HomeMy WebLinkAbout20061215Comments.pdfWELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0318
IDAHO BAR NO. 3283
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Street Address for Express Mail:
472 WWASHINGTON
BOISE ill 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF AN AGREEMENT BETWEEN
VIM OR, LLC AND IDAHO POWER TO
PROVIDE ELECTRIC TRANSMISSION AND
SUBSTATION FACILITIES TO THE A VIM
MULTI-USE DEVELOPMENT.
CASE NO. IPC-O6-
COMMENTS OF THE
COMMISSION STAFF
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 in Order No. 30165 issued on November 1 , 2006 and
Order No. 30186 issued on November 21 2006 extending the comment period, submits the
following comments.
BACKGROUND
On September 27, 2006, Idaho Power Company filed an Application requesting Commission
approval of an Agreement between the Company and Avimor, LLC providing for the construction
of transmission and distribution substation facilities for a subdivision proposed by A vimor.
Distribution facilities beyond the substation would be provided subject to Rule H, Idaho Power
standard distribution line extension policy. Avimor s planned subdivision is located in Ada County,
STAFF COMMENTS DECEMBER 15, 2006
north of Boise, in an area where Idaho Power does not have adequate facilities to accommodate the
project. The agreement provides for Avimor to pay Idaho Power $4.3 million to construct the
facilities, paid in three installments. Idaho Power will own, operate and maintain the facilities that
are constructed pursuant to the Agreement.
Provided A vimor has timely made all three of the installment payments, the Agreement
states that A vimor shall be eligible to receive periodic refunds from Idaho Power for the cost of the
required facilities up to the entire amount of $4 300 000. Refunds to A vimor will be calculated and
paid by Idaho Power on the basis of the number of Schedule 1 (residential), Schedule 7 (small
general service), Schedule 9 (large general service) and Schedule 24 (agricultural irrigation)
services and loads that are connected to the requested facilities by the new development. The
refunds would be available to A vimor for the earlier of: (a) a period of 10 years, (b) until 685
permanent residential services within the project have been connected to the requested facilities, or
(c) until the metered demand at the project's delivery point, as defined in the agreement, meets or
exceeds 6 850 kW.
STAFF REVIEW
In general, Idaho Power has not historically required an advance from residential developers
to extend transmission and distribution substation facilities to new developments. In this case the
Company appears to have determined that the size, location and speculative nature of the
development requires a special agreement. Staff agrees that a special agreement is appropriate here
and that the advance and refund provisions for these facilities are necessary to protect the Company
and its ratepayers from speculative development.
Under the agreement, if the A vimor development does not build out in the designated time
period and provide the associated generation of new customer revenue, the developer will not
receive the specified refunds and neither the Company nor its customers will be required to invest in
unused facilities. Specifically, Avimor will advance the $4.3 million cost of transmission and
distribution substation facilities and will receive a full refund if all 685 residential customers
connect to Idaho Power s system or if the Avimor load grows to 6 850 kW within ten years. The
developer will be refunded a reduced portion of the original investment if fewer customers connect
or there is less load growth during the refund period. All refunds constitute Company investment
and will be included in the calculation of customer rates.
ST AFF COMMENTS DECEMBER 15 , 2006
Staff nonetheless is seriously concerned with the high cost per customer of extending these
facilities to serve 685 customers. At $4.3 million to serve 685 customers, the per customer
investment for Idaho Power and its existing customer base is $6 277. This is far greater than the
$350 per customer investment that Staff calculates is currently included in residential customer rates
for similar facilities (See Attachment A). Another useful comparison for these types of facilities is
the investment per new residential customer that the Company made between its last two general
rate cases. Staff calculates this amount to be approximately $1 000 per new customer. (Attachment
, $991 is rounded to $1000) The Avimor investment is almost 18 times the $350 per customer
amount currently included in rates and is more than six times the Company s recent average
investment for similar facilities. The difference between investment supported by current rates and
the investment recommended in this case will require subsidy by existing ratepayers and will cause
upward pressure on rates.
Irrigation customers raised a concern about new customer load growth costs relative to past
costs in Idaho Power Case No. IPC-03-13. Even without the extraordinary per customer
investment proposed in this case the cost to serve new customers is considerably higher than costs
embedded in rates and these costs are allocated through the cost of service process to all customer
classes. Following the IPC-03-13 general rate case, the Commission opened Case No. IPC-04-
23 to study this issue and to obtain recommendations to address it. That case resulted in a report to
the Commission but provided no definitive solution to the rising cost of serving new customers.
Staff believes the magnitude of the Avimor investment per customer exacerbates the problem of
growth related costs and needs to be mitigated.
Staff s review of possible solutions to the problem resulted in a wide range of alternatives
that considered different investment possibilities and refund provisions. Attachment B to these
comments identifies a number of the alternatives examined and shows the results of each for
A vimor and substation build out. A vimor build out is 685 customers but the substation will serve
1400 residential customers without upgrade. For an additional cost of $175 000 the substation can
be upgraded to serve 2 800 residential customers and for another $175 000 the substation can serve
600 residential customers. For each of these customer levels Attachment B shows the resulting
developer impact, the impact on rate base and the resulting pressure on rates. The Attachment is
organized to show the options that are most beneficial to customers first and the options that are
most beneficial to A vimor last.
STAFF COMMENTS DECEMBER 15 , 2006
Option 1 would require Avimor to contribute, without possibility of refund, the entire $4.
million. Implementation of this option would result in no increase in Company rate base.
Therefore, revenues from new customers served from these facilities would have no transmission
line or distribution substation costs to cover and as shown on the Attachment would actually cause
downward pressure on rates. Option 1 was never seriously considered because it would provide a
windfall to ratepayers at Avimor s expense.
Under Option 2 the developer advances the initial cost of the facilities as required under the
Agreement but receives refunds at the amount currently embedded in rates which is $350 per
residential customer. This option is beneficial to customers because it produces no upward pressure
on rates until the substation requires expansion and then the upward pressure is small. Staff does
not recommend this option, however, because when the investments for existing transmission and
distribution substation facilities were actually made, the investment was more than the $350 per
customer currently embedded in rates. One reason that this is true is because the amount of the
investment currently embedded in rates is a depreciated amount.
Under Option 3 the developer advances $685 000 and contributes $3 615 000. The
developer would receive refunds at $1 000 per customer which Staff calculates to be the average
investment per customer incurred between the Company s two most recent general rate cases. This
option caps upward pressure on rates at $650 per customer ($1 000 - $350). Staff is not
recommending this Option because it believes another option, Option 4, treats the developer more
fairly and accomplishes nearly the same results.
Staff recommends Option 4. Under Option 4 the developer advances the initial facilities
costs and receives refunds from all future developers or users of the substation facilities at the
recent average incremental cost of providing the facilities, $1 000 per customer. Staff also
recommends that refunds be provided for a period of 20 years or until the developer receives a
complete refund of the $4.3 million that was advanced. Staff believes that this is the most fair and
reasonable of the options reviewed because it effectively caps upward pressure on rates and
provides the opportunity for the developer to recover its full advance if the substation provides
service to 4 300 customers in 20 years or less. The developer is left with the risk that customer
growth in the area to be served by the substation will not reach 4 300 customers. If there are no
permanent service connections in the 20-year period, Avimor s contribution of $4.3 milliqn
completely covers the initial cost of the unused facilities. If the Avimor development completely
builds out but no customers over the 685 projected are served from the substation, Avimor would
STAFF COMMENTS DECEMBER 15 , 2006
receive $685 000 in refunds and contribute $3 615 000 to Idaho Power to cover the construction
cost of the unused facilities.
Option 5 is essentially the Agreement as filed in this case. Under Option 5 the developer
advances the initial facilities costs, $4.3 million, and receives a prorated refund based on the build
out of A vimor which is 685 residential customers. As previously mentioned, this results in a refund
of $6 277 per customer that goes to the Company s rate base and is included in rates. In Staff s
view the facilities investment cannot be adequately supported by new customer revenue until more
than 2800 customers are served. In the interim existing customers would experience substantial and
unnecessary upward pressure on rates. In fact any growth in the area beyond 685 customers to be
served by the new facilities is speculative and cannot be guaranteed.
Option 6 is the other extreme, opposite Option 1. The Company makes the entire
investment and Avimor is not asked to advance or contribute any money to cover the costs of these
facilities. The result is that A vimor has no risk for the cost of these facilities and the costs are rate
based and paid for entirely by ratepayers. This Option was never seriously considered because it
places extreme upward pressure on rates in low build out scenarios and leaves no risk for the
recovery of the cost of these facilities with Avimor, who directly causes the costs to be incurred.
The A vimor Agreement as filed in this case provides for developer refunds for permanent
residential service connections and for permanent service connections for Schedule 7, 9 and 24
customers. Staff agrees that the developer should receive refunds for all of these connections. For
non-residential connections the refunds should be based on load per customer and, for the purposes
of refund, could be stated as equivalent residential customers.
ST AFF RECOMMENDATION
Staff believes Option 4 addresses the speculative nature of the Avimor development and
strikes a reasonable compromise between the interests of ratepayers and the developers. Staff s
proposal allows refunds totaling $685 000 on build out of the Avimor development, with the
possibility of a full refund of the $4.3 million if the substation serves 4 300 customers in a 20-year
period. Staff s proposal requires the investment cost to be advanced to protect against the
speculative risk that is appropriately assigned to the developer. The recommendation also allows
refunds of $1 ,000 per permanent residential service, approximately the average investment per
customer made by the Company for these types of facilities today. Staff s recommendation limits
STAFF COMMENTS DECEMBER 15 , 2006
or caps, but does not eliminate, upward pressure on rates that would otherwise be caused by rate
basing the extremely high costs of adding these facilities under the terms of the filed Agreement.
Because the special agreement as submitted does not strike a reasonable balance between the
. interests ofldaho Power s ratepayers and the Avimor developer, Staff recommends the Commission
deny the Company s request for approval, with instructions that an agreement be resubmitted after
changes are made to mitigate the high cost ultimately borne by ratepayers.
Respectfully submitted this
~~
day of December 2006.
v5~
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Keith Hessing
i: umisc/commen ts/ipceO6 .23 wskh
STAFF COMMENTS DECEMBER 15, 2006
IPC-06-
Avimor Facilities Contract
Transmission Lines and Distribution Substation
Rate Base Per Residential Customer
IPC-05-IPC-03-Difference
Transmission
Total Residential Transmission Rate Base
Remove Transmission Station Equipment
Transmission Lines
125 040 370 102 987 004
(52 857 595)259,491)
182 775 727 513 12,455 262
345 176 321 303 873
209 186 522
Average No. of Customers
Transmission Rate Base Per Customer
Distribution
Distribution Substation Rate Base
Distribution Rate Base Per Customer
708 348 516,437 191 911
345 176 321 303 873
141 117 469
350 303 991
Average No. of Customers
Total Transmission and Distribution per Customer
Attachment A
Case No. IPC-06-
Staff Comments
12/15/06
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF DECEMBER 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-06-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
MONICA B MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
Jo ~ /kY--
SECRETARY
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