of these incremental internal
expenses, Idaho Power had no reason to believe these costs would be reimbursed. Staff believes
these expenses are not eligible for deferral treatment because Idaho Power did not seek
Commission approval to defer the expenses prior to incurring them; a prerequisite this
Commission has stated and upheld on several occasions. In fact, Staff believes the internal
expenses are normal operating costs and should be expensed. Expensing these costs is consistent
with the treatment by Avista and PacifiCorp. Therefore, Staff recommends that the Commission
deny Idaho Power s request to transfer the incremental internal expenses to account 182.3 to be
held for future recovery.
STAFF COMMENTS AUGUST 14 2006
Interest on Funding Agreements
Idaho Power accrued interest on the loan amounts provided to Grid West at the rates
established by FERC for refunds, pursuant to 18 CFR 35.19a. The total interest accrued through
March 31 , 2006 is $197 068.60. Idaho Power ceased to accrue interest on the loans after that
date. Staff believes Idaho Power should not be allowed to defer for future recovery the amount
of interest accrued on the promissory notes to Grid West for two reasons. First, had Grid West
been successful, the interest on these loans would have been paid by Grid West as a return on
Idaho Power s investment in the RTO. Grid West was not successful, and customers should not
be required to pay for Idaho Power s return on a failed investment. Furthermore, Idaho Power
never had any cash outlay for the interest portion, and the return of the actual expenditure is
sufficient recovery for the utility without interest accrual.
Carrying Charges
Idaho Power does not request a carrying charge on the deferred balance. Deferred
accounting will allow Idaho Power to request recovery of its prudent costs at a future date.
Absent deferral, the opportunity for recovery is not currently allowed. Staff believes the
opportunity for Idaho Power to recover these costs is sufficient to the Company without interest
thus eliminating the necessity of accruing carrying costs on the deferred balance. If the deferral
were not approved, no interest would accrue and the recovery of any underlying costs would be
doubtful. The deferral method facilitates later recovery of the amortization of these costs in
rates.
Amortization Period
To prevent excessive deferrals from building up on the balance sheet, Staff recommends
that the Company begin amortization of the deferred balance at the conclusion of its next general
rate case or on January 1 , 2010, whichever occurs first. Amortization beginning no later than
January 1 , 2010 is warranted since the expenditures were incurred in response to FERC
directives. Immediate amortization would be appropriate for expenditures directly under the
Company s control. An amortization period beginning no later than 2010 will also allow any
continued efforts for an RTO to be better known. Staff believes that the initial amortization
STAFF COMMENTS AUGUST 14 2006
period should be five years unless a different time period is supported by a party in a general rate
case and is approved by the Commission.
STAFF RECOMMENDATIONS
1. Staff recommends that the Commission authorize Idaho Power to transfer the
principal amount of the funding agreements for the Grid West start up costs into
account 182.3 (Regulatory Assets and Liabilities), utilizing a separate sub-account
specifically for these amounts.
2. Staff recommends that the Commission deny Idaho Power s request to defer the
incremental internal costs.
3. Staff recommends the Commission not allow the deferral of accrued interest on the
Grid West loans.
4. Staff recommends the Commission not approve any carrying charges on the amounts
deferred.
5. Staff recommends that the Commission order amortization of the deferred amounts to
begin no later than January 1 2010 absent a rate case Order establishing different
treatment.
Respectfully submitted this \L\~ day of August 2006.
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Donn English
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STAFF COMMENTS AUGUST 14 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 14TH DAY OF AUGUST 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-06-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
JOHN R. GALE
VICE PRESIDENT / REGULATORY
AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
~. \(~
SECRETARY
CERTIFICATE OF SERVICE