20080225Comments.pdf

'111W~PO~
An IDACORP Company
LISA D. NORDSTROM
Attorney II
February 25, 2008
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-07-18
In the Matter of the Appropriate Disposition of Proceeds for the
Sale of Idaho power Company's S02 Emission Allowances in CY
2007
Dear Ms. Jewell:
Please find enclosed for fiing an original and seven (7) copies of Idaho Power's
Comments in the above-referenced matter.
I would appreciate it if you would return a stamped copy of this transmittal letter
for our files in the enclosed self-addressed stamped envelope.
Very truly yours,
r~NE~!~
LDN:sh
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise. ID 83702
LISA D. NORDSTROM, ISB # 5733
BARTON L. KLINE, ISB # 1526
Idaho Power Company
1221 West Idaho Street
P. O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
Inordstrom (E idahopower.com
bkline (E idahopower.com
3:43
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 APPROPRIATE )
DISPOSITION OF PROCEEDS FOR THE ) CASE NO. IPC-E-07-18
SALE OF IDAHO POWER COMPANY'S )
S02 EMISSION ALLOWANCES IN CY 2007 ) IDAHO POWER'S COMMENTS
)
COMES NOW, Idaho Power Company ("Idaho Power" or "the Company") and in
response to the Notice of Modified Procedure issued on February 4, 2008, submits the
following comments discussing the proposals presented at the January 15, 2008
workshop and recommending the Commission authorize Idaho Power to use proceeds
from S02 Allowance sales to (1) fund the purchase of wind project development rights,
or (2) purchase green tags from its PURPA projects.
THE WORKSHOP PROPOSALS
1. Offset the Power Cost Adjustment (PCA) Deferral Account. In Order No.
30041, issued in Case No. IPC-E-05-26, the Commission approved a sharing
IDAHO POWER'S COMMENTS, Page 1
arrangement in which 90% of the state of Idaho's 94% jurisdictional share of net sale of
sulfur dioxide ("S02") allowance proceeds, including tax effects, was allocated to
customers and the remaining 1 0% share was allocated to Idaho Power's shareowners.
The Commission also directed the Company in Order No. 30041 to include the
proceeds in the Power Cost Adjustment ("PCA") to reduce the level of PCA rates.
Consistent with Order No. 30041, Idaho Power proposes that the same 90%/10%
sharing of benefits be utilized to allocate the proceeds from sales of surplus sulfur
dioxide emission allowances made in 2007. Customers benefited from the proceeds
received from sales of surplus allowances in 2005 and 2006 through a PCA rate
reduction. If 2007 S02 revenues were likewise included in the PCA, the amount
benefiting Idaho ratepayers would be grossed up for taxes to $16,635,021.53. This
amount would offset the PCA deferral account, which had a balance of $111,172,241
through January 2008, and mitigate a likely 2008-2009 PCA rate increase by
0.1248~/kWh. While Idaho Power does not object to using the 2007 revenues in this
manner for a one-time customer benefit, the Company believes that using these funds
to purchase green tags or development rights for a wind project could potentially
provide greater long-term value to customers.
2. Purchase Green Tags from PURPA Facilities. As an alternative to
offsetting the PCA balance, Idaho Power suggests that S02 proceeds could be used to
purchase multi-year streams of Renewable Energy Certificates ("RECs" or "green tags")
from the owners of renewable generation facilities that have entered into Public Utilty
Regulatory Policies Act ("PURPA") contracts with Idaho Power. This alternative is in
alignment with Policy 11 in the 2007 Idaho Energy Plan which states, "Idaho and Idaho
IDAHO POWER'S COMMENTS, Page 2
utilties should prepare for the possibility of federal regulation of greenhouse gas
emissions." (Idaho Energy Plan at 3 and 49-50).
In the event Congress enacts a renewable portolio standard ("RPS") requiring
electric utilities to achieve a certain percentage of generation from renewable resources,
Idaho Power will be required to purchase green tags at prices expected to be higher
than those existing today. This would result in increased costs to Idaho Power's
customers. If Idaho Power purchased green tags prior to the enactment of a federal
RPS or in excess thereof, the Company would sell the green tags on a short-term basis
and flow the proceeds from the sales to customers annually through the PCA.
This. approach would "hedge" customers with regard to future green tag price
increases and allow Idaho Power to manage the risk associated with a future federal
renewable portolio standard. It also "greens" Idaho Power's long-term portolio. Idaho
Power may be able to acquire green tags at a discount with up-front payment. The
downside is that customers would risk the price of green tags decreasing in the future.
Assuming Idaho Power bought green tags for the 265 MW of PURPA wind (at a 30%
capacity factor generating 696,000 MWh annually) it currently has under contract, a $2
increase in green tag price would return $1.4 milion annually to customers.
All proceeds from any sales of green tags purchased with the customers' share
of proceeds from emission allowance sales, would flow 100% to the customer. Idaho
Power anticipates that any additional green tag purchases funded by Idaho Power
would be treated as an expense and recovered as authorized by the Commission.
3. Purchase a Wind Project's Development Rights. Another alternative to
using the funds to offset the PCA balance would be to use the S02 proceeds to
IDAHO POWER'S COMMENTS, Page 3
purchase development rights for a wind project. This alternative is in alignment with
Policy 5 in the 2007 Idaho Energy Plan which states, "When acquiring resources, Idaho
and Idaho utilties should give priority to (1) Conservation, energy efficiency and
demand response; and (2) Renewable resources..," (Idaho Energy Plan at 2 and 48-
49). In addition, Action E-15 states, "The Idaho PUC should establish appropriate
shareholder incentives for investments in Idaho renewable resources by investor-owned
utilities. Shareholder incentives may include, but are not limited to: i) Increased return
on investments in renewable resources located in Idaho; and ii.) A share of the net
societal benefits attributable to a renewable energy purchase." (Idaho Energy Plan at 4
and 55).
Under such an approach, Idaho Power would enter into negotiations or issue a
request for proposals ("RFP") to purchase a permitted wind generation project. In
essence, the Company would purchase a portion of the wind project with capital
contributed by customers, resulting in a reduction in a portion of the rate base
associated with the purchase and development of a wind project. By developing and
owning the wind project rather than purchasing equivalent energy elsewhere, Idaho
Power's customers would have additional access to renewable energy at competitive
prices and retain the green tags associated with the wind project to hedge against future
green tag price increases and/or RPS requirements. While an Idaho Power-owned,
utility-scale project would provide operational flexibility, development of a wind project is
capital intensive at a time when Idaho Power's capital budget is already stretched.
Assuming Idaho Power used the proceeds to offset the rate base of a 100 MW wind
project with a 30% capacity factor generating 263,000 MWh annually and the project: 1)
IDAHO POWER'S COMMENTS, Page 4
displaced PURPA wind projects, 2) had a levelized cost of $5/MWh less than the
levelized PURPA published rate, and 3) the green tags were sold for $5 each,
customers would receive a long-term benefit of $2.6 million/year. Under these
assumptions, each 1 % improvement in capacity factor would increase customer
benefits by $0.5 millon/year.
Idaho Power anticipates that any funding provided by Idaho Power to complete
construction and development of the wind project would be included in rate base.
4. Develop and Fund Energy Education Programs. At the January 15th
workshop, the Idaho Energy Education Project suggested that approximately $500,000
could be used to develop and implement classroom education programs about energy
efficiency. It recommended that the remaining balance of the proceeds could be
directed to energy efficiency operations or other beneficial uses. Although not one of its
preferred proposals, Idaho Power would support use of a portion of the S02 allowance
proceeds for energy efficiency education. The 2007 Idaho Energy Plan supports the
acquisition of energy conservation resources in the public at large through education
and outreach programs. (Idaho Energy Plan at 13.)
CONCLUSION
Idaho Power recognizes that the current size of the PCA deferral balance makes
disposition of proceeds from Idaho Power's sale of its excess 2007 S02 allowances into
something other than the PCA account more difficult. However, Idaho Power believes
application of the proceeds toward the purchase of green tags from its PURPA projects
or the development rights to a wind project is a better long-term investment that wil
benefit ratepayers for years to come. These investments also conform to the 2007
IDAHO POWER'S COMMENTS, Page 5
Idaho Energy Plan's recommendation that Idaho utilities develop in-state renewable
resources to promote fuel diversity, create Idaho jobs and tax revenues, and reduce
Idaho's vulnerabilty to likely carbon regulation. (Idaho Energy Plan at 12, 44-45, and
49.) For these reasons, Idaho Power respectfully requests the Commission authorize
Idaho Power to use proceeds from S02 Allowance sales to (1) fund the purchase of
wind project development rights, or (2) purchase green tags from its PURPA projects.
'1~~
Respectfully submitted this€ day of February, 2008.~l)~~LìORDSTRM
Attorney for Idaho Power Company
IDAHO POWER'S COMMENTS, Page 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this ßay of ¡;hrulJlu, 2008, I served a true
and correct copy of the within and foregoing docu~ the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Don Howell II
Randy Lobb
Terri Carlock
Rick Sterling
Donn English
Idaho Public Utilities Commission
472 W. Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
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Industrial Customers of Idaho Power
Peter J. Richardson, Esq.
Richardson & O'Leary
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
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Department of Energy
Martin Fullenbaum
5565 Sterrett Place, Suite 310
Columbia, MD 21044
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Idaho Energy Education Project
Bil Chisholm
19073 E Hwy 30
Buhl, Idaho 83318
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Ridgeline Energy
Rich Rayhil
720W.ldaho
Boise, Idaho 83702
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IDAHO POWER'S COMMENTS, Page 7
Snake River Allance
Ken Miler
910 W. Jefferson Street
Boise, Idaho 83702
Micron Technology
Conley Ward
Givens Pursley
601 W. Bannock Street
P.O. Box 2720
Boise, Idaho 83701
Windland
Roald Doskeland
Bjorn Doskeland
7669 W. Riverside Drive, Suite 102
Boise, Idaho 83714
Avista
Patrick Ehrbar
Linda Gervais
1411 E. Mission
Spokane, VVA 99202
Joe Miller
420 W. Bannock
Boise, Idaho 83702
Idaho Conservation League
Rich Howard
3511 S. Bay Porte Place
Boise, Idaho 83706
IDAHO POWER'S COMMENTS, Page 8
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