20070524final_order_no_30322.pdf

Office of the Secretary
Service Date
May 24, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF AN AGREEMENT
BETWEEN A VIMOR, LLC AND IDAHO
POWER TO PROVIDE ELECTRIC
TRANSMISSION AND SUBSTATION
FACILITIES TO THE AVIMORMULTI-USE
DEVELOPMENT
CASE NO. IPC-06-
ORDER NO. 30322
On September 27, 2006, Idaho Power Company filed an Application requesting
approval of a Special Facilities Agreement the Company signed with Avimor, LLC. The
Agreement is for the construction of transmission and substation facilities for a multi-use planned
residential subdivision to be developed by A vimor. The A vimor project is located north of Boise
Idaho within Idaho Power s certificated service area. Pursuant to the Agreement, Idaho Power will
construct 3.4 miles of a 138 kV transmission line and a substation with an initial capacity of 10
MY A. The Agreement requires Avimor to pay Idaho Power the construction cost of $4.3 million
and provides a formula by which A vimor is eligible to receive refunds from Idaho Power based on
the number of customers connected to the facilities. A vimor would receive a refund of its entire
$4.3 million investment if, within 10 years, 685 permanent residential services have been connected
or the meter demand at the development's delivery point meets or exceeds 6 850 kW. By this
years.
formula, A vimor expects to receive a refund of its $4.3 million investment in approximately five
On November 1 , 2006, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a time period for the filing of written comments. The comment
period was lengthened, however, after Staff filed a Motion to extend the time for filing comments
and A vimor filed a Petition to Intervene and a Motion requesting leave to file reply comments.
Finally, Idaho Power requested an opportunity to file comments in response to Avimor s comments.
Staff comments were filed on December 15 , 2006, Avimor filed its reply comments on April 2
2007, and Idaho Power filed its comments on April 16, 2007.
Based on the record presented, the Commission has determined the Special Facilities
Agreement as written places too great a financial burden on Idaho Power s existing ratepayers, and
the Commission accordingly denies approval of the Special Facilities Agreement as filed.
ORDER NO. 30322
STAFF COMMENTS
Staff in its comments noted that Idaho Power historically has not required an advance
from residential developers to extend transmission and distribution substation facilities to new
developments. The Company apparently determined that a special agreement is appropriate in this
case because of the size, location and speculative nature of the development, and Staff agreed that a
special agreement is appropriate. Staff noted that all refunds provided by Idaho Power will be
considered investment and ultimately will be included in the calculation of customer rates. Staff
recognized that the Agreement does reduce some risk to Idaho Power s ratepayers for the cost of the
facilities. If the first phase of the development does not build out within 10 years, A vimor will
receive only a partial refund based on the number of customer connections, and neither Idaho Power
nor its customers will be required to repay the balance of the facilities' costs.
Staff nonetheless expressed concern with the high cost per customer of extending
facilities to serve 685 customers in the A vimor project. The $4.3 million cost equates to
approximately $6 277 per customer. Staff calculated that approximately $350 per customer is
currently included in residential rates for similar facilities. The current investment per customer is
reduced by depreciation and the passage of time, so Staff also reviewed the investment per new
residential customer Idaho Power made between its last two general rate cases. Staff determined
that amount to be approximately $1 000 per new customer. Staff is concerned that the difference
between the investment included in current rates and the estimated investment for the A vimor
facilities will require a subsidy by existing ratepayers, causing upward pressure on rates.
To lessen the potential rate impact on Idaho Power customers, Staff recommended the
developer advance the construction costs and receive refunds from all future developers or users of
the facilities at the recent average incremental cost of providing the facilities, or $1 000 per
customer. Staff also recommended that the refund period be doubled, to 20 years, or until the
developer receives a complete refund of the $4.3 million that was advanced. Under Staffs
proposal, A vimor would recover the full advance when 4 300 customers are connected to the
facilities. If only Phase 1 of the A vimor development builds out and just 685 customers are added
Avimor would receive $685 000 in refunds and contribute $3 615 000 to cover the costs of the
unused facilities under Staff s proposal.
Staff stated its proposal appropriately requires the investment cost to be advanced to
protect against the speculative risk that should be assigned to the developer. Staff believes its
ORDER NO. 30322
recommendation limits, but does not eliminate, upwilrd pressure on rates that would otherwise be
caused by including in Idaho Power s rate base the extremely high cost of adding these facilities
requested by Avimor.
A VIMOR'S REPLY COMMENTS
In reply comments filed April 2, 2007, A vimor proposed changes to the Special
Facilities Agreement. A vimor proposed to increase the number of customer connections or metered
demand required before it receives a full refund of the payments advanced to Idaho Power. A vimor
also proposed to eliminate the lump-sum payment provision contained in the Agreement in Section
2(b) that requires Idaho Power to refund the full balance of the investment to A vimor when 685
customers are connected to the facilities. A vimor agreed to Staff s proposal to extend the refund
period to 20 years. Avimor also proposed to authorize Idaho Power to require non-Avimor
connections to the facilities to pay a lump sum to Idaho Power based on the estimated amount of
customer hookups or meter demand, which payment would be passed to Avimor. Finally, Avimor
proposed to allow interest to accrue on the $4.3 million in refundable payments that the Company is
providing to construct the necessary facilities.
A vimor pointed out in its comments that its project is designed to conserve energy and
water, providing a benefit to its residents, to Idaho Power and to the general body of ratepayers.
Avimor plans to construct 585 residential units that exceed Northwest Energy Star standards
making them potentially 30% more energy efficient than residential construction built to state code
standards. The project will also have a wastewater treatment plant to daily convert 300 000 gallons
of wastewater into water clean enough to irrigate common areas. A vimor contends because its
project is designed to be energy efficient, it is consistent with Commission policy to encourage
conservation efforts by Idaho Power.
A vimor notes that if it meets its obligations under the Agreement it will receive refunds
only after residential, commercial and retail buildings and the wastewater treatment plant and other
improvements are connected to the new electrical facilities. The rate impact of adding the facilities
to Idaho Power s rate base will be extended over a period of years as refunds are paid and Idaho
Power files rate cases. Avimor thus argues that the project's overall impact on Idaho Power s body
of ratepayers is small, even if the Commission were to accept the original Agreement.
A vimor stated it no longer advocates approval of the Special Facilities Agreement as
filed, and proposed an alternative recovery methodology. First, Avimor proposes an amendment to
ORDER NO. 30322
the refund provisions to allow it to receive refunds of $3 900 per customer. This change would
require 1 103 customers or 11 030 kW of metered demand to connect to the facilities before Avimor
receives a full refund of its payments to Idaho Power. A vimor estimates that at a refund rate of
900 per customer it will recover all payments in 8 to 12 years, rather than the 5 years or less
projected under the present Agreement. A vimor also proposes to remove the lump-sum payment
provision that would require Idaho Power to refund the full remainder of the balance to A vimor after
connecting 685 customers to the facilities, and to require other developers who connect to the
facilities to make a payment based on the expected usage.
IDAHO POWER'S REPLY COMMENTS TO A VIMOR'S COMMENTS
Idaho Power filed comments responding to Avimor s proposed changes to the
Agreement. Idaho Power states it has no objection to Avimor s proposal that Idaho Power be
authorized to require non-A vimor developers who connect to the transmission and substation
facilities to pay a lump-sum to Idaho Power before connecting. Idaho Power does object to
Avimor s proposal that interest accrue on the unrefunded balance of the payments Avimor makes to
construct the facilities. The money paid by A vimor to Idaho Power will be used to pay for the
transmission and substation facilities required by Avimor s development and will not be a windfall
to Idaho Power. The Company notes that allowing interest to accrue is inconsistent with the
treatment of Rule H Attachments and Installations. Idaho Power also objects to a refund period of
20 years, noting that the lO-year repayment period in the Agreement is twice as long as the 5-year
repayment period under Rule H. Idaho Power argues that a repayment obligation beyond 10 years
is administratively burdensome, because the Company is not staffed to manage long-term loan and
reimbursement provisions with multiple customers.
Finally, Idaho Power discussed two Supreme Court decisions mentioned by Avimor
and argued that the cases are not applicable to the matter before the Commission. A vimor had
argued that Staffs recommendations for refunds at $1 000 per customer connection "would be
discriminatory towards Avimor, a customer of Idaho Power, and further, possibly amount to a
violation of the Equal Protection Clause of the United States Constitution.Avimor Reply
Comments p. 10, citing Idaho State Homebuilders v. Washington Water Power Co.107 Idaho 415
690 P.2d 350 (1984) and Building Contractors Ass 'n. of Southwestern Idaho, Inc.v. Idaho Public
Utilities Commission 128 Idaho 534, 916 P.2d 1259 (1996). Avimor s argument is based on its
belief that refunds greater than $1 000 were allowed in another development. Idaho Power noted in
ORDER NO. 30322
this case the Special Facilities Agreement imposes a non-recurring charge on Avimor to offset the
costs of the Company capital investment required to deliver electricity to the Avimor
development. The Supreme Court in the Homebuilders case specifically stated that its holding there
did not involve a situation where "non-recurring charge is imposed upon new customers because
the service they require demands an extension of existing distribution or communication lines and a
charge is imposed to offset the cost of the utility's capital investment.Idaho Power Reply
Comments p. 5 quoting Idaho State Homebuilders v. Washington Water Power Co.107 Idaho at
421 690 P.2d at 356 (emphasis added).
In summary, Idaho Power agreed to Avimor s proposal to charge non-Avimor
developers who connect to the facilities, with the payments to be passed on to A vimor. Idaho
Power disagreed with A vimor' s proposal to allow interest to accrue on the unrefunded balances and
to extend the refund period to more than 10 years. The Company did not discuss the proposals to
reduce the refund amount from $6 277 per customer connection to $3 900 per connection (Avimor
proposal) or $1 000 per connection (Staff s proposal).
DISCUSSION
The Commission commends A vimor for incorporating energy efficiency measures into
its community development. We find the water capture and treatment for re-use a forward-thinking
innovation. A vimor plans to construct 585 homes in the first phase of the project that meet
efficiency standards of the Northwest Energy Star program, making them as much as 30% more
energy efficient than traditional construction. The wastewater treatment plant capable of
recapturing 300 000 gallons of water for irrigation represents a commitment to conservation that is
essential in our desert climate. A vimor correctly notes the Commission has for a number of years
encouraged Idaho Power to implement energy conservation programs, and the A vimor project
planned is consistent with the Commission s objectives.
The Commission nonetheless finds the refund prOVISIOns of the Special Facilities
Agreement place an undue risk on Idaho Power s existing customers that their rates will be
increased to pay for the transmission line and substation requested by Avimor. This risk needs to
remain with the developer. Construction of the facilities identified in the Special Facilities
Agreement (SF A) is necessitated solely by the A vimor project.
The Commission finds that the SF A as written does not properly allocate project risk.
The investment amount of $6 277 per connection exceeds by 18 times the amount currently
ORDER NO. 30322
included in customer rates to pay for similar facilities. It exceeds by six times investment made in
similar facilities since Idaho Power s most recent rate cases. Avimor proposed a per-customer
refund of $3 900, instead of $6 277, but did not dispute Staffs calculations.
If the SF A per-customer refund amount were the same as the amount currently in Idaho
Power rates to pay for similar facilities, the A vimor project would not have the potential to increase
customer rates as refunds are made. Even a per-connection refund amount of $1 000, as
recommended by Staff, will place upward pressure on rates because it is more than the $350 per
customer currently in rates. The impact of adding these facilities to rate base will be mitigated by
time and revenue from new customers. The longer the time period over which the costs are added
to rate base, and the more customers who are added to help pay the costs, the less upward pressure
there will be on rates. At the contract refund rate, Avimor expects to recover its entire $4.3 million
investment in approximately five years, with only 685 new customers added to help pay for the
facilities through their rates.
The Commission finds that the refund amount for the A vimor facilities should be
000 per customer connection. At that rate, 4 300 connections will be required for Idaho Power
to fully refund the facilities' costs to Avimor , spreading the investment over a longer period oftime
and among a greater number of customers. Requiring 4 300 customer connections places a greater
risk on the developer, where it properly belongs, for the success of its project. Although the refund
amount of $1 000 is greater than is currently in rates for similar facilities, the greater number of
customers connected and paying rates to help pay for the facilities, and the longer time period over
which the investment will be added, reduces potential rate impacts to an acceptable level.
We find the period of time for refunds to be available to A vimor should be 10 years and
not 20 years as advocated by Staff. Although 10 years is twice the normal refund period in Rule H
the size of the investment makes this time period reasonable without placing onerous administrative
demands on the Company. Limiting the refund period to 10 years also keeps the investment risk
with the developer. If 4 300 customers are not connected within 10 years, A vimor will not receive a
full refund of the transmission line and substation costs. We find a 10-year refund period to be part
of the proper balance for allocating the investment risk between the developer and Idaho Power
customers.
ORDER NO. 30322
The Agreement should also authorize Idaho Power to collect contributions from other
developers who connect to the facilities, with those contributions added to the amount refunded to
A vimor. All parties agree that this is an appropriate change to the Special Facilities Agreement.
Finally, we find that interest should not accrue on unrefunded amounts paid by A vimor
for construction of the facilities. The advanced funds are necessary for the facilities construction
needed for the A vimor development and will be used for that purpose. Idaho Power will not receive
a windfall as the result of A vimor' s up front investment in the facilities. In addition, because it is
not possible to know the amounts ultimately to be refunded or when refunds will be made, accruing
interest on an unpaid balance presents practical accounting problems, further complicating Idaho
Power s administrative responsibilities for the refund program.
ORDER
IT IS HEREBY ORDERED that Idaho Power s request for approval of the Special
Facilities Agreement with A vimor is denied. The Commission will approve an Agreement if it is
revised as set forth in this Order.
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.
ORDER NO. 30322
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this CJ.L.j;,fI..,
day of May 2007.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~!J
Jiah D. Jewel
Cdmmission Secretary
O:IPC-06-23 ws3
ORDER NO. 30322