20061215final_order_no_30201.pdf

Office of the Secretary
Service Date
December 15,2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY FOR THE EV ANDER
ANDREWS POWER PLANT
CASE NO. IPC-06-
ORDER NO. 30201
INTRODUCTION
On April 14, 2006, Idaho Power Company filed an Application with the Commission
seeking a Certificate of Public Convenience and Necessity for the construction of the Evander
Andrews Power Plant. An electrical corporation is prohibited from beginning the construction of
a generating plant "without first obtaining from the commission a certificate that the present or
future public convenience and necessity require or will require such construction.Idaho Code
61-526. The Company also requested authorization to rate base the prudent capital costs for the
project and to recover prudent natural gas costs in the Company s annual Power Cost Adjustment
(PCA) mechanism.
On May 9, 2006, the Commission issued a notice of the Company s Application.
Order No. 30038. On May 31 , 2006, intervention was granted to the Industrial Customers of
Idaho Power (ICIP) and to Mountain View Power, Inc. Order Nos. 30057 and 30058. Mountain
View Power subsequently withdrew as a party. Order No. 30113. Pursuant to Rule 67, the
parties entered into a Protective Agreement regarding the disclosure and treatment of
confidential information and trade secrets. IDAPA 31.01.01.067. An evidentiary hearing was
held on November 20, 2006. Idaho Power, Commission Staff, and ICIP presented testimony.
After reviewing the Application, the testimony) and the record, we issue this Order granting the
requested Certificate as set out in greater detail below.
THE APPLICATION
A. The Evander Andrews Power Plant
According to the Application the Evander Andrews Plant would consist of a new
Siemens- Westinghouse simple-cycle, natural gas-fired combustion turbine rated at 170 MW
along with the typical plant facilities and equipment. Application at 3. Siemens Power
I Although absent for part of the evidentiary hearing, Commissioner Kjellander reviewed the testimony contained in
the hearing transcript before participating in the Commission s deliberation and issuance of this Order.
ORDER NO. 30201
Generation, Inc., the same entity that provided labor, materials, and equipment, and that
engineered and constructed the Company s Bennett Mountain Power Plant, would construct the
Plant. Id. at 2. The project would be located at the existing 40-acre Evander Andrews Power
Complex north of Mountain Home, formerly referred to as "Danskin.Id. at 3. The Evander
Andrews Power Complex is currently the home of two 45 MW natural gas-fired generators built
by Idaho Power in 200 I. Id. at 3. The new Evander Andrews Plant is scheduled to be available
to meet peak loads in the summer of2008. Id.
Idaho Power plans to connect the plant with its 230 kV transmission system, which is
located approximately seven miles from the Evander Andrews Complex. Id. The preliminary
cost estimate to interconnect the plant to the Company s transmission system is $22.8 million.
Id. at 5. The natural gas supply will be obtained from the existing 16-inch lateral gas line
running from the Williams Northwest Pipeline to the site. The Company states that the existing
lateral has sufficient capacity to meet the requirements of both the existing and new generating
facilities. Id. at 3. The Application also states that substantial water supply capacity and priority
water rights exist to serve both the existing and new facilities from a deep well located at the
Evander Andrews Complex. The project will comply with all appropriate air and water quality
standards. Id.
B. Future Necessity and the 2004 IRP
The Company maintains that construction of this plant is necessary to meet future
loads and is consistent with the Company s 2004 Integrated Resource Plan (IRP). Application at
4. The biennial IRP is a planning mechanism that generally sets forth how Idaho Power
intends to meet the electric load requirements of its customers over the next ten years. Order No.
29762 at 1. The 2004 IRP projected a necessary increase in power supply of about 800 aMW to
meet the estimated demand, including 88 MW of simple-cycle, natural gas-fired generation. Id.
at 2.
According to the testimony of Idaho Power witness, Gregory Said, the Company
issued a Request for Proposals (RFP) consistent with its 2004 IRP. The Company requested
proposals for an 80-200 MW turnkey, electric generation peaking resource located within the
Company s service territory that would meet anticipated peak energy demands. Tr. at 57. The
Company received 31 proposals from nine bidders that offered generation units ranging in size
between 71 MW and 170 MW.Id.The RFP evaluation team selected Siemens Power
ORDER NO. 30201
Generation s Evander Andrews bid as the preferred proposal based upon the predetermined price
and non-price criteria used to evaluate all the RFP proposals. Tr. at 59.
The Company also notes other strategies it has employed for satisfying the
incremental resource needs identified in the 2004 IRP. Application at 4; Tr. at 50-55. These
efforts include: an additional 124 MW of demand-side measures, an RFP for approximately 100
MW of wind-powered generation, and an RFP for 100 MW of geothermal energy. Application
at 4.
C. Capital Cost Commitment Estimate
The Company has provided a "Commitment Estimate" of $60 million for the project.
Application at 5. The Commitment Estimate is a good faith estimate of the project's total capital
cost based upon a negotiated Agreement for Engineering, Procurement and Construction with
Siemens Power Generation in the amount of $49 999 000. The additional $10 001 000 of the
Commitment Estimate represents certain additional costs the Company knows it will incur but
cannot quantify with precision at this time such as sales taxes, allowances for funds used during
construction (AFUDC), cost of Idaho Power oversight of the project, and the cost of capitalized
start up fuel. Application at 4-
The Commitment Estimate does not include the approximately $22.8 million
estimated cost of constructing transmission and substation facilities required to upgrade the
Company s transmission system from Mountain Home to the Treasure Valley load center. Id.
5. The Company states that the studies needed to define the transmission costs have not been
completed, but Idaho Power s Power Delivery (transmission) Unit has provided a "preliminary
upper limit estimate of $22.8 million. Id. Idaho Power proposes to procure and install the new
Plant for the Commitment Estimate, subject to adjustment, and to rate base only the amount
actually incurred up to the Commitment Estimate of $60 million. Id.
D. Fuel Cost
The Company states that it owns firm fuel transportation rights sufficient to supply
the new plant, and that management of the fuel supply will be done by Idaho Power personnel
possibly in conjunction with a third party such as IGI Resources, Inc. Application at 6. The
Company requests that the Commission allow it to include the cost of fuel, fuel storage, and fuel
transportation for recovery through the existing Power Cost Adjustment (PCA) mechanism. Id.
ORDER NO. 30201
ISSUES AND FINDINGS
The Commission has been asked to grant Idaho Power a Certificate that the present
or future public convenience and necessity requires or will require the construction of a new
power plant to meet the Company s growing load. The primary focus of this proceeding is to
examine two questions: Does the present or future public convenience and necessity require
additional resources, and is the Evander Andrews Plant a reasonable means of meeting this need?
This request touches upon a function of the Commission that is fundamental to our system of
public utility regulation and the "regulatory compact." See Idaho Power Light Co.
Bloomquist 26 Idaho 222, 141 P. 1083, 1087-97 (1914). It involves considerations regarding:
(1) the Company s obligation to serve its customers' demand; (2) the inclusion of capital
investment in the Company s rate base - ultimately to be recovered from customers; (3) the
Company s Integrated Resource Plan; and (4) the RFP process utilized to acquire additional
generating resources.
A. The Public Necessity Integrated Resource Planning
The need for the Evander Andrews Power Plant originates with Idaho Power s 2004
Integrated Resource Plan (IRP). In general, the IRP process evaluates the Company s future
loads and resources and the various options for meeting projected loads. The options for meeting
load include: The purchase of power from the wholesale market; the acquisition of additional
generating resources (e., natural gas, wind, geothermal, etc.); the implementation of pricing
options to dampen peak loads; and/or implementing demand-side management (DSM) or
conservation programs. The IRP is a planning process on how Idaho Power intends to meet its
obligations to serve its customers' loads. Since 1989 the Commission has required the electric
utilities in Idaho to submit an IRP biennially. Order No. 22299. The Commission has directed
that
The IRP should not be regarded by Idaho Power as simply an academic or
regulatory exercise. It must be reasonable to expect that the IRP is an actual
planning document of the Company, that it accurately represents the Company
best estimate of future changes in loads, resources and contract obligations and is
indicative of how the Company intends to meet its statutory obligations to serve
native load. ... (T)his Commission ... expects that (the IRPs) will be treated by
the Company as a viable planning document that the public can with reasonable
assurance rely on as being representative of the utility s resource strategy.
Order No. 29189 at 20-21.
ORDER NO. 30201
1. Idaho Power.Idaho Power witness Said maintained that the need for the Evander
Andrews Plant is based upon and justified by the 2004 IRP. Tr. at 47. He reported that customer
growth in the Company s service territory is the primary driving force behind Idaho Power
need for additional power resources. Tr. at 47-48. The Company estimated that the number of
households in its service territory would increase from 320 000 to 380 000 over the course of the
10-year planning period of the IRP. Tr. at 48; Order No. 29762 at 2.
The 2004 IRP was prepared by evaluating the adequacy of the Company s resources
to meet customer needs based upon planning criteria that included 70th percentile water
conditions and 70th percentile load conditions. Tr. at 48. The Company changed this to "worse-
than-median" level of water criteria for its 2002 IRP, primarily to lessen the Company s reliance
on purchases from the regional market during low water periods. Id. After evaluation of 12
possible resource portfolios, a "Near-Term Action Plan" was developed which identified specific
actions to be taken by the Company prior to the filing of the 2006 IRP.2 Tr. at 50.
The Near-Term Action Plan from the 2004 IRP called for the issuance of an RFP to
acquire 88 MW of combustion turbine peaking resource. Id. The RFP was issued March 30
2005. Tr. at 110. The Evander Andrews Plant was selected as the preferred proposal on
November 22 2005. Tr. at 59. The Near-Term Action Plan also called for the issuance of RFPs
for 200 MW of wind generation, 100 MW of geothermal generation, and 12 MW of combined
heat and power generation. Tr. at 50.
2. Commission Staff.Staff witness Rick Sterling agreed that the 2004 IRP
demonstrates a need for a peaking power plant. Tr. at 93. Sterling stated that the 2004 IRP
showed peak hour deficits for both the summer and winter peak periods in every year of the 10-
year planning period, and that even using median water and load planning conditions there are
still deficits of approximately 200 MW starting in the July-August time period. Id. Additionally,
when it is assumed that power is imported up to the limits of Idaho Power s transmission system
capacity, the analysis shows peak hour deficits beginning in the summer of 2006 and growing
rapidly thereafter. Id.
Given the filing of the 2006 IRP, Mr. Sterling testified that the Company should have
updated its evaluation of the need for the plant with the most up-to-date information in the 2006
2 The 2006 IRP was filed September 29, 2006. Idaho Power also submitted revisions to the IRP on October 18
2006. Case No. IPC-06-24.
ORDER NO. 30201
IRP. Tr. at 92. He observed that the 2006 IRP contains the addition of the Company s Bennett
Mountain gas peaking plant, a revised load growth forecast, impacts of peak load reduction DSM
programs, and has assumed that the proposed Evander Andrews Plant is approved and
constructed. Tr. at 93-94. After evaluating the addition of both the Bennett Mountain and
Evander Andrews Plants, as well as the implementation of new DSM programs, Mr. Sterling
found the Company s most recent load-resource balance still demonstrates an inability to meet
peak-hour loads in the summer and winter beginning in 2009. Tr. at 94. In other words, even
with the Evander Andrews Plant, the Company will not meet its forecast loads in 2009.
Additionally, Mr. Sterling stated that the 2006 IRP's analysis of transmission
constraints demonstrates that the Company s ability to import power through market purchases
to meet peak load demand is severely limited. Tr. at 97-98. The analysis shows that power to
meet a peak-hour deficiency cannot be imported from the Pacific Northwest over the existing
transmission system starting in July 2007, growing to 1 550 MW by 2025. Tr. at 97.
testified that given the current transmission system constraints, unless some other means to
reduce peak hourly loads or to increase generation is developed, Idaho Power will not be able to
meet its loads and load curtailment would be necessary. Tr. at 97-98.
Mr. Sterling also examined a number of alternatives potentially available to the
Company to meet its peak loads other than constructing a new thermal power plant. Tr. at 98-
109. These alternatives include: (1) Customer Owned Generation (e., combined heat and
power cogeneration such as the proposed Heinz project), Tr. at 98-100; (2) PURP A qualifying
facilities (e., wind projects), Tr. at 100; (3) Market Purchases, Tr. at 101-02; (4) Conservation
Tr. at 103-04; (4) Demand Response Programs (e.AlC Cool Credit and Irrigation Peak
Rewards), Tr. at 104-06; (5) Alternative Rate Designs (e., time-of-use rates, seasonal rates
Time-of-Day and Energy Watch Pilot Programs), Tr. at 106-07; (6) Transmission Upgrades, Tr.
at 107-08; and (7) Shoshone Falls Plant Upgrade, Tr. at 108-09. Mr. Sterling concluded that
none of these alternatives can alone or collectively substitute for a new gas-fired peaking plant.
Tr. at 109. While each of the alternatives is important, he testified that all of the alternatives are
either already being pursued and are a part of the Company s plan going forward, or they cannot
be counted on with certainty. Id. He felt that while there may be room for increased efforts
particularly with regard to conservation and demand response, a new peaking resource is still
necessary. Id.
ORDER NO. 30201
3. ICIP. The ICIP asserted that the Evander Andrews plant is not needed by Idaho
Power in order to meet peak hour loads. Tr. at 192. ICIP witness Dr. Don Reading argued that
the Company s reliance on the 2004 IRP is misplaced, as that information is outdated and that it
would be more appropriate to use the information developed for the 2006 IRP. Tr. at 197-98.
Dr. Reading cited a "substantial" increase in natural gas prices as a major change since the
issuance of the 2004 IRP, and takes exception with the Company s continued use of 2004 gas
prices in evaluation of the RFP bids. Tr. at 203-04. Although the Company claims that it is only
important in the evaluation of bids that the same gas price forecast be used for all of the bidders
even if outdated, Dr. Reading stated that increasing gas prices should cause the Company to
consider the fundamental question of whether a gas-fired resource is the best resource choice.
Tr. at 204.
Dr. Reading advocated that there are several viable, more cost-effective alternatives
to gas-fired generation. These alternatives include combined heat and power cogeneration
projects (CHP), increased Demand-Side Management (DSM) projects
, "
virtual peaking plants
that utilize emergency backup generators distributed throughout the Company s service area to
provide peak load generation, and other proven methods for decreasing or meeting peak demand.
Tr. at 218 241.
Dr. Reading also insisted that Idaho Power s peak load deficiency is overstated. Tr.
at 269. He contended that the Company: Has failed to account for additional power that will be
available to it from increases in PURP A and CSPP purchases (Tr. at 263); has failed to
effectively utilize DSM resources and failed to account for future DSM savings (Tr. at 251-52);
passed up an opportunity to acquire a CHP project with Heinz at its potential new facility in
Ontario, Oregon (Tr. at 221-40); and that the Conservation Reserve Enhancement Program
(CREP) will take irrigation pumps offline and effectively reduce peak demand. Tr. at 269-70.
Dr. Reading also argued that if the Company builds the Evander Andrews Plant, its availability
as a resource will act as a significant disincentive for the Company to pursue additional DSM
conservation, and other alternatives.
Commission Findine:s Based upon our review of this record, we find that the need
for future power to meet the projected peak loads of Idaho Power has been adequately
demonstrated. Except for the possible load reduction attributable to CREP , the Industrial
Customers' argument is not so much with the forecast of possible peak deficiencies, but with
ORDER NO. 30201
Idaho Power s solution for addressing peak loads. However, the estimated CREP load
reductions do not outweigh the forecasted loads in either the 2004 or 2006 IRPs. ICIP advocates
the use of alternatives to the construction of a new thermal generating resource to meet the
Company s peak load deficiencies. We find Mr. Sterling s analysis of the 2006 IRP and its load
forecasts convincing. He testified that even with the 170 MWs of Evander Andrews, Idaho
Power will experience peak deficiencies in both the winter and summer of2009. Tr. at 94.
Moreover, Mr. Sterling also observed that constraints in the Company s transmission
system will restrict the ability to import power next summer. Tr. at 97. The Evander Andrews
Plant was originally scheduled to come online for the summer of 2007. Tr. at 60-62. However
the Company was able to economically secure a 50 MW firm energy purchase from the eastern
side of its system to cover the heavy load hours during the summer of 2007. Tr. at 62. This
enabled the Company to delay the online date for the proposed Evander Andrews Plant for one
year while, at the same time, meeting the capacity planning criteria established in the IRP. Id.
No party has sufficiently disputed the fact that the Company will experience peak load
deficiency in the future. Consequently, we find based on this record that the need for future
power to meet the projected peak loads of Idaho Power is supported by substantial and
competent evidence.
B. Meeting the Public Need Requestfor Proposals
1. Idaho Power.Based upon the Near-Term Action Plan in the 2004 IRP, Idaho
Power issued an RFP for a peaking generation resource. Application at 4. Although the 2004
IRP called for an 88 MW peaking resource, the Company also sought some flexibility in both the
RFP and the responses to the RFP. Id. In particular, Idaho Power expected that the RFP would
specify a range of turbine sizes, up to 200 MW, similar to the Bennett Mountain RFP in 2003.
Id. The RFP asked for proposals for an electric generation resource in a range from 80 MW to
200 MW located within the Company s service territory. Tr. at 57. Mr. Said testified that the
flexibility in the RFP plant capacity permitted bidders to respond to the RFP with their most cost
effective proposals. Id.
The Company utilized an independent, third party (Power Engineers) to assist in the
development of the 2005 RFP and the evaluation criteria, as well as to assist in the review and
evaluation of bids. Tr. at 58. The Company received 31 proposals from 9 bidders that offered
generation units ranging in size from 71 MW to 170 MW. Tr. at 57. All proposals went through
ORDER NO. 30201
an initial screening process where the bids were scored based on predetermined price and non-
price criteria established with the assistance of Power Engineers. Tr. at 58. Based on the initial
screening, the top 15 proposals received from 4 different companies were short-listed and face-
to-face meetings with representatives of the short-listed entities were held. Id.
Eventually, the Siemens proposal for Evander Andrews was selected as the preferred
proposal by the RFP evaluation team following the meetings with the short-listed bidders. The
selection of Siemens was due to its ranking based upon the price and non-price attributes set out
in the Evaluation Manual developed for this RFP. Tr. at 59.
2. Staff. Staff witness Sterling described the RFP process and discussed the
evaluation of the proposals in testimony. Tr. at 109-40. He determined that the evaluation
team s scoring of the Siemens proposal was reasonable based upon what was known at the time
the scoring was done. Tr. at 127. However, he expressed concern that the scoring of some ofthe
non-price attributes were subjective and the facts supporting certain scores were changed after
the scoring.Id. For example, the "community and environmental" non-price attributes had six
elements. Information pertaining to some of the sub-elements may have changed after scoring,
and this new information may have affected the scoring. Tr. at 129. The scoring for this non-
price attribute category represented most of the scoring difference between the preferred
proposal and the second place bidder. The second place bidder s proposed plant was located
closer to the Treasure Valley load center, and therefore, had significantly less transmission costs.
Although the RFP process was fair and the evaluation criteria used to evaluate bids
was reasonable, Mr. Sterling recommended that the cost difference between the selected project
(Siemens) and the second place bidder be deducted from the $22.8 million cost of transmission.
Tr. at 163.
3. ICIP. Dr. Reading argued that Idaho Power did not choose the natural gas plant
with the least cost. Tr. at 274. He stated that Evander Andrews is an inappropriate choice
because it is significantly more expensive than the runner-up because of the transmission
upgrades. Id.
Dr. Reading also echoed much of Commission Staffs concerns regarding the scoring
of the proposals. He asserted that the difference in price between Evander Andrews and the
3 The actual non-price attributes, their scoring values, and the actual scores are subject to a protective order as "trade
secret" per Rule 67, IDAP A 31.01.01.067.
ORDER NO. 30201
second place bidder was too great to allow the non-price factors to trump the price scores. Tr. at
276. Furthermore, he stated that the scoring methodology used by Idaho Power for the price
factors, as well as the non-price factors, undercut the significant price difference between
Evander Andrews (including transmission costs) and the second place proposal. Tr. at 284. He
suggested that the points awarded to the top two projects essentially put them on equal ground
even though they were substantially different in price, and it was this fact that allowed the non-
price factors to "swamp" the effect of the price difference, resulting in Evander Andrews being
selected. Tr. at 286.
On rebuttal the Company submitted testimony containing more detail regarding the
RFP evaluation team s consideration and scoring of the non-price attributes. Tr. at 309-337.
Without discussing specific examples because of their confidential nature, the thrust of the
discussion revolved around the Evander Andrews project receiving higher relative scores
because of the value of certainty, and an assessment of lower risk associated with certain distinct
non-price attributes. Id. Similarly, the testimony described how the second place project
received lower relative scores based on an assessment of higher risk associated with certain sub-
elements in the "community and environmental" non-price attributes. Id.
Commission Findine:s We find that the Evander Andrews proposal is a reasonable
response to meet the Company s present and future need for peak load power for several reasons.
First, Evander Andrews was the winning project in the Company s RFP process - a process that
was not perfect, but was adequate, fair, and used reasonable evaluation criteria. We find that the
base price of approximately $49 999 000 for the 170 MW Evander Andrews project compares
favorably to the $49 million cost of the 90 MW Danskin plant completed in 1991 , and to the
substantially similar $44.6 million, 162 MW Bennett Mountain project completed in 2005. We
note that the top two proposals were very close with each utilizing the same Siemens-
Westinghouse combustion turbine. Evaluating the top two proposals without the transmission
costs, Evander Andrews would clearly be the winner with regard to both price factors and non-
price factors. While we share Staffs and ICIP's concerns about the subjective nature of some of
the non-price attributes and the issue of using updated information, we do not find that their
concerns outweigh our conclusion that Evander Andrews is a reasonable means of meeting
future loads. As Staff observed, other alternatives for meeting load were not viable.
ORDER NO. 30201
Second, upgrading the transmission line between Mountain Home and Boise will
improve the overall reliability of the transmission system and be available at times when Evander
is not running.We recognize that there is a substantial transmission cost associated with
Evander Andrews (estimated at $22.8 million) that is not present in the proposal from the second
place bidder. However, a significant amount of the transmission cost is offset by the lower plant
cost of Evander. Third, the uncertainties of other supply alternatives and the non-price attributes
associated with the second place proposal outweigh the additional transmission costs.
Finally, the Industrial Customers' argument that there are other , cheaper alternatives
to meet the Company s peak load does not offer the same level of reliability and effectiveness
that a fully dispatchable resource like Evander Andrews can provide. In other words, many of
the alternatives identified by ICIP are either somewhat or completely outside ofthe control of the
Company, are speculative at best, and/or are unlikely to provide the type of dispatchable resource
needed to meet the future load deficiencies. Denying a Certificate for the new plant and solely
relying upon these alternatives to meet peak load demand is risky, unreasonable, and not in the
public interest.
Our approval of the Evander Andrews Plant should not be viewed as condoning the
lack of detailed transmission costs in this case. Idaho Power should have provided a more
detailed and rationally explained estimate of the transmission cost involved with integrating
Evander Andrews into the Company s system. While we understand that the Company is bound
by the FERC standards of conduct 4 we find it unacceptable for Idaho Power to bring a case
before this Commission, seeking authorization to construct a costly generating resource, without
more detailed and firmer transmission costs. This is especially true in this case.
The Company explained that the request for transmission costs from its transmission
unit could not be made until a site was selected. Tr. at 412. This excuse does not satisfactorily
explain why the transmission costs are only estimates. Company witness Said testified that cost
estimates for any interconnection customer can be obtained within either 90 or 120 days from the
Company s transmission unit. On cross-examination the Company disclosed for the first time
that the transmission cost information should be available sometime in January 2007. Tr. at 411.
Evander Andrews was selected as the winner of the RFP process on November 22, 2005. Tr. at
4 FERC standards require that Idaho Power s transmission business and employees be totally separated from that
part of the utility that serves native load customers.
ORDER NO. 30201
59. The Company filed the Application in this case with the Commission on April 14, 2006.
The cost information should have been available when the Company filed its Application in
April. We direct the Company that in all future cases it shall complete the proper transmission
integration studies and submit the transmission integration cost estimates together with its
request for a Certificate.
We continue to find that programs or procedures that reduce critical peak hourly
demand have great value to both ratepayers and the Company. Idaho Power must diligently and
vigorously pursue all available, cost effective DSM, conservation, and pricing options that could
potentially displace or defer the need for additional future peaking generation. We are
particularly interested in the "virtual peaking plant" program being conducted by Portland
General Electric (PGE) and described by Dr. Reading in his testimony. Tr. at 241-48. We direct
Idaho Power to investigate and submit a report for the implementation of a "virtual peaking
plant" program based upon the use of existing emergency generator resources in the Company
service territory. This report shall be filed no later than June 1 2007.
C. Ratebasing the Capital Costs
1. Idaho Power.Consistent with prior Commission Orders, Idaho Power provided a
Commitment Estimate" for the capital costs of the Evander Andrews Plant. The Company
proposes a Commitment Estimate of $60 million for the project. Application at 5. The
Commitment Estimate is a good faith estimate of the project's total capital cost based upon a
negotiated Agreement for Engineering, Procurement and Construction with Siemens Power
Generation, in the amount of $49 999 000. The difference between the base price and the
Commitment Estimate represents certain additional costs the Company knows it will incur but
cannot quantify with precision at this time, such as sales taxes, allowances for funds used during
construction (AFUDC), cost of Idaho Power oversight of the project, and the cost of capitalized
start-up fuel. Application at 4-
The Company proposes to procure and install the project for the Commitment
Estimate of $60 million. Application at 5. The Commitment Estimate would be subject to
adjustment for documented legally required equipment changes (e., requirements to comply
with new air quality laws) and for escalations in assumed forecasts such as inflation. Id. The
Company states that it will absorb the extra cost, should the final capital cost of the project
exceed the Commitment Estimate.
ORDER NO. 30201
The Commitment estimate does not include the approximately $22.million
estimated cost of constructing transmission and substation facilities required to interconnect the
project with the Company s transmission system. Application at 5. The Company states that the
studies needed to define the transmission costs have not been completed, but the Transmission
Unit has provided a preliminary upper limit estimate of $22.million to upgrade the
transmission system from Mountain Home to the Treasure Valley load center. Id.
2. Staff.Staff witness Sterling testified that the Commitment Estimate is reasonable.
Tr. at 152. He observed that the Commitment Estimate for the Bennett Mountain Plant, a nearly
identical plant completed in 1995, was $54 million, excluding transmission. Id. Due to an
abundance of turbines available on the market, he indicated that the Evander Andrews Plant cost
reflects excellent prices by standards of the past several years. Id. However, Staff was not
willing to recommend the full $60 million for future inclusion in rate base. Id. Mr. Sterling did
recommend that the $49 999 000 Idaho Power-Siemens contract price (a known amount), except
for possible change orders, was acceptable because it will not change once Idaho Power takes
ownership of the plant and it was established through a competitive bidding process. Tr. at 152-
53. He recommended that the remaining $10 001 000 of the Commitment Estimate over the
contract price be subject to audit by Commission Staff prior to being considered for inclusion in
the Company s rate base. Tr. at 153.
Mr. Sterling also recommended that the Company be required to develop a
commitment estimate for the cost of constructing the transmission and substation facilities
necessary for the Evander Andrews Plant. Tr. at 163. This should be required because
transmission costs represent about 27.5 % of the entire project cost, and the plant is inextricably
linked to the transmission, i., the plant could not meet load without the necessary transmission
upgrade to bring the power to the Treasure Valley load center. Tr. at 154-56. Because of
Evander Andrews' higher transmission cost, Mr. Sterling recommended that the Company
transmission cost Commitment Estimate be reduced by the additional cost of the Evander
Andrews proposal over the second place proposal. Tr. at 163.
3. ICIP. The Industrial Customers recommended that if the Commission were to
grant a Certificate, it should not allow Idaho Power to collect the full costs of the plant that
include significant, unnecessary, and excessive construction and transmission costs. Tr. at 289.
Similar to Staff, Dr. Reading recommended that the Commission exclude the difference in price
ORDER NO. 30201
between the Evander Andrews project and the cost of the second place proposal. Tr. at 290.
Alternatively, he recommended a disallowance of the costs of the transmission associated with
the Evander Andrews project because the Company essentially voluntarily incurred those costs
to locate the plant in Mountain Home where the power would have to be wheeled a significant
distance to the load center. !d. Lastly, Dr. Reading suggested that the Commission could choose
to disallow the difference in costs between a 170 MW plant, like Evander Andrews, and an 88
MW plant, which is what was called for in the 2004 IRP. Id.
Commission Findine:s We find that in the ordinary course of events, Idaho Power
may anticipate ratebasing $49 999 000 - the amount of the Siemens contract. The reasonable
and prudent actual costs incurred above that figure, up to the Commitment Estimate of $60
million, cannot be quantified with precision at this time and will be reviewed in a subsequent
proceeding. We specifically reserve our approval of costs in excess of the contract price until
after the project is constructed and an audit of such costs is completed. As the Commission has
previously stated
When the Commission authorizes construction of new generation, it has not as a
matter of law authorized the utility to recover from ratepayers whatever costs are
invested in the new generation under all circumstances whatsoever. The
regulatory compact is not so one-sided.
The Commission s authorization to construct new generation is a practical
document, not one with only a single legal consequence. It informs the company,
its ratepayers and its investors that, in the ordinary course of events, prudently
incurred costs of construction of bringing the authorized plant on line will later be
recognized in the company s revenue requirement. But prudence has more
aspects than management of the construction. A certificate does not guarantee a
utility recovery when it ignores or defies the laws of economics by continuing to
invest in plants no longer necessary or prudent because demand has fallen from
projections. A certificate does not guarantee recovery when investment is no
longer prudent because costs have escalated beyond reasonable expectation. A
certificate does not guarantee recovery when investment is no longer prudent
because the percentage of the company s capital tied up in the project is
unreasonable. A certificate does not guarantee recovery when investment is no
longer prudent because technology has changed. A certificate does not guarantee
recovery when management, operation or construction of a project is beyond the
utility s control and under the direction of others.
Order No. 23520 at 19.
ORDER NO. 30201
With the quotation above in mind, we recognize that the costs of transmission
interconnection and/or upgrade are not included in the Company s Commitment Estimate. We
expect the Company to advise the Commission regarding the transmission integration cost
estimate that is forthcoming from its transmission unit some time in January 2007. We expect
this cost information to be within a reasonable range of the $22 550 000 transmission estimate
used by the RFP evaluation committee, and preferably lower. Although the transmission
upgrade will primarily be used and dedicated to the output of the Evander Andrews Plant during
peak load, the increased capacity will be available for use during the remaining off-peak periods.
Even though the Company was unable to quantify a specific benefit to the transmission upgrade
other than generally increasing the reliability of the transmission system, we find this to be a
substantial benefit. The reasonable and prudent actual costs incurred for the transmission
integration/upgrade will be considered and reviewed in a subsequent proceeding.
We find the Industrial Customers' argument to deny the cost differential between the
170 MW plant as compared to an 88 MW plant called out in the 2004 IRP to be unpersuasive.
We find the economies of scale of the new plant and forecasts of future need to meet peak load
demand reasonably support the decision to construct the 170 MW plant. Because we reserve the
approval of the transmission costs, we also decline to adopt Staffs transmission adjustment.
D. Miscellaneous Issues
1. Fuel Costs. As part of its Application, Idaho Power requested that fuel costs, fuel
storage, and fuel transportation for the plant be included for recovery in the Company s PCA
mechanism. Application at 6.
Staff agreed that reasonable fuel expenses should be approved for recovery in the
Company s PCA, prior to full review of normal operational costs in a general revenue
requirement case. Tr. at 142-, 163. Staff witness Sterling stated that this is consistent with the
treatment of fuel costs for both the Bennett Mountain and Danskin Power Plants. Tr at 143. He
testified that Idaho Power has an Energy Risk Management Policy and that it has gas-hedging
guidelines for the Danskin and Bennett Mountain Plants. Tr. at 143-44. He recommended that
the Company develop its fuel procurement strategy for both natural gas and transportation
capacity as well as expanded hedging guidelines and risk management strategies for all three
plants located near Mountain Home. Tr. at 144.
ORDER NO. 30201
Commission Findine:s We find it reasonable to allow the Company to recover its
fuel cost through the PCA mechanism. In Order No. 28799 we allowed recovery of fuel costs
for the Danskin Plant and in Order No. 29410 we allowed recovery of the fuel costs for the
Bennett Mountain Plant in the Company s annual PCA rates. We find similar treatment here is
reasonable. We expect the Company to utilize hedging guidelines and risk management strategy
to mitigate the volatility of fuel prices, as it does for both Bennett Mountain and Danskin. We
shall review the Company s hedging and risk management strategy when it seeks recovery of
fuel costs in the PCA proceedings.
2. Panel" Testimony. The Commission admitted the "joint" rebuttal testimony
proffered by Idaho Power for its witnesses, Mr. Said and Mr. Youngblood. The Company
prefiled rebuttal testimony does not disclose which witness was asked or which witness
answered each question. See Tr. at 305-62. If the Commission allowed both witnesses to jointly
testify, the parties agreed that the witnesses would limit themselves by having only one witness
answer the questions on cross-examination, and that they would not confer with each other prior
to answering, except to determine who would answer.
Staff objected to the procedure, but did agree that if the Commission were to allow
both witnesses on the stand at the same time, that they be limited to only one witness answering
on cross-examination. Tr. at 39. Although not objecting to the procedure, ICIP asserted that
panel testimony was problematic and suggested that in the future the Commission require parties
to seek leave in advance of filing panel testimony. Tr. at 40.
Commission Findine:s We do not approve of the procedure utilized by the
Company in this case to present pre filed testimony. The testimony was not "panel" testimony,
but was rather two people jointly sponsoring the same testimony. Panel testimony would consist
of a "panel" of witnesses, who under oath would be asked the same question, and each would be
given the opportunity to give his or her own answer.
The testimony here was presented in such a way that it is impossible to determine or
differentiate which question was directed to which person, and which person was answering
which question. A basic principle of evidentiary proceedings is that witnesses may only testify
to what is within their personal knowledge. Even though the Commission, as a fact finding
administrative agency, is not bound by the strict rules of evidence, its findings must be supported
by substantial and competent evidence, and it cannot make a finding based upon hearsay.
ORDER NO. 30201
Citizens Utilities Co. v. Shoshone Natural Gas Co.82 Idaho 208, 213-214, 351 P.2d 487, 489-
90 (1960).
It is highly unusual for two witnesses to take the stand together and determine on
their own who was responsible for the answer submitted on direct, and who will be responsible
to answer cross-examination questions. Parties should put forth the witnesses who have the
requisite subject matter knowledge to sponsor and stand behind their prefiled testimony without
the assistance of others. Prefiled direct testimony should not be proffered to the Commission if it
is constructed in such a way that it requires two people to jointly vouch for it. Prefiled testimony
should be submitted by one witness and not be jointly submitted as was done in this instance.
ID AP A 31. 01. 01.231. In those rare cases where panel testimony is to be offered, we expect
parties wishing to submit such testimony to seek leave in advance of filing. We direct Idaho
Power, as well as other utilities, to follow this procedure in the future.
CONCLUSIONS OF LAW
Idaho Power is an electric corporation subject to the regulatory jurisdiction of the
Commission. The Commission has jurisdiction over this matter pursuant to Idaho Code ~~ 61-
526 and 61-528.
We find that the future public convenience and necessity requires the construction of
the Evander Andrews Power Plant to be located at the existing Evander Andrews Power
Complex near Mountain Home, Idaho.
We further find that in the ordinary course of events Idaho Power may recover the
base price of the plant in the amount of $49 999 000. See Order No. 29422. Additional capital
costs up to the Commitment Estimate of $60 million and necessary transmission costs will be
subject to further review in a subsequent case once the plant is constructed and the transmission
system upgraded.
ORDER
IT IS HEREBY ORDERED that Idaho Power Company s Application seeking a
Certificate of Public Convenience and Necessity to build the Evander Andrews Power Plant is
approved. Certificate No. 465 will be issued to Idaho Power.
IT IS FURTHER ORDERED that in the ordinary course of events Idaho Power may
recover the base price of the Evander Andrews Power Plant in the amount of $49 999 000. Plant
costs in excess of $49 999 000 will be reviewed in a subsequent case after the plant has been
ORDER NO. 30201
constructed. Capital costs (excluding transmission interconnection and legally required
equipment changes) in excess of the Commitment Estimate cap of $60 million will not be
eligible for inclusion in the Company s rate base. Transmission costs to upgrade the system
between Mountain Home and the Treasure Valley are subject to future review once the upgrade
has been constructed.
IT IS FURTHER ORDERED that Idaho Power provide the Commission with the
transmission cost estimate due in January 2007. Any future Application for a generation
certificate that requires transmission to effectively serve load shall include detailed transmission
information and costs.
IT IS FURTHER ORDERED that Idaho Power provide Staff with periodic
percentage of completion and cost expenditure reports during the construction of the power
plant.
IT IS FURTHER ORDERED that the Company s reasonable and prudent fuel costs
for the Evander Andrews Power Plant may be recovered through the annual PCA mechanism.
IT IS FURTHER ORDERED that Idaho Power shall investigate and develop a
proposal for the implementation of a "virtual peaking plant" program based upon the use of
customers' emergency generator resources located throughout the Company s service area. This
proposal shall be submitted to the Commission for its review no later than June 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 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 ~ 61-
626.
ORDER NO. 30201
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /S-tl--
day of December 2006.
ATTEST:
missIOn Secretary
O:IPC-O6-09 dw5
ORDER NO. 30201
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MARSHA H. SMITH, COMMISSIONER
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