20070124Reply brief on reconsideration.pdf

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WELDON B STUTZMAN (ISB 3283)
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, ID 83720-0074
Telephone: [phone]
Fax: [phone]
Email: weldon.stutzman(g1puc.idaho.gov
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Attorney for 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
COMMISSION STAFF
REPLY BRIEF ON
RECONSIDERATION
CASE NO. IPC-O6-
On October 24 , 2006 , the Commission issued Order No. 30157 authorizing the
deferral of loans Idaho Power Company made to further development of a regional transmission
organization (RTO) that became known as Grid West. Beginning in 2000, Idaho Power and
other northwest electric utilities attempted to develop an RTO pursuant to orders issued by the
Federal Energy Regulatory Commission (FERC). After attempts to develop an RTO failed
Idaho Power filed an Application for authority to create a deferral account for its costs in the
effort. The Commission in Order No. 30157 authorized deferral of only the loan amounts the
Company made to Grid West under a series of funding agreements, but the Commission did not
approve a carrying charge on the amount allowed for deferral.
Idaho Power filed a Petition for Reconsideration on November 14, 2006, requesting
reconsideration "only on that portion of the Order that prevents the Company from recovering
carrying charges on the deferral balance during the period of amortization.Idaho Power
Petition, p. 1. On November 30, 2006, the Commission issued Order No. 30192 granting the
Petition for Reconsideration "to allow further briefing or written comments on the sole issue of
whether carrying costs should be allowed on the deferral balance." Order No. 30192, p. 1. The
Commission Order directed that written comments or legal briefs be filed by January 5 , 2007 and
that reply briefs or written comments be filed by January 26, 2007.
COMMISSION STAFF REPLY
BRIEF ON RECONSIDERATION
Idaho Power in its Brief on Reconsideration first clarified the amount it loaned to
Grid West and allocated to its Idaho jurisdiction. The Commission in Order No. 30157
identified the principal amount authorized for deferral as $1 274 158. The Company stated in its
brief that that amount included a carrying charge the Company accrued since April 1 , 2006, as
well as a small cash distribution made by Grid West in October 2006. Accounting for those
adjustments, and using an allocation percentage of 86.62% for its Idaho jurisdiction, the
Company states that the Idaho jurisdictional share of the amount loaned to Grid West is
$932 177. Staff concurs with the Company s calculation and agrees that the principal amount of
the loans authorized for deferral by the Commission is $932 177.
Carrying Charge is not Required by Law but is a Matter of Discretion for the
Commission
Idaho Power alleged in its Petition for Reconsideration that the Commission
decision to disallow a carrying charge "is unreasonable, arbitrary, capricious, unlawful
erroneous, unduly discriminatory, and not in conformity with the facts of record and/or the
applicable law, resulting in a revenue requirement and rates which are confiscatory.Idaho
Power Petition on Reconsideration, pp. 1-2. The Company s Brief on Reconsideration, however
fails to provide either compelling facts or applicable law to support its argument.
Despite its allegation that the Commission s denial of the Company s request for a
carrying charge is "unlawful" and "not in conformity with. . . the applicable law " Idaho Power
cannot identify even one law that would require a carrying charge on the loans the Company
made to Grid West. The Company references only one statute Idaho Code 9 61-502A, and that
for the proposition that the Legislature "has recognized that allowing utilities to receive carrying
charges or interest on deferred accounts is in the public interest." Idaho Power Brief on
Reconsideration, p. 4. The Company supports this broad proposition by noting that Section 61-
502A requires the Commission to include a carrying charge on a construction account for work
in progress when the construction costs are not included in rate base.
Idaho Power s argument regarding Section 61-502A does not support its claim for a
carrying charge in this case. First, Section 61-502A applies to a unique, narrow set of facts not
present here. Section 61-502A applies only to accounts accumulated for construction work in
progress when, following a rate case, the partially completed project is excluded from rate base.
The section prohibits the Commission from including incomplete projects in rate base, unless it
COMMISSION STAFF REPLY
BRIEF ON RECONSIDERA nON
IS short-term construction work in progress, but reqUIres an allowance for funds used on
disallowed construction to be accumulated and computed. None of the elements unique to the
Section 61-502A situation is present here; that section simply has no application to this case.
The fact that the Legislature addressed one situation where a deferral account is
required actually cuts against Idaho Power s claim that the law requires a carrying charge in this
case.Section 61-502A demonstrates the Legislature understands the usefulness of deferral
accounts in one special circumstance. The Legislature has declined to direct their use in any
other circumstance, implying the Legislature does not intend to circumscribe the Commission
discretion on carrying charges in other situations where a deferral account may be appropriate.
Because no law directs the Commission to allow a carrying charge on deferral
accounts, other than in the situation identified in Section 61-502A, it is left to the Commission
discretion to approve a carrying charge in particular circumstances. The Supreme Court
explicitly affirmed this discretionary authority of the Commission in Idaho Power Company
Idaho State Tax Commission 141 Idaho 316, 109 P.3d 170 (2005). The Supreme Court in that
case reviewed the nature of a deferral account as a regulatory asset.The Supreme Court
explained that "a regulatory asset is an accounting convention designed to enable Idaho Power to
defer an otherwise current expense," and that in order for such a regulatory asset to be created, it
must be authorized by the Commission. Idaho Power Company v. Idaho State Tax Commission
141 Idaho 323. The Court then stated
, "
the treatment of regulatory assets (i., whether or not
rates of return or carrying charges are allowed on them) is subject to the discretion of the
IPUc." Id. (Italics added.
The Commission Properly Exercised Its Discretion in this Case to Disallow a Carrying
Charge
Idaho Power s Brief on Reconsideration identifies prevIOUS cases where the
Commission exercised its discretion to approve carrying charges on deferral accounts. Clearly
there are numerous occasions where the Commission approved a carrying charge on a deferral
account. The Commission commonly approves a carrying charge where a utility requests an
order authorizing deferred accounting in advance of the expenditure, or the deferral account is
related to implementation of a program the Commission has ordered. In those circumstances, the
Commission has an opportunity to evaluate the necessity and anticipated benefit for customers
before the expense is incurred by the company. In fact, the Commission periodically reminds
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companies they may not be allowed recovery of an unusual expense if they fail to obtain
Commission approval for deferral before making the expenditure. See e.
g.,
Idaho Power General
Rate Case, Case No. IPC-94-, Order No. 25880 ($7 million environmental clean-up cost not
recoverable in rates because no deferral order obtained in advance); United Water General Rate
Case, Case No. UWI-04-, Order No. 29838 (Employee retirement and severance costs
disallowed because company did not request deferral order in advance).
The Commission exercises its discretion on carrying charges in different ways
depending upon the circumstances presented. For example, Idaho Power concludes in its Brief
on Reconsideration that Commission approved interest rates for carrying charges vary depending
on the amortization period for recovery. In the cases mentioned by the Company, the
Commission used a lower carrying charge rate when authorizing a shorter amortization period
like one year, and higher carrying charge rates when longer amortization periods are used.
Sometimes the Commission exercises its discretion to disallow a carrying charge
altogether, or to allow a very low carrying charge rate, depending on the circumstances of the
deferral account. For example, in Case No. UWI-01-, United Water Company requested
approval of a deferral account for unusual and unexpected increases in electric rates paid by the
company to run its pumps. The Commission approved the deferral account, but not a carrying
charge. The uncertainty of the amounts to be spent, and thus the size of the account at the time
of recovery, and the uncertainty of the timing of a future rate case, caused the Commission to
reserve judgment on whether a carrying charge would be appropriate. Order No. 28800, issued
August 1 2001. When United Water sought recovery of the deferred account balance four years
later, the Commission approved a one percent carrying charge on the account. Order No. 29838
pp. 21-, issued August 2 2005.
The Commission allowed deferral of costs, but no carrying charge, in Case No.
A VU-OO-l. In that case, A vista Corporation requested authority to defer clean-up costs on
property previously owned by the company. The property in Spokane, Washington, operated by
a previous owner as a coal gasification plant until 1948, and A vista acquired it in a merger in
1958. After A vista was notified that it and other companies might be liable for cleaning up ,
hazardous materials, the company requested authority to defer the investigation and clean-up
costs. Under these circumstances, Staff recommended the expenses be deferred, and ultimately
shared by ratepayers and the shareholders, and that no carrying charge accrue on the deferral
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account. Order No. 28512, pp. 2-3. The Commission allowed deferral of the hazardous clean-up
expenses, but found the company s proposal for a carrying charge "to be unsupported and
unacceptable." Order No. 28512, p. 4.
The unique circumstances giving rise to Idaho Power s request for a deferral order in
this case justify the Commission s decision to deny a carrying charge. Unlike the usual deferral
order request, where the deferral authorization is sought in advance of the expenditure, Idaho
Power did not request a deferral order prior to making the loans to Grid West. It would not have
made sense for Idaho Power to make such a request, because the Company made the Grid West
loans at the behest of FERC, not the Commission. The Commission had no jurisdiction over the
Grid West transactions because they were for the development of a wholesale electricity market.
Had the RTO effort been successful, Idaho Power s loans would have been paid off, with
interest, by surcharges collected from Grid West customers. In that case, Staff expects the
interest would have benefited Idaho Power s wholesale market jurisdiction, and would not have
benefited the Company s retail customers.
In one aspect, it seems unfair to Idaho Power s retail customers to allow deferral of
even the loan amounts-the loans were not made for their benefit. On the other hand, as the
Commission determined in its Order, Idaho Power participated in the RTO process to further a
larger public interest. It would be unfair to penalize the Company for making the loans merely
because the Grid West process proved unsuccessful. It also seems unfair, however, to ask the
Company s customers to shoulder the entire burden of the failed effort. In the unique
circumstances of this case, the Commission wisely exercised its discretion to allow deferral of
the loans, but denied a carrying charge, or interest, on the deferral account. The Commission
decision, in the specific case before it, seems just and reasonable.
Respectfully submitted thisz. tfL day of January 2007.
Weldon B. Stutzman
Deputy Attorney General
bls/N:IPC-O6-Reply Comments
COMMISSION STAFF REPLY
BRIEF ON RECONSIDERA nON
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 24TH DAY OF JANUARY 2007
SERVED THE FOREGOING COMMISSION STAFF REPLY BRIEF ON
RECONSIDERATION, 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
AFF AIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
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SECRETARY
CERTIFICATE OF SERVICE