20061219Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
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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 EXECUTORY SALE AND TRANSFER
OF UTILITY PROPERTY PURSUANT TO A
TRANSFORMER SHARING AGREEMENT
CASE NO. IPC-O6-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of record
Donald L. Howell, II, Deputy Attorney General, submits the following comments in response to
Order No. 30190, the Notice of Application and Notice of Modified Procedure issued on November
, 2006.
BACKGROUND
On November 14, 2006, Idaho Power Company filed an Application requesting that the
Commission approve a Spare Transformer Sharing Agreement ("Transformer Agreement") with
nearly 50 of the nation s other electric utilities. The Transformer Agreement provides that in the
event of a deliberate act of terrorism disabling one or more utility substations, the participating
utilities may be called upon to provide/sell spare electric transformers to the affected utility.
Application at 1-2. In essence, the Transformer Agreement creates an industry-wide pool of spare
STAFF COMMENTS DECEMBER 19, 2006
electric transformers that can be transferred from one utility to another utility in the event of a
coordinated terrorist attack upon the nation s electric infrastructure.
On July 18, 2006, the Edison Electric Institute (EEI) on behalf of more than 40 participating
utilities filed an application with the Federal Energy Regulatory Commission (FERC) seeking
authorization for jurisdictional public utilities to engage in the future transfers of transformers.
Order on Application for Blanket Authority for Transfers of Jurisdictional Facilities and Petition
for Declaratory Order 116 F.R.Co R. 61 280 at ~ 3 (September 22 2006), hereinafter the
Declaratory Order.In its FERC application, EEI indicated that 43 entities have executed the
Transformer Agreement. EEI stated these participating utilities own more than 60% of the
interstate bulk-power transmission system. Id. EEl asserted that the Transformer Agreement is "
prudent approach to making efficient use of the industry s existing spare transformers and fairly
allocating the responsibility to acquire a limited number of additional spares, while minimizing
duplicative purchases ofthese costly assets.Id. at ~ 4 citing Application at 8-
EEI submitted its FERC application under Section 203 of the Federal Power Act. 16 US.
~ 824b. This section requires that FERC approve the disposition of jurisdictional transmission
facilities when the value of such facilities exceeds $10 million. Although the cost of many
transformers is less than $10 million, EEI expressed concern that the jurisdictional threshold may be
met when a public utility disposes of a large transformer or when several smaller transformers
collectively cost more than $10 million. Declaratory Order at ~ 18.
On September 22, 2006, FERC approved the request for blanket authorization of the
Transformer Agreement. The FERC applauded the efforts of EEI and the participating utilities to
pool and share spare transformers. FERC noted that:
Without the (Transformer J Agreement utilities would have to purchase
substantially more transformers to achieve the same recovery capability,
incurring substantially higher costs, or experience the inherent time delay
associated with finding, negotiating for, ordering, transporting, and testing a
replacement transformer. Furthermore, the Agreement establishes the obligation
to share spare transformers with Participating Utilities if there is a Triggering
Event. Accordingly, we find that the sharing arrangement in the Agreement is
prudent.
Declaratory Order at ~ 39.
1 A "triggering event" is defined as an act of terrorism that destroys or disables one or more substations and results in a
declaration of a state of emergency by the President. Agreement at ~ 1.
STAFF COMMENTS DECEMBER 19, 2006
Under the Transformer Agreement, each participating utility is required to maintain, and if
necessary, acquire a specific number of transformers in each voltage class in which it participates.
The Agreement requires participating utilities to sell their spare transformers to another
participating utility in its voltage class if there is a triggering event. Idaho Power anticipates that it
will commit 400 megavolt-amperes (MV A) of spare transformers to the sharing pool in its 230 kV-
138 kV equipment class. Application at ~
Idaho Power asserts that it will lower its overall future costs to maintain spare transformers
in its inventory, thereby benefiting ratepayers. By participating in the Transformer Agreement
Idaho Power receives the benefit of access to transformers in a national emergency without the
added costs and risks of buying and carrying large surpluses of spare transformers in its inventory.
Id. at ~ 6.
Idaho Power states that because the possible transfer and sale of transformers is executory,
appropriate bookkeeping entries will be made at the time of any future transfer and sale" of
transformers 0 Application at ~ 9. At this time the Company does not seek approval of any
ratemaking treatment for the Transformer Agreement fees and any new inventory required by the
terms ofthe Agreement. !do
STAFF ANALYSIS
Staff has reviewed the Company s Application and the Transformer Agreement and
generally agrees that the sharing agreement is prudent and in the best interests of customers of
Idaho Power and national securityo Under the agreement, Idaho Power will commit transformers
currently in inventory to be sold or transferred to another electric utility company upon a triggering
event. A triggering event means an act or coordinated acts of deliberate, documented terrorism, as
defined in the Homeland Security Act of2002 (6 US.C. ~ 101(15)) resulting in: (1) the destruction
or long-term disabling of one or more electric transmission substations; and (2) the declaration of a
state of emergency by the President of the United States pursuant to the National Emergencies Act
50 US.C. ~ 1601 et seq. Idaho Power would also be able to call upon participating utilities to
receive transformers if its systems were disabled by a triggering event. Though the risk of terrorist
attack is uncertain, the pooling agreement reduces the risk of long-term outages due to transformer
shortage. This agreement would allow and provide for a more timely restoration of power in the
event of a terrorist attack.
STAFF COMMENTS DECEMBER 19, 2006
The Transformer Agreement does not place restrictions upon the transformers that Idaho
Power will commit to the industry-wide pool of spare transformers. Under the terms of the
Transformer Agreement, Idaho Power will maintain ownership and possession of all of its spare
transformers and will be able to use its spares for equipment failures as long as such spares are
replaced within 18 months.
In the event of a terrorist attack, Idaho Power will sell or purchase spare transformers at
either the replacement cost or the net book value of the subject spare transformer, plus any
additional costs for cleaning, testing and transporting the transformer. The decision to charge the
replacement cost or net book value is at the sole discretion of the selling uti lit Yo If a participating
utility suffers the destruction or disabling of one or more electric transmission substations, the
utility must first use any and all spare transformers that it currently owns or to which it has rights to
remedy the destruction or disabled situation. To the extent that the utility is not able to remedy the
destruction or disabling with its own inventory, the utility may then call upon other utilities through
a "Call Notice" to provide the spare transformers needed to restore power. Utilities will reserve the
right to object to the Call Notice ifthere are multiple Call Notices for the same spare transformer, or
if the utility will require the use of the spare transformer to meet its own demands. Objections will
be heard by the Executive Committee established by the Transformer Agreement to resolve such
disputes.
Under Idaho Code ~ 61-328 , an electric utility cannot transfer any property that is used in
the generation, transmission, or distribution of energy to the public without authorization from the
Commission. Although Idaho Power believes the risk of having to sell a spare transformer under
the Agreement to be very low, the possibility of such a sale would require this Commission
approval. Before authorizing such a transaction, the Commission must find that: (1) the transaction
is consistent with the public interest; (2) the costs of and rates for supply and service will not be
increased by reason of such transaction; and (3) the transaction will not adversely effect the
financial ability ofIdaho Power to operate and maintain its facilities. Idaho Code ~ 61-328(3). The
Commission may condition its authorization with such terms and conditions as in its judgment the
public convenience and necessity may require. Idaho Code ~ 61-328(4).
The Agreement allows Idaho Power to participate in any or all of several equipment classes.
The Company has chosen to participate in only one, the 230kV-138kV class. In discussions with
the Company, Staff has determined that the Company has considered several classes of equipment
STAFF COMMENTS DECEMBER 19 , 2006
prior to deciding that, at this time, it will only participate in the one class in an amount of 400
MV A. The 400 MV A of participation covers the largest single transformer in this class.
There are two classes of equipment larger than the 230-138kV class that Idaho Power might
have chosen to participate ino In the 345-230kV class, the Company has three transformers in the
systemo These are spread out across the system and the loss of one or more of these would have
little adverse effect. In the 500-345kV class, the Company has three single phase transformers for
which it has one single phase spare and an existing sharing agreement for another. The Company
made a determination that the risks for these two classes are either low or already adequately
mitigated.
There is also two smaller transformer classes that the Company could participate in the
agreement. The Company is still evaluating these smaller classes and may add them to the
Agreement at a later date if it determines that action to be appropriate. Staff believes that Idaho
Power should participate in all classes where it can appropriately and cost effectively mitigate riskso
Staff believes that the Transformer Agreement is in the public interest because it provides
for increased reliability and a higher level of preparedness in the event of an attack or disruption in
the electric systemo Staff also believes that the Transformer Agreement will not unduly increase
customer rates because the receiving utility will pay for the transformer and all costs associated
with the sale. Without the Transformer Agreement, it is likely that customers may pay a higher rate
for service, as Idaho Power would be required to boost its transformer inventory to be prepared for a
possible worst-case scenarioo The Transformer Agreement will not adversely effect the financial
ability ofIdaho Power to operate and maintain its facilities because the Company will have an
industry-wide pool of inventory to draw from if its systems were disrupted, which would help
restore power more efficiently than purchasing direct from the manufacturer because of long
manufacturing lead times.
Idaho Power is not seeking approval of any ratemaking treatment for the Transformer
Agreement fees and the acquisition of any new inventory required by the terms of the Agreement.
The Federal Energy Regulatory Commission has stated that the costs of participating in the pooling
agreement may be recovered in a FERC proceeding as a single-issue rate proceedingo Declaratory
Order at ~ 430 The recovery of costs associated with any new inventory may be addressed in a
future rate proceeding before this Commission.
STAFF COMMENTS DECEMBER 19, 2006
STAFF RECOMMENDATION
Upon review of the submitted Application and Exhibits, Staff asserts that the Transformer
Agreement meets the criteria of Idaho Code ~ 61-328, and thus recommends the Commission
approve Idaho Power s Application authorizing the possible transfer of assets in the event of a
terrorist attack. Staff further recommends that the Commission direct the Company to advise the
Commission after any triggering event that affects Idaho Power s participation in the Transformer
Agreement, or when a "Call Notice" is received or requested. Idaho Power s advice letter should
apprise Staff and the Commission of the Company s plan to rectify any destruction or disablement
caused by the triggering event.
Respectfully submitted this day of December 2006.
Technical Staff:Donn English
Harry Hall
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STAFF COMMENTS DECEMBER 19, 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 19TH 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:
LISA D NORDSTROM
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
MAIL: lnordstrom~idahopower.com
bkline~idahopower.com
RIC GALE
VICE PRESIDENT REGULATORY
AFF AIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
MAIL: rgale~idahopower.com
'-.JO
SECRET AR
CERTIFICATE OF SERVICE