20071220notice_of_workshop_order_no_30478.pdf

Office of the Secretary
Service Date
December 20, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPROPRIATE
DISPOSITION OF PROCEEDS FOR THE
SALE OF IDAHO POWER COMPANY'S S02
EMISSION ALLOWANCES IN CY 2007
CASE NO. IPC-07-
NOTICE OF WORKSHOP
ORDER NO. 30478
On November 9, 2007, Idaho Power Company filed a report disclosing that the
Company made a subsequent sale of 15 000 sulfur dioxide (S02) emission allowances in 2007.
Report/Motion at 2. For the entire year of 2007, Idaho Power reports that it sold 35 000 S02
allowances for a total amount (less brokerage fees) of $19 642 250. Id. The after-tax amount of
proceeds allocated to Idaho for S02 emissions is $10 131 560. Id. at ~ 5. This amount assumes
an income tax rate of 39.095% and a jurisdictional allocation to Idaho of 94.1 %. Id. Last year
the Commission approved a settlement that the 2006 S02 revenues were used to offset power
purchase costs in the 2007 Power Cost Adjustment (PCA) case.
In addition to its report, Idaho Power also filed a "Motion for a Workshop Schedule.
Rather than utilizing the proceeds from the 2007 S02 sales to offset the PCA next year, Idaho
Power "believes that other opportunities presently exist with the potential to provide greater
long-term value to customers." Report/Motion at 3. If the Commission agrees that Idaho Power
should investigate other potential uses for the S02 revenues, the Company "respectfully requests
the Commission schedule a workshop for the purpose of receiving feedback from interested
parties concerning possible alternatives to benefit customers.Id. at 4. This Order grants the
Company s Motion.
BACKGROUND
A. SO2 Allowances
Title IV of the Clean Air Act Amendments of 1990 established a national program
for the reduction of acid rain. 42 U.C. 99 7651 et seq. The centerpiece of the acid rain
program is the incentive- or market-based "cap and trade" S02 program. Under the cap and
trade program, the Environmental Protection Agency (EP A) sets a cap or ceiling on the total
amount of S02 emissions allowed nationwide. Based upon this cap, EP A allocates a certain
NOTICE OF WORKSHOP
ORDER NO. 30478
number of S02 emission allowances to thermal power plant owners. Each allowance provides
the authority to emit one ton of S02. See Order No. 29852 at 1.
Each year a thermal power plant owner must hold sufficient allowances to cover
actual S02 emissions. A power plant owner that does not possess sufficient allowances to cover
its annual emissions must purchase additional allowances or it is automatically fined and must
surrender future year allowances to cover the shortfall. A thermal power plant holding surplus
S02 allowances in a given year may retain the allowances or sell them. S02 allowances are
fully marketable commodities and can be traded on the open market or in special EP A-sponsored
auctions. Id. Idaho Power has an ownership interest in three thermal power plants in the west:
Jim Bridger, North Valmy, and Boardman.
B. The Prior SO2 Cases
In Order No. 29852 issued in August 2005 , the Commission granted Idaho Power
blanket authority to sell its surplus S02 allowances. The Commission also directed that Idaho
Power file a report no later than 60 days after each sale. Finally, the Commission Staff was to
conduct workshops to explore the appropriate ratemaking treatment of the S02 proceeds and
advise the Commission. Case No. IPC-05-20.
Although the workshop participants were initially unable to reach an agreement upon
the appropriate ratemaking treatment, Idaho Power, Staff, the Industrial Customers of Idaho
Power and Micron reached agreement upon an appropriate ratemaking treatment. The parties
proposed that the revenues from the 2006 S02 sales be included in the Company s 2006-2007
PCA mechanism, with 90% of the net proceeds to be passed on to customers and 10% of the net
proceeds to be retained as a shareholder benefit. Case No. IPC-05-26.
In April 2006, the Commission issued Order No. 30016 requesting public comment
on the settlement proposal. In response to the Commission s Notice of Modified Procedure
comments were filed by the Commission Staff, NW Energy Coalition, the U.S. Department of
Energy (DOE), the Idaho Energy Education Project, and six customers of Idaho Power. DOE
supported the settlement but questioned the calculation of the credit. The NW Energy Coalition
and the Idaho Energy Education Project also supported the proposed use of the sale proceeds in
the PCA, but suggested the Commission consider other alternative uses for the proceeds. For
example, the proceeds could be used for long-term conservation and efficiency programs
measures designed to reduce the Company s coal plant emissions, to acquire renewable
NOTICE OF WORKSHOP
ORDER NO. 30478
generating resources, or to implement energy education programs in schools. Order No. 30041
at 3.
After reviewing the comments, the Commission found that the PCA is the logical
mechanism to track and distribute proceeds from the sale of 2006 S02 allowances. Id.
approving the stipulation, the Commission found that
the PCA, which is designed to track and true-up abnormal power supply costs
and revenues is the logical mechanism to track and distribute proceeds from
the sale of excess S02 allowances. S02 allowances are allocated to the
Company based on the ownership and operation of its thermal/coal powered
plants. Excess allowances are a direct result of many factors associated with
the operation of the coal plants including installation of environmental
equipment, the geographic location of the plant, the total time the plant is
operated, the nature of the coal used to fuel the plant, as well as other factors.
. . . Consequently, we approve and adopt the Stipulation as a reasonable and
logical method to both pass on a major portion of the proceeds to customers
as well as align shareholder and ratepayer interests in obtaining the best
possible price for excess allowance sales.
Order No. 30041 at 4 (emphasis added). The Commission also found that the 90% of allowances
allocated to customers should be grossed-up to recognize the tax savings that accrues when the
credit is actually provided to customers through the PCA. Id. at 5.
THE MOTION FOR WORKSHOPS
Although Idaho Power believes that the proceeds from the 2007 sales of S02
allowances could be included in the next PCA, the Company suggests that the Commission
consider other opportunities "with the potential to provide greater long-term value to customers.
Report/Motion at 3. More specifically, Idaho Power suggests two alternatives to discuss with
other workshop participants. First, is using the customer s share of the proceeds (the 90%) to
purchase multi-year streams of "Renewable Energy Certificates ('green tags ) from the owners
of renewable generation facilities" that have entered into PURP A contracts with Idaho Power.
Id. at ~ 8. "If a federal renewable portfolio standard ("RPS") is enacted, Idaho Power will be
required to purchase green tags at prices expected to be higher than those existing today. ... 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 through the PCA." Id.
NOTICE OF WORKSHOP
ORDER NO. 30478
Second, Idaho Power would like to discuss the possibility of using the 90% share "
buy down a portion of the rate base associated with the purchase of wind project development
rights.Id. at ~ 9. Under such an approach, Idaho Power would enter into negotiations or issue a
request for proposal (RFP) to purchase a permitted wind project. The Company maintains that
by owning a wind project rather than purchasing equivalent energy elsewhere, customers would
have additional access to renewable energy at competitive prices and retain the value of the
green tags associated with such wind projects.
If the Commission agrees" that Idaho Power should investigate other potential uses
of the customers' share of the S02 proceeds , then the Company requests that the Commission
schedule a workshop to allow interested parties to consider possible alternatives to benefit
customers. Idaho Power states that it would then report the results of such workshops to the
Commission for its approval. Id. at 4.
D ISCUSSI 0 N
We grant Idaho Power s Motion to Schedule a Workshop. Without addressing the
merits of any particular use of the revenue from the sale of excess S02 allowances, we find that
it is reasonable to convene a public workshop so that interested persons may discuss appropriate
alternatives regarding the S02 proceeds. Persons interested in the ratemaking disposition of the
sale of 2007 S02 allowances are encouraged to attend.
NOTICE OF WORKSHOP
YOU ARE HEREBY NOTIFIED that a workshop will convene on TUESDAY.
JANUARY 15. 2008 AT 9:30 A.M. AT THE COMMISSION'S HEARING ROOM. 472
WEST WASHINGTON STREET. BOISE. IDAHO [phone]. The purpose of the
workshop is to discuss and investigate the appropriate disposition of revenues from the 2007 sale
of S02 allowances.
YOU ARE FURTHER NOTIFIED that all hearings and workshops in this matter
will be held in facilities meeting the accessibility requirements of the Americans with
Disabilities Act (ADA). Persons needing the help of a sign language interpreter or other
assistance in order to participate in or to understand the discussion at the public workshop may
ask the Commission to provide a sign language interpreter or other assistance at the hearing. The
request for assistance must be received at least five (5) working days before the hearing by
contacting the Commission Secretary at:
NOTICE OF WORKSHOP
ORDER NO. 30478
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone] (Telephone)
[phone] (FAX)
Mail: secretarv~puc.idaho.gov
ORDER
IT IS HEREBY ORDERED that Idaho Power s Motion is granted.Persons
interested in the disposition of the customers' share of the revenue from the sale of the 2007 S02
allowances are encouraged to participate in the workshop scheduled above.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ()..Ot'"-
day of December 2007.
MACK A.
MARSHA H. SMITH, COMMISSIONER
, COMMISSIONER
ATTEST:
t).
, D: J~well
CommIssIOn Secretary
bls/O:IPC-07-
NOTICE OF WORKSHOP
ORDER NO. 30478