20080530final_order_no_30559.pdf

Office of the Secretary
Service Date
May 30, 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC SERVICE
DUE TO THE INCLUSION OF THE
DANSKIN CTI PLANT IN RATE BASE
ORDER NO. 30559
CASE NO. IPC-08-
On March 7, 2008, Idaho Power filed an Application to recover its actual and
planned investment for a new gas-fired combustion turbine located at the Evander Andrews
Power Complex in Mountain Home.l More specifically, the Company seeks to add to rate base
$64 981 978 attributable to the cost of constructing the generating facility and the necessary
transmission and interconnection facilities. Using the Company s currently authorized 8.10%
rate of return, Idaho Power calculates that it needs to increase its annual revenue requirement in
Idaho by $9 010 952. To recover the proposed revenue increase, the Company proposes that
rates for all existing customer classes and its three special-contract customers be uniformly
increased by 1.39%. The Company requests that the proposed increase to its base rates become
effective June 1 , 2008, which would coincide with the rate change resulting from the annual
Power Cost Adjustment (PCA) mechanism.
BACKGROUND
In December 2006, the Commission issued Order No. 30201 granting Idaho Power
application for a Certificate of Public Convenience and Necessity (CPCN) to construct and
operate the new Danskin CTI. Idaho Code 9 61-526; Case No. IPC-06-09? Danskin CTI is a
170 MW natural gas-fired, simple-cycle combustion turbine. The generating plant was
constructed by Siemens Power Generation. Williams Northwest Pipeline will provide the natural
1 The Company s newest combustion turbine was previously referred to as the "Evander Andrews Power Plant" In
the present Application, the Company has renamed the power plant "Danskin Combustion Turbine No.1" or
Danskin CTl." The two existing 45 MW gas-fITed turbines at the same site are now referred to as "CT No.2 and
No." Application at n.1. The Company has renamed the site of the three combustion turbines as the "Evander
Andrews Power Complex.Application at 1. In addition to the three gas-fITed turbines at the Evander Andrews
Power Complex, the Company also has the Bennett Mountain (162 MW gas-fITed, simple-cycle) power plant located
in Mountain Home. Order No. 29410.
2 The Commission issued Certificate No. 465 authorizing Idaho Power to construct the Danskin CTI on December
2006.
ORDER NO. 30559
gas necessary to fuel the plant. Reasonable fuel costs for the Danskin CTI plant are to be
recovered through the PCA mechanism. Id.
In its Certificate application, Idaho Power provided the Commission with a
commitment estimate" of the project's total capital cost. The commitment estimate for the plant
was $60 million. This included the firm bid price for the turbine ($49 999 000) plus additional
costs such as sales taxes, AFUDC 3 oversight and change orders. Order No. 30201 at 17. The
commitment estimate did not include the cost of constructing or upgrading the transmission
facilities necessary to connect the Danskin CTI plant with the existing transmission system. Id.
at 18. At the time, Idaho Power s transmission group "provided a preliminary upper limit
estimate of $22.8 million" for the interconnection and/or transmission upgrades for the plant.
Application at 5 (Case No. IPC-06-09). Subject to two exceptions 4 Idaho Power offered to
absorb the capital costs that exceed the commitment estimate. Order No. 30201 at 12.
In Order No. 30201 the Commission found that in the ordinary course of events
Idaho Power may anticipate ratebasing $49 999 000 (the amount of the turbine contract). The
Commission specifically reserved its approval of recovering costs in excess of the contract price
up to the commitment estimate of $60 million "until after the project is constructed and an audit
of such costs is completed.Id. at 14. "Transmission costs to upgrade the system between
Mountain Home and the Treasure Valley are subject to future review once the upgrade has been
constructed.Id. at 18. The Company was also ordered to provide the Commission with an
updated report of the transmission costs.
THE PRESENT APPLICATION
A. Plant Costs
In the testimony that accompanies the Application Company witness Michael
Youngblood states that the Danskin CTI plant will be in commercial operation on June 1 2008.
Prefile Testimony at 4, ll. 21-23. He explained that the change in rates attributable to the
Danskin CTI project will coincide with the Power Cost Adjustment (PCA) rate adjustment that
normally occurs on June 1 of each year. Id. at 5-
3 "AFUDC" means Allowance for Funds Used During Construction. AFUDC is an accounting mechanism that
recognizes the capital costs associated with financing construction projects. Order No. 29838 at 11.
4 The two exceptions were the costs of equipment to comply with new air quality requirements and escalations in
assumed forecasts (such as inflation).
ORDER NO. 30559
Mr. Youngblood stated that the total capital investment in Danskin CTI plant is
anticipated to be $57 335 866 as of June 1 , 2008. The Company also anticipates booking an
additional $314 995 "shortly after June 1 , 2008. The total amount of $57 650 861 ($57 335 866
+ $314 995) is the basis for the Danskin CTI power plant portion of the June 1 rate change that
the Company is requesting in this proceeding.Id. at 7. The $57.65 million is comprised of the
following elements:
Actual Charges thru Estimated Charges Estimated Charges
Feb.June 2008 thru 6/30/08
Turbine Contract 999 100 999 900 999 000
Change Orders 493 386 191 930 685 316
Sales Taxes 312 256 180 000 1,492 256
Engineermg,
Oversight & Support 130 549 325 000 455 549
Other Infrastructure 341 718 375 000 716 718
Test Fuel 049 398 951 400 000
AFUDC 267 022 635 000 902 022
TOTAL 545 080 105 781 650 861
Source: IPCo Exhibit No.
The Company noted that the estimated charges of $57.65 million are approximately $2.
million less than the $60 million commitment estimate it provided in 2006.
B. Transmission Costs
As noted above, the Company initially estimated that the transmission and
interconnection costs were approximately $22.million. Because the Company s initial
transmission costs were based upon an estimate, the Commission ordered Idaho Power to
provide detailed transmission information and costs. Order No. 30201 at 18. In compliance with
that directive, the Company filed a "Facility Study Report" with the Commission on February
, 2007.In the study, the Company estimated that the interconnection costs will be
approximately $775 000 (+/- 20%) and the transmission upgrade will cost $22 392 414 (+/-
20%). The combined interconnection and transmission upgrade cost was reported to be
$23 167 415 , or within a range of$18.5 to $27.8 million. Youngblood at 12.
The construction of the transmission system in this case includes four primary
components: (1) a 230 kV transmission line connecting the Danskin complex and the Bennett
Mountain plant; (2) the new Hubbard Substation; (3) a 230 kV transmission line between
Danskin and the Hubbard Substation; and (4) the communications that tie all the pieces together.
ORDER NO. 30559
Id. In this Application, the Company has included the costs of the Danskin-Bennett 230 kV
transmission line (item No.1 above) and the communications that tie the two plants together
(item No.4 above). The other two components (the Hubbard Substation and the 230 kV line
between the Danskin complex and the Hubbard Station) "are scheduled to be placed into service
in October 2008.Id. at 14. These last two components have an estimated cost of$19.5 million.
The Company will seek to recover this amount in a subsequent application. Id. at 15.
Due to delays in construction, the Company seeks to recover only $7 331 116 out of
the $26.83 million in projected transmission costs as part of this Application. Youngblood at 10.
This amount is comprised of actual charges as of January 31 , 2008 , and estimated charges from
February through June 1 , 2008. As of January 31 , 2008, the Company stated it has incurred
work order charges of $6 554 318 plus AFUDC of $139 811. Exh. No.3. The Company
anticipates that between February and May 30, 2008 it will incur additional transmission charges
totaling $636 987 ($621 853 + $15 134 AFUDC). Mr. Youngblood explained that the delays
were attributed to unanticipated appeals of a required conditional use permit and delays in the
Bureau of Land Management permitting process. Id. at 13.
In summary, the Company requests authority to rate base $64 981 978 ($57 650 861
for the plant and $7 331 116 for interconnection and transmission facilities). Application at 2.
C. Proposed Rates
Based upon its authorized rate of return of 8.10%, Idaho Power calculates that it is
entitled to an additional annual revenue requirement of $9 010 952. Application at 3.
recover this additional revenue, the Company proposes a uniform average percentage increase of
1.39% for all existing customer classes and its three special-contract customers (Micron
Simplot, INL). Id. The Company proposes that the increase in base rates become effective June
, 2008, to coincide with the PCA rate change. Idaho Power states in its Application that it
issued a media release and will notify its individual customers by bill inserts. Id. at 5.
PROCEDURE
The Commission issued a Notice of Application and Notice of Modified Procedure
on March 18 2008, including the Commission s determination that a formal hearing may not be
required in this case. The Notice instead established a period for written comments to be filed.
On March 21 , 2008 , Micron Technology, Inc. filed a Petition to Intervene, and it was
granted by the Commission by Order No. 30522 issued April 4, 2008.
ORDER NO. 30559
The written comment period concluded on May 13 2008 , and the Commission Staff
was the only party to file comments.
WRITTEN COMMENTS
Staff audited the Danskin CTI plant costs requested by the Company to be included
in rate base. Of the total plant costs of $57 650 861 requested by Idaho Power, Staff was able to
audit the plant costs actually incurred through April 30, 2008 in the amount of $56,440 768.
Staff concluded by its audit that these costs are reasonable and prudent and recommended the
Company be allowed to include them in rate base as requested.
Staff also reviewed estimated charges for the months of May and June 2008
including charges for change orders, additional sales taxes, additional engineering, oversight and
support, and the final payment to Siemens Power Generation for the generating unit. The
projected payment to Siemens is $249 995 , and is the last installment of the Company
payments to Siemens. Staff recommended the Commission approve inclusion of the $249 995
payment to Siemens in rate base. Because Staff was not able to audit the other estimated costs
projected for May and June, Staff recommended the remainder of these estimated costs, totaling
$422 228 , not be included in rate base as part of the Application in this case.
Staff reviewed Idaho Power s costs for interconnection and transmission facilities
associated with the generating plant.The Company requested a total of $7 541 380 for
interconnection and transmission facilities, and Staff reviewed actual costs incurred by the
Company in the amount of $7 190 817. Staff concluded these actual amounts are reasonable and
prudent and should be included in rate base. Staff also reviewed the unclosed work orders
(estimated to be $200 000), representing a combination of actual materials used and actual labor
performed and an estimate of materials and labor needed to complete the project, as well as a
component for AFUDC in the amount of $150 563. Staff concluded that these additional
amounts are also reasonable for including in rate base because they will be paid and completed
by the time rates including these costs become effective.
Staff reviewed the changes in the Company s net power supply costs as the result of
adding the Danskin CTI project to the Company s generation portfolio. Natural gas fuel costs
for the Company will increase to run the plant, but surplus sales revenue also increases because
the plant is able to generate power for sale when it is not needed to serve Idaho Power s own
load. In addition, the Company s purchased power costs decrease because the plant will meet a
ORDER NO. 30559
greater share of the Company s native load requirements. Staff concluded that the Company
calculations are accurate. On a total system basis, the Danskin CTI reduces net power supply
costs by $2.6 million annually and $2.48 million for the Idaho jurisdiction. On a normalized
system basis, the Danskin CTI project increases surplus sales by $4.16 million, increases fuel
expenses by $7.91 million and decreases firm purchases by $6.37 million.
Finally, Staff calculated the change in revenue requirement and rate increase
resulting from including the Danskin project in Idaho Power s rate base. Idaho Power requested
a total of $64 981 977 for plant and transmission related costs for the Danskin CTI plant be
added to rate base. Staff recommended the Company be authorized to include $64 232 145 for
total system plant in service.Taking into account the increase in rate base, depreciation
expenses, annual operation and maintenance costs, revenues from surplus sales, and state and
federal taxes, Staff identified an annual revenue deficiency of $8 894 974 for Idaho Power
Idaho jurisdiction resulting from the Danskin project. In order to recover this deficiency, Staff
recommended a 1.37% increase in revenue requirement, slightly less than the Company
proposed 1.39% rate increase. Staff recommended approval of Idaho Power s proposal to spread
the rate increase uniformly to all customer classes with no increase in customer or service
charges.
DISCUSSION
When the Commission granted a Certificate of Public Convenience and Necessity for
the Danskin CTl , we found "that the future public convenience and necessity requires
construction of the (Danskin) Plant " and concluded that "in the ordinary course of events Idaho
Power may recover the base price of the plant in the (contract) amount of $49 999 000." Order
No. 30201 at 17. The Commission also stated that "(a)dditional capital costs up to the
Commitment Estimate of $60 million and necessary transmission costs will be subject to further
review in a subsequent case once the plant is constructed and the transmission system upgraded.
Id. This case provided the ordinary course of events for Idaho Power to provide construction
costs for the plant as well as for transmission upgrades for Staff to audit and verify as appropriate
for inclusion in the Company s rate base.
The Company reported plant costs, actual and anticipated, as $57.65 million
approximately $2.35 million below the $60 million commitment estimate presented in the 2006
CPCN case. Staff was able to audit contract costs, change order costs and other construction
ORDER NO. 30559
costs incurred through April 2008 in the amount of $56 440 768 and determined that these costs
were reasonable and prudent to the project. Staff also recommended the final contract payment
of $249 995 to be paid to Siemens be allowed in rate base as part of the reasonable and verifiable
plant construction costs. Staff was not able to verify $422 228 in anticipated plant costs
however, because in the record in this case "there is no information or data to be audited to
determine if these costs are reasonable and prudent." Staff Comments at 6.
The Staff audit of the transmission and interconnection facilities costs presented by
Idaho Power in the amount of $7 541 380 demonstrated that these costs are reasonable and
prudently incurred for the project. In a "Facility Study Report" filed with the Commission in
February 2007, Idaho Power estimated the total transmission and interconnection costs related to
Danskin CTI would be approximately $23 million. The facilities costs in this case do not
include two significant components of the anticipated necessary transmission upgrades-a new
substation called Hubbard Substation and a 230 kV transmission line between Danskin and the
Hubbard Substation. These facilities are estimated to cost approximately $19.5 million.
Based on the record in this case, we find that plant and transmission construction
costs in the amount of $64 232 145 have been audited, were reasonably and prudently incurred
and it is just and reasonable to add these costs to Idaho Power s rate base. These costs include
$56 690 763 for the Danskin CTI plant and $7 541 380 for transmission and interconnection
system upgrades. Idaho Power anticipates a subsequent case to include additional transmission
upgrade costs in rate base when those facilities are completed. The Company must provide
adequately detailed records to ensure that none of the transmission and interconnection costs
approved in this case are included in any subsequent request for recovery of additional upgrade
costs.
The Company s costs for natural gas will increase to operate this plant, but surplus
energy sales will also increase because the plant will generate power the Company can sell to
other utilities. Staff reviewed the net power supply calculations reported by the Company and
determined they are accurate. Along with the increase in rate base, depreciation expenses will
increase, as will operation and maintenance costs. Revenues from surplus energy sales are
expected to increase by approximately $4.1 million per year. Staff Comments at 8.
The Commission finds that including Danskin CTI construction costs and the
transmission upgrade costs approved in this Order increases Idaho Power s system total rate base
ORDER NO. 30559
by $63 421 180. Considering the total impact of the Danskin plant on Company operations, we
find the costs approved in this Order result in an annual revenue deficiency of $8 894 974 for the
Company s Idaho jurisdiction. Accordingly, the Commission approves an overall increase of
1.37% in Idaho Power s base rates to recover the $8 894 974 annual revenue deficiency. The
proposed rates filed with the Company s Application are not approved, but Idaho Power is
authorized to file new tariff sheets to increase its rates by 1.37% effective June 1 , 2008 to
recover $8 894 974 in annual revenues for its Idaho service operations.
ORDER
IT IS HEREBY ORDERED that Idaho Power is authorized to add $56 690 763 for
the Danskin CTI plant and $7 541 380 for transmission and interconnection system upgrades to
the Company s rate base. Idaho Power is authorized to file new tariff sheets to increase its rates
by 1.37% effective June 1 , 2008 to recover $8 894 974 in annual revenues for its Idaho service
operations.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
ORDER NO. 30559
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :2...9fi-
day of May 2008.
~A~
MACK A. REDFORD, PRESIDENT
MA SHA H. SMITH, COMMISSIONER
ATTEST:
D. Jewel
C mmission Secretary
bls/O: IPC-O8-0 I ws
ORDER NO. 30559