20080313Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER RED FO RD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
DEPUTY ATTORNEY GENERAL
DATE:MARCH 11 , 2008
SUBJECT:IDAHO POWER'S APPLICATION TO RATE BASE THE NEW GAS-
FIRED POWER PLANT IN MOUNTAIN HOME AND TO INCREASE ITS
BASE RATES, CASE NO. IPC-08-
On March 7, 2008, Idaho Power filed an Application to recover its actual and planned
investment for the new gas-fired combustion turbine located at the Evander Andrews Power
Complex in Mountain Home.! More specifically, the Company seeks to rate base $64 981 978
attributable to the cost of constructing the generating facility and the necessary transmission and
interconnection facilities. Based upon the 8.10% rate of return authorized last month in the
Company s rate case, 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 caused by 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
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 as "Danskin Combustion Turbine No. I"
Danskin cn." The two existing 45 MW gas-fired turbines at the same site are now referred to as "CT No.2 and
No.Application at n.!. The Company has renamed the site of the three combustion turbines as the "Evander
Andrews Power Complex.Application at I. In addition to the three gas-fired turbines at the Evander Andrews
Power Complex, the Company also has the Bennett Mountain (162 MW gas-fired, simple-cycle) power plant located
in Mountain Home. Order No. 29410.
DECISION MEMORANDUM
the new Danskin CTI. Idaho Code ~ 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 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, which included the firm bid price for the turbine ($49 999 000) plus additional
costs such as sales taxes, AFUDC 3 oversight, change orders, etc. 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 the 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 accompanied the Application, Company witness Michael
Youngblood states that the Danskin CTI plant will be in commercial operation on June 1 , 2008.
2 The Commission issued Certificate No. 465 authorizing Idaho Power to construct the Danskin CTl on December 15
2006.
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).
DECISION MEMORANDUM
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-
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
Engmeering,
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 $2.35 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 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 20
2007. In the study, the Company estimated that the interconnection costs would be approximately
$775 000 (+/- 20%) and the transmission upgrade would 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
DECISION MEMORANDUM
Mountain plant; (2) the new Hubbard Substation; (3) a 230 kV transmission line between Danskin
and the Hubbard Substation; and (4) the communications that ties all the pieces together. Id.
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.
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 only seeks to recover $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 estimates charges from
February through June 1 , 2008. As of January 31 , 2008 , the Company stated that 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 that 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 BLM 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 rate of return of 8.10% authorized in the recently settled rate case
Idaho Power calculates that it is entitled to an additional annual revenue requirement of
010 952. Application at 3. To 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 1 , 2008, to coincide with the PCA rate change.
Idaho Power states in its Application that it has issued a media release and will notify
its individual customers by bill stuffers. Id. at 5. The Company requests that the Commission
process this case via Modified Procedure with rates to become effective on June 1 , 2008.
ST AFF ANALYSIS
In Order No. 30201 the Commission found that in the ordinary course of events Idaho
Power can anticipate ratebasing $49 999 000, which is the cost of the turbine contract. Staff
DECISION MEMORANDUM
believes that the case may be properly processed under Modified Procedure. Although Staff
intends to work expeditiously on this case, we are concerned about completing the case by the
proposed effective date of June 1 , 2008. Our concerns are based upon the complexity of the
accounting issues , existing Staff assignments, and the scheduling of decision meetings.
CO MMISSI ON D ECISI 0 N
1. Does the Commission wish to process this Application via Modified Procedure or
should this matter be set for hearing?
2. Because this matter involves a proposed increase to Idaho Power s base rates, does
the Commission wish to schedule public workshops under Rule 125? If yes, does the Commission
desire to combine the workshop(s) with other workshop(s) that may be set for other proposed rate
increases of Idaho Power?
3. If the Commission desires to process this case under Modified Procedure, does it
wish to establish an extended comment period at this time or do so later?
4. Anything else?
Don Howell
Deputy Attorney General
bls/M:IPC-O8-01 dh
DECISION MEMORANDUM