20070517Reply to ICIP comments.pdf

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IDAHO~POWER~
An IDACORP Company
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BARTON L KLINE
Senior Attorney
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May 17, 2007
HAND DELIVERED
Jean D. Jewell , Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise, Idaho 83720-0074
Re:Case No. IPC-07-
Power Cost Adjustment Filing
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of the
Reply Comments of Idaho Power Company for the above-referenced matter.
I would appreciate it if you would return a stamped copy of this transmittal
letter in the enclosed self-addressed , stamped envelope.
Barton L. Kline
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Enclosu res
O. Box 70 (83707)
1221 W. Idaho St.
Boise, 1083702
BARTON L. KLINE ISB #1526
LISA D. NORDSTROM ISB #5733
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Phone: [phone]
FAX: [phone]
bkline ~ idahopower.com
Inordstrom ~ idahopower.com
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Attorneys for Idaho Power Company
Express Mail Address
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT POWER
COST ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1 , 2007
THROUGH MAY 31 , 2008
CASE NO. IPC-07-
IDAHO POWER'S REPLY TO THE
COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER
Introduction
In its Comments, the Industrial Customers of Idaho Power ("ICIP") ask the
Commission to: (1) initiate a proceeding to change the current PCA methodology; and (2)
approve the PCA rates Idaho Power Company ("Idaho Power" or "the Company ) has
proposed in this proceeding but make the rates subject to refund , pending the
Commission s determination of the changes ICIP believes should be made to the PCA
methodology.
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 1
Idaho Power respectfully requests that the Commission reject the ICIP's requests
for the following reasons:
(1) the request to have the 2007-2008 PCA rates placed into effect subject to
refund is unfair; and
(2) ICIP's proposed changes to the PCA methodology have already been
considered and rejected by the Commission; and
(3) the changes ICIP proposes will create uncertainty, complicate future PCA
proceedings and erode the value of the PCA to the majority of the Company s customers.
The PCA as Filed Complies with the Commission s Orders
In its Comments the Commission Staff acknowledges that the Company s filing
complies with the Commission s orders and Staff recommends that the Commission
approve the PCA rates as filed by the Company. (Staff Comments p. 10).
ICIP did not find any errors or irregularities in Idaho Power s proposed 2007 PCA
rates. (ICIP Comments p. 2). Unlike Staff , ICIP does not recommend approval , but
states that it does not object to the Commission s approval of the Company s Application.
(ICIP Comments p. 2). However, ICIP goes on to request that the Commission make its
approval of the rates subject to refund based on the outcome of a future proceeding in
which the PCA would be modified as outlined in the ICIP's Comments.
ICIP's Last Minute ReQuest to Make the 2007-2008 PCA Rates Subject
to Refund is Unfair.
Idaho Power acknowledges that the ICIP has historically supported the PCA and
worked cooperatively with the Company and other stakeholders on PCA related issues.
Most recently, the ICIP was the entity that first suggested a multi-year sharing of
emissions credits. However, in this case, ICIP's motivation for proposing PCA rates
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 2
subject to refund at a time when the PCA rate for the ensuing year will be positive
transparent. As ICIP noted in its Comments on page 3, in the 2006-2007 PCA, ICIP
members experienced a 27% PCA rate decrease. In 2006 there was no mention of the
problem of rate volatility or a need to approve PCA rates subject to refund.
Certainly the Commission can , at any time, initiate proceedings to change the PCA
methodology. However, if the Commission chooses to do so , it is preferable that the
proposed changes be implemented prospectively and at a time when it is unknown
whether a potential change would provide a greater or lesser credit or charge in an
upcoming PCA year.Making the PCA methodology change retroactive, as ICIP
proposes , provides incentives for parties to take positions that will benefit them in the
short term. In Idaho Power s experience, proceedings structured in this manner are likely
to be more contentious.
In addition , the financial community carefully monitors the Company s PCA and
any uncertainty regarding cost recovery under the PCA is generally viewed negatively.
ICIP's Comments indicate that its proposed PCA methodology changes are
intended to be financially neutral. However, on page 1 of its Comments, the ICIP states:
The ICIP is especially concerned with making sure that Idaho Power s rates are set as
low as is reasonable while ensuing a level of rate stability that allows its members to
conduct their business in an efficient and continuous manner." (Emphasis added). Such
a view of utility ratemaking is inconsistent with numerous Idaho Supreme Court decisions
and Idaho Code Section 61-502 which require that the Commission set utility rates at
levels that are just, reasonable and sufficient. The Commission is required by law to
balance the interests of customers and the utility and set rates that are sufficient to allow
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 3
the utility to recover its costs and earn a reasonable return on its investment. ICIP's view
that the Commission should set Idaho Power s rates as low as is reasonable , does not
give the Company much comfort that ICIP will, in its proposed future proceeding to
change the PCA mechanism , actually pursue a financially neutral approach.
The Commission has Alreadv Considered and Rejected ICIP'
Proposed Balancinq Account.
ICIP recommends that the Commission modify the PCA methodology to
implement a balancing account so that "one year s excess and the next year s deficit
would be allowed to cancel each other out in the interest of rate stability.(ICIP
Comments p. 3).
This balancing account proposal by the ICIP is not a new one. In 1992 , when the
Commission first considered a PCA for Idaho Power, the ICIP recommended a PCA
methodology virtually identical to the one ICIP proposes today. In Order No. 24806
issued in Case No. IPC-92-25 on March 29, 1993 , the Commission summarized the
ICIP's pricing PCA proposal as follows:
Industrial Customers of Idaho Power (lCIP)
ICIP recommends adoption of a deferred accounting
PCA. ICIP's witness , Donald Schoenbeck, argues that Idaho
Power s proposed forecast method does not predict actual
power supply costs with an acceptable degree of accuracy.
The Company s proposal results in adjustments to rates that
vary significantly from year-to-year without constraints or
limitations. This rate instability is unacceptable to ICIP. ICIP
recommends not adjusting rates until actual power supply
costs have deviated from a normalized base level by plus or
minus $22.million for the Idaho jurisdiction. When the
trigger" point is reached, the entire balance in the deferral
account would be passed through to ratepayers as a rate
adjustment. (Emphasis added).
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 4
In Order No. 24806 on pages 7-9, the Commission rejected the ICIP's balancing
account proposal.The Commission based its decision to use a forecast-based PCA
with a true-up rather than the deferred accounting PCA advocated by ICIP on several
grounds. Principal among these grounds was the Commission s desire that PCA rates
send proper price signals to customers. With a deferred accounting PCA including a
balancing account, it is possible that PCA rates would not be adjusted until years after the
costs which caused that adjustment had been incurred. Under both the new and the old
ICIP proposals, customers that had no role in creating higher costs could find themselves
paying higher PCA rates simply because they happen to be customers on the system
when the "balancing account" called for a PCA rate increase.
In Order No. 24806 the Commission also noted that a forecast-based PCA , like
the current PCA, is preferable to the deferral PCA advocated by the ICIP, because Idaho
Power s customers are aware of changing stream flow conditions and understand the
impact they have on the cost of generating electricity. A PCA that adjusts rates to reflect
projected stream flows for the coming year sends the correct short-term price signals to
the ratepayers in a way this is very understandable to customers. The current PCA
methodology, in contrast to the balancing account advocated by ICIP , provides a closer
link between cost causation and cost recovery.
ICIP's proposed balancing account and three year smoothing proposal would
eliminate all of the price signals the Commission found desirable in Order No. 24806. In
addition, ICIP's proposal could create multiple offsetting charges and credits within
1 A copy of the pertinent portions of Order No. 24806, in which the Commission addresses ICIP's proposal
is attached to these Comments for the convenience of the Commission.
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 5
overlapping three year periods, all of which add complexity and the potential for customer
confusion.
CONCLUSION
In summary, the issues ICIP raises in its Comments were considered by the
Commission when it issued Order No. 24806 in 1993. The proposallCIP presents in its
Comments in this case is essentially the same proposal the ICIP made in 1993. In Order
No. 24086 the Commission considered ICIP's proposal and determined that the current
methodology is preferable for Idaho Power. Of course, if the Commission desires to
revisit the PCA methodology it certainly can do so. However, Idaho Power believes it
would be unfair for the Commission to consider retroactive changes to PCA methodology
at a time when a positive PCA charge is on the horizon~lf the Commission wants to
review PCA methodology, it should do so prospectively, not retroactively as ICIP
requests.
Based on the foregoing, Idaho Power respectfully requests that the Commission
approve Idaho Power s PCA rates as proposed and that the Commission decline the
ICIP'invitation to initiate a proceeding to make major changes to the current PCA
methodology.
DATED this .-lL day of May, 2007 , at Boise , Idaho.
BARTON L. KLINE
Attorney for Idaho Power Company
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 6
CERTIFICATE OF SERVICE
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I HEREBY CERTIFY that on this day of May, 2007, I served a true and
correct copy of the within and foregoing upon the following named parties by the
method indicated below , and addressed to the following:
Donald L. Howell, II
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington Street
Post Office Box 83720
Boise, Idaho 83720-0074
) U.S. Mail, Postage Prepaid
(X) Hand Delivered
) Overnight Mail
) Facsimile
(X) Email: Don.howell ~ puc.idaho.qov
Peter J. Richardson
Mark R. Thompson
Richardson & O'Leary, PLLC
515 N. 2ih Street
Boise, Idaho 83702
) U.S. Mail , Postage Prepaid
) Hand Delivered
) Overnight Mail
) Facsimile
(X) Email: peter~ richardsonandolearv.com
mark ~ richardsonandolearv .com
Barton L. Kline
IDAHO POWER'S REPLY TO THE COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER - 7
BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSION
CASE NO. IPC-O7-
IDAHO POWER COMPANY
ATTACHMENT
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE T l'Jili OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT A POWER COST ADJUSTMENT TARIFF FOR
ELECTRIC SERVICE TO CUSTOMERS
IN THE STATE OF IDAHO AND FOR
APPROVAL OF NEW RATES FOR SERVICE
UNDER THE FMC SPECIAL CONTRACT. )
CASE NO. IPC-E-92-25
ORDER NO. 24806
APPEARANCES
FOR IDAHO POWER COMPANY:LARRY D. RIPLEY
Idaho Power Company
PO Box 70
Boise, ID 83707-0070
MICHAEL S. GILMORE
BRAD M. PURDY
Deputy Attorneys General
Idaho Public Utilities Commission
Statehouse
Boise, ID 83720-6000
FOR COMMISSION STAFF:
FOR FMC CORPORATION':CONLEY WARD , JR.
Givens, Pursley & Huntley
277 N. 6th Street, Suite 200
PO Box 2720
Boise, ID 83701-2720
GRANT TANNER
PETER J. RICHARDSON
Davis Wright Tremaine
702 W. Idaho Street , Suite 700
Boise, ID 83702-8908
FOR INDUSTRIAL CUSTOMERS OF
IDAHO POWER:
FOR IDAHO IRRIGATION
PUMPERS ASSOCIATION:RANDALL C. BUDGE
Attorney at Law
Racine, Olson, Nye, Cooper
& Budge, Chartered
201 E. Center
PO Box 1391
Pocatello, ID 83204-1391
ORDER NO. 24806 - 1 -
exFlains 66% of the variatiol!. In spite of CUC's concerns over the degree of
Idaho Power s forecasting accuracy, CUC's witness David Eberle testified that
he could not design a regression that would improve forecasting accuracy. In
fact, Mr. Eberle testified that he had not tried'to improve the accuracy of Idaho
Power s regression technique.
Eberle pointed out that the National Weather Service forecast
inflows for Brownlee can vary significantly from actual inflows. Because Idaho
Power relies upon this single variable as the benchmark for forecasting power
supply costs, Eberle contends, there is a potential for rate instability. Eberle
attempts to address this problem by proposing a "deadband" which will be
discUssed below. CUC does not propose a specific forecast method other than
that recommended by Idaho Power.
Idaho Irrigation Pumpers Association nrri2'ators)
The Irrigators recommend a forecast-based PCA that is different from
the Company s proposal. The Irrigators' witness, Anthony Yankel , argues that
the forecast should not attempt to predict 12, months of usage and cost but
should include three months of actual information and nine months of estimated
data to be essentially based upon a calendar year. Mr. Yankel contends that
such a method explains 84% of the variations in power supply costs. Rate
adjustments based on his method, however, would not coincide with the forecast
period.
Federal Executive Agencies (FEA)
The FEA recommends adoption of Idaho Power s forecast proposal.
Industrial Customers of Idaho Power nCIF)
ICIP recommends adoption of a deferred accounting PCA. ICIP'
witness, Donald Schoenbeck, argues that Idaho Power s proposed forecast
method does not predict actual power supply costs with an acceptable degree of
accuracy. The Company s proposal results in adjustments to rates that vary
significantly from year-to-year without constraints or limitations. This rate
instability is unacceptable to ICIF. ICIP recommends not adjusting rates until
actual power supply costs have deviated from a normalized base level by plus or
ORDER NO. 24806 - 7 -
nnnus $22.6 million for the Idaho jurisdiction. When this "trigger" point is
reached, the entire balance in the deferral account would be passed through to
ratepayers as a rate adjustment.
Commission Staff
The Commission Staff presented the testimony of witnesses Bill
Eastlake and Keith Hessing. Mr. Eastlake testified as to what he considered to
be an improved forecast-based PCA. Eastlake argues that Idaho Power
forecast method is a poor predictor of power supply costs. He recommends
modifying Idaho Power s proposal by substituting a linear regression technique
which uses the natural logarithm of stream flows for the linear regression
technique the Company proposed in its Application. According to Eastlake , a
logarithmic fit produces a higher degree of accuracy in forecasting power supply
costs. The Company accepted Mr. Eastlake s use of a log fit regression as an
improvement to its forecast methodology.
Mr. Hessing advocates a deferred accounting PCA. This is Staffs
primary recommendation. Under Hessing s method, 50% of the difference
between actual and normalized power supply costs would be placed into a
deferral account. When that account balance reached plus or minus $11.
million for the Idaho jurisdiction , the accumulation would be passed through to
ratepayers with a rate adjustment.
FINDINGS
We find that a forecast-based PCA with a true-up is most appropriate
for Idaho Power. A forecast most closely matches costs to the time period in
which they a:re incurred. This sends the more appropriate price signals to
ratepayers. Under either of the deferred accounting PCA's proposed in this
case, it would be possible that rates would not be adjusted until years after the
costs which caused that adjustment had been incurred. A PCA based on a
forecast does not suffer as greatly from this defect.
Ratepayers in Idaho Power s service territory are aware of changing
stream flow conditions and understand the impact they have on the cost of
generating electricity. A PCA that adjusts rates to reflect projected stream
flows for the coming year should be understandable to ratepayers and send
ORDER NO. 24806 - 8 -
short-term price signals to ratepayers more reflective of actual conditions than
rates set using normalization.
The ability of a forecast-based PCA to send con-ect price signals and to
appropriately time the recovery of costs depends, of course, upon the accuracy of
the forecast. We share the concerns of the Staff and ICIP that if Idaho Power
forecast is seriously in en-or, it may result in a true-up larger than the primary
adjustment. This impairs the ability of the PCA to send proper price signals.
also diminishes rate stability. We accept Idaho Power s agreement to use a
logarithmic method for correlating forecasted Brownlee inflows with estimated
power supply costs. Other provisions of this Order with respect to sharing,
interest computation, and recognition of load changes will also mitigate against
the predictive inaccuracy of the model. We intend to monitor the results of
Idaho Power s PCA over the coming years. If it appears that the degree of
accuracy is inadequate, we will revisit the issue.
Finally, we find that a forecast-based PCA that trues-up to actual, as
proposed by Idaho Power, eliminates the possibility of the Company over-
recovering its power supply costs.
Sharing
'Two forms of sharing were proposed in this case: "deadbands" and
percentage splits.Essentially, "sharing" is any method that provides for
something less than a 100% pass-through of actual power supply, costs to
ratepayers.
Idaho Power
Idaho Power proposes to pass 100% of actual power supply costs
through to ratepayers. 'Although the Company's proposal uses a base of
normalized power supply costs in calculating the annual adjustment to rates
the beginning of each year, that base becomes irrelevant when the Company
trues-up to actual costs at the end of each year.
Idaho Power cites two specific benefits to its proposal. First, a 100%
pass-through of costs maximizes earnings stability for the Company. Idaho
Power asserts that this is an important benchmark used by financial rating
analysts and is critical to the Company s continuing financial health.
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ORDER NO. 24806 - 9 -