20080513Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03 1 8
IDAHO BAR NO. 3283
Ri:rE\\JEDi-V
\ '3 Pl'\
I?\ ~
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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. )
)
CASE NO. IPC-E-08-1
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and though its Attorney of Record,
Weldon B. Stutzman, Deputy Attorney General, submits the following comments in response to
Order No. 30514 issued on March 18, 2008.
On March 7, 2008, Idaho Power fied an Application to recover its actul and planned
investment for a new gas-fired combustion tubine located at the Evander Andrews Power Complex
in Mountain Home.! More specifically, the Company seeks to add to rate base $64,981,978
attributable to the cost of constructing the generating facility and the necessar transmission and
i 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. i" or "Danskin
cn." The two existing 45 MW gas-fired turbines at the same site are now referred to as "CT NO.2 and NO.3."
Application at i. 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.
STAFF COMMENTS 1 MAY 13,2008
interconnection facilties. Using the Company's curently authorized 8.10% rate ofretu, Idaho
Power calculates that it needs to increase its anual 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 anual Power Cost Adjustment (PCA)
mechanism.
BACKGROUND
In December 2006, the Commission issued Order No. 30201 granting Idaho Power's
application for a Certificate of Public Convenience and Necessity (CPCN) to construct and operate
the new Danskin CTL. Idaho Code § 61-526; Case No. IPC-E-06-09.2 Danskin CTI is a 170 MW
natural gas-fired, simple-cycle combustion turbine. The generating plant was constructed by
Siemens Power Generation. Wiliams 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 millon,
which included the firm bid price for the turbine ($49,999,000) plus additional costs such as sales
taes, 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 facilties 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 preliminar upper limit estimate of $22.8 milion" for the
interconnection and/or transmission upgrades for the plant. Application at 5 (Case No.
IPC-E-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.
2 The Commission issued Certificate No. 465 authorizing Idaho Power to constct the Danskin cn on December IS,
2006.
3 "AFUDC" means Allowance for Funds Used During Constrction. AFUDC is an accounting mechanism that
recognizes the capital costs associated with financing constrction projects. Order No. 29838 at I I.
4 The two exceptions were the costs of equipment to comply with new air quality requirements and escalations in
assumed forecasts (such as inflation).
STAFF COMMENTS 2 MAY 13,2008
In Order No. 30201 the Commission found that in the ordinar course of events, Idaho
Power may anticipate rate basing $49,999,000 (the amount ofthe tubine contract). The
Commission specifically reserved its approval of recovering costs in excess of the contract price up
to the commitment estimate of $60 millon "until afer the project is constrcted 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 wil be in commercial operation on June 1,2008. Prefie
Testimony at 4,11,21-23. 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 5-6.
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 milion is comprised of the following elements:
Actual Charges thru Estimated Charges Estimated Charges
1-31-08 Feb.-June 2008 thru 6/30/08
Turbine Contract 44,999,100 4,999,900 49,999,000
Change Orders 493,386 191,930 685,316
Sales Taxes 1,312,256 180,000 1,492,256
Engineering,
Oversight & Support 1,130,549 325,000 1,455,549
Other Infrastructure 341,718 375,000 716,718
Test Fuel 1,049 398,951 400,000
AFUDC 2,267,022 635,000 2,902,022
TOTAL 50,545,080 7,105,781 57,650,861. .Source: IPCo Exhibit NO.2.
STAFF COMMENTS 3 MAY 13,2008
The Company noted that the estimated charges of$57.65 milion are approximately $2.35 milion
less than the $60 milion commitment estimate it provided in 2006.
B. Transmission Costs
As noted above, the Company initially estimated that the transmission and interconnection
costs were approximately $22.8 milion. 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
fied a "Facility Study Report" with the Commission on February 20, 2007. In the study, the
Company estimated that the interconnection costs wil 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
milion. Youngblood at 12.
The construction of the transmission system in this case includes four primar 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. 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 $ 1 9.5 milion. The Company wil seek to recover this
amount in a subsequent application. Id. at 15.
Due to delays in construction, the Company seeks to recover only $7,331,1 16 out of the
$26.83 milion in projected transmission costs as par of this Application. Youngblood at 10. This
amount is comprised of actual charges as of January 31, 2008, and estimated charges from Februar
through June 1, 2008. As of Januar 31, 2008, the Company stated it has incured work order
charges of$6,554,318 plus AFUDC of$139,81 1. 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 BLM permitting
process. Id. at 13.
STAFF COMMENTS 4 MAY 13,2008
In sumary, 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 retur of 8. 1 0%, Idaho Power calculates that it is entitled
to an additional anual revenue requirement of $9,010,952. 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 wil notify its
individual customers by bil inserts. Id. at 5.
STAFF ANALYSIS
Review of Plant Costs
Staff audited the Danskin CTI (plant) costs requested by the Company as an addition to rate
base. The Company's Application requests an increase of $57,650,861 to rate base for the total cost
of the plant. Included in the audited amount are costs actually incurred through April 30, 2008 and
costs that are estimated to be incured for the months of May 2008 and June 2008. The Company
incurred actual costs through April 30, 2008 in the amount of $56,440,768. These costs were
audited and are reasonable and prudent. Staff recommends the Company be allowed to include
these costs in rate base as requested.
The Company also asks for estimated charges for the months of May 2008 and June 2008.
These charges include estimates for additional Change Orders, additional Sales Taxes, additional
Engineering, Oversight, and Support, additional Other Infrastructure, and the final payment to
Siemens under the terms of the construction contract. The final payment to Siemens will be
$249,995 and represents the payment that is due to Siemens upon final approval and acceptance by
the Company. This payment is the final installment ofthe Company's payments to Siemens as
established by the contract between the Company and Siemens. Staffhas no reason to believe that
the Company's final approval for the final installment payment on the plant will not be given.
Therefore Staff believes this payment will be made.
STAFF COMMENTS 5 MAY 13,2008
The other estimated costs total $422,228 as follows:
Siemens Change Orders $30,000
Sales Taxes $30,000
Engineering, Oversight
and Support
Other Infrastructure
Total
$71,090
$291,138
$422,228
The Company has not yet incured any of these costs and the actual costs are undeterminable at this
time. There is no indication of additional change orders forthcoming since the plant is complete.
No specific purchases are needed that would justify sales taxes of $30,000. The specific nature or
activity for the engineering and oversight is not designated and the other infrastructure is not
specifically identified. There is no information or data to be audited to determine if these costs are
reasonable and prudent.
Therefore, it is Staff s position that the estimated costs for the months of May 2008 and June
2008, except for the final payment to Siemens, not be reflected in rates by the Commission at this
time. Staff is not asking that any actual cost incurred by the Company for the plant during these
months be disallowed, but only that the cost not be included in rate base as par of this case. The
Company should be allowed to ask for any additional plant related cost that may be incured after
April 30, 2008 in any subsequent rate case.
Thus, it is Staff s recommendation that the Company be permitted to add to its rate base the
amount of $56,690,763. The additional $422,228 of the Company's request should not be included
as par of this case, but can be considered in a subsequent rate case when the actual activities or
projects causing the costs can be audited for reasonableness and prudence.
Interconnection and Transmission Costs
The Company is requesting a total of$7,541,380 for the interconnection and transmission
facilties associated with this plant. Staff reviewed the actual costs incured by the Company and
found that the actual amount for the Work Orders totaled $7,190,817. The Company is additionally
requesting the costs represented by Work Orders that have not closed at this time in the amount of
$200,000. These Work Orders represent work and costs that will be closed by May 31,2008. The
balance of the Company's request is for AFUDC in the amount of$150,563.
STAFF COMMENTS 6 MAY 13,2008
The costs incured in the closed work orders appeared to be reasonable and prudent. The
costs that have been or wil be incured by the Work Orders that have not yet closed should also be
included in rate base. These costs represent specific projects and specific cost estimates that will be
completed by May 31,2008. Although the Work Orders have not closed, the charges on them are a
combination of actual materials used and actual labor performed, and an estimate of materials and
labor needed to complete the project. It is not uneasonable to include these unclosed Work Orders
because they wil close and be completed by the time any rates including these costs are effective.
For any unclosed Work Orders the Commission allows into rate base, AFUDC should stop at the
earlier of the in-service date for the individual work order items or the time the rates become
effective.
The total costs for the interconnection and transmission facilties should be the total of the
following:
Closed Work Orders $7,190,817
Unclosed Work Orders $ 200,000AFUDC $ 150,563
Total $7,541,380
If the Company is allowed to include the total of$7,541,380 in rate base, care should be
exercised to insure that none of these costs are included in the total transmission project when the
balance of the transmission project is completed.
Changes to Rate Base
The total cost the Company requests be added to rate base on a total system basis is
$64,981,977 ($57,650,86163 + $7,331,116). Staff recommends the April plant balance of
$56,440,768 plus the final Siemens contract payment of $249,995 and transmission expenditues of
$7,541,380 be added to rate base. The total plant-in-service increase Staff recommends the
Company be allowed to add to its rate base at this time on a total system basis is $64,232,145. The
estimated plant costs for the months of May 2008 and June 2008 of $422,228 may be reflected in
the next rate case.
Changes in Net Power Supply Costs
One of the effects of adding the Danskin CTI project to Idaho Power's generation portfolio
is to change the Company's net power supply costs. With Danskin CTl, natural gas fuel costs
STAFF COMMENTS 7 MAY 13,2008
increase because of the fuel required to ru the plant. Surlus sales revenue 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, purchased power costs decrease because the plant is able to meet a greater share of the
Company's native load requirements. Finally, coal fuel costs decrease slightly due to modest
reductions in thermal plant operating hours.
Staff carefully reviewed the Company's calculations of net power supply costs and accepts
them as accurate. On a system basis, the Danskin CTI reduces net power supply costs by $2.60
milion anually or $2.48 milion for the Idaho jurisdiction. On a normalized system basis, the
addition of the Danskin CTl project increases surlus sales by $4.16 milion, increases fuel
expenses by $7.91 milion and decreases firm purchases by $6.37 milion.
In Order No. 29790, the Commission order following Idaho Power's previous application to
add the Bennett Mountain power plant to rate base, the Commission ordered that "future filings by
the Company reflect the associated reduction in power supply costs in base rates." In accordance
with that Order, Idaho Power has stated that its futue Power Cost Adjustment (PCA) filings will
incorporate the adjusted base as approved in this case.
Change in Revenue Requirement
The Total System and Idaho Revenue Requirement calculations as recommended by Staff
are shown on Attachment A. Components of the revenue requirement on a total system basis that
Staffs recommendation will change include plant in service, rate of retur, depreciation expense,
investment ta credit, deferred taxes and income taxes.
The Danskin CTI project on a system basis, after Staffs adjustment, increases rate base by
$63,421,180 (Attchment A, page 2, line 43). However, along with the increase in rate base,
depreciation expenses also increase by $1,794,956 per year (Attchment A, page 2, line 50). In
addition, anual operation and maintenance costs increase by $ 1,672,717 (Attchment A, page 2,
line 49) due primarily to increased purchases of natural gas needed to fuel the plant. Revenues from
surplus sales increase by $4,156,333 per year (Attachment A, page 2, line 47). Federal taxes are
also higher because of the new plant, but state taes decrease, primarily due to investment tax
credits.
STAFF COMMENTS 8 MAY 13,2008
The anual revenue deficiency is $8,894,974 for the Company's Idaho jursdiction
($9,430,862 on a system basis) as shown on Attachment A, page 1, line 29. In order to recover this
deficiency, a 1.3 7 percent increase in revenue requirement is necessar, Attachment A, page 1,
line 32.
Rate Spread
The increased system revenue requirement due to the Danskin CTI project is $9,430,862.
Of this amount, $8,894,974 is allocated to the Company's Idaho jurisdiction. This amount equates
to a 1.37 percent overall increase. In revising each rate schedule, Idaho Power applied the increase
to energy and demand charges only, not to any service or base charges. In Idaho Power's most
recent rate case (IPC-E-07-08), as par of the settlement stipulation, the Company agreed not to
increase service or base charges for Schedules 1 and 7. (Reference Stipulation p. 5). Therefore, in
order to uphold this commitment in the Stipulation and to remain consistent with other customer
classes, Idaho Power is not proposing to increase service or customer charges for any class.
Because no service or customer charges are being increased, energy and demand charges
must be increased slightly more than 1.37 percent in order to have an overall revenue requirement
increase of 1 .3 7 percent. In addition, because energy and demand charges represent a differing
percentage of each class's revenue requirement, the percentage increase in energy rates differs
slightly among the various customer classes.
STAFF RECOMMENDATION
Staff recommends approval of the original contract cost, in addition to change order costs,
other project construction costs and transmission costs through the end of April 2008. Staff also
recommends inclusion of the final contract payment and the transmission work order costs. Staff
does not recommend inclusion at this time of $422,228 plant costs for May and June 2008 estimates
because of Staffs inability to verify the cause and audit those costs. Recovery of those costs can be
sought by Idaho Power in its next general rate case. Staff recommends approval of an anual
increase in revenue requirement for the Company's Idaho jurisdiction of $8,894,974, which
translates into a 1.37 percent increase. Staff also recommends approval of the proposal by Idaho
Power to spread the rate increase uniformly to all customer classes, with no increase in customer or
service charges. Finally, Staff recommends that the Commission accept the Company's proposed
adjustment to base power supply costs for future PCA filings.
STAFF COMMENTS 9 MAY 13,2008
Respectfully submitted this r~ 1Ã day of May 2008.
0')~
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Rick Sterling
Joe Leckie
Terri Carlock
i:umisc/commentsipce08.! wsjlrpstc
STAFF COMMENTS 10 MAY 13,2008
IDAHO POWER COMPANY
JURISDICTIONAL REVENUE REQUIREMENT
FOR THE DANSKIN CT1 GENERATION UNIT AT THE EVANDER ANDREWS COMPLEX
FOR THE 12-MONTHS ENDING DECEMBER 31,2008
.1 TOTAL ALLOC IDAHO
DESCRIPTION SYSTEM ~IPUC
1 SUMMARY OF RESULTS
2 RATE OF RETURN UNDER PRESENT RATES
3 TOTAL COMBINED RATE BASE 63,421,180 59,639,350
4
5 OPERATING REVENUES
6 SYSTEM OPPORTUNITY SALES 4,156,333 3,935,970
7 TOTAL OPERATING REVENUES 4,156,333 3,935,970
8 OPERATING EXPENSES
9 OPERATION & MAINTENANCE EXPENSES 1,672,717 1,584,363
10 DEPRECIATION EXPENSE 1,794,956 1,690,927
11 TAXES OTHER THAN INCOME 192,00 180,428
12 PROVISION FOR DEFERRED INCOME TAXES 810,965 784,172
13 INVESTMENT TAX CREDIT ADJUSTMENT 1,90,417 1,837,631
14 FEDERAL INCOME TAXES 375,982 363,560
15 STATE INCOME TAXES (1,984,298)(1,918,741)
16 TOTAL OPERATING EXPENSES 4,762,739 4,522,341
17 OPERATING INCOME (606,06)(586,371)
18 ADD: IERCO OPERATING INCOME
19 CONSOLIDATED OPERATING INCOME (60,40)(586,371)
20 RATE OF RETURN UNDER PRESENT RATES -0.96%-0.98%
21
22 DEVELOPMENT OF REVENUE REQUIREMENTS
23 RATE OF RETURN 8.10%8.10%
24
25 RETURN 5,137,116 4,830,787
26 EARNINGS DEFICIENCY 5,743,521 5,417,158
27
28 NET-TO-GROSS TAX MULTIPLIER 1.642 1.642
29 REVENUE DEFICIENCY 9,430,862 8,894,974
30
31 FIRM JURISDICTIONAL REVENUES (lPC-E-07-0B Slip.)649,946,926
32 PERCENT INCREASE REQUIRED 1.37%
33
34 SALES AND WHEELING REVENUES REQUIRED 658,841,900
Attachment A
Case No. IPC-E-08-1
Staff Comments
05/13/08 Page I of2
IDAHO POWER COMPANY
JURISDICTIONAL REVENUE REQUIREMENT
FOR THE DANSKIN CT1 GENERATION UNIT AT THE EVANDER ANDREWS COMPLEX
FOR THE 12-MONTHS ENDING DECEMBER 31,2008
.1 TOTAL
SYSTEM
ALLOC
SOURCE
IDAHO
IPUCDESCRIPTION
35 SUMMARY OF RESULTS
36 DEVELOPMENT OF RATE BASE COMPONENTS
37 ELECTRIC PLANT IN SERVICE
38 PRODUCTION PLANT
39 TRANSMISSION PLANT
40 DISTRIBUTION PLANT
41 TOTAL ELECTRIC PLANT IN SERVICE
42 LESS: ACCUM DEFERRED INCOME TAXES
43 TOTAL COMBINED RATE BASE
44
45 DEVELOPMENT OF NET INCOME COMPONENTS
46 OPERATING REVENUES
47 SALES REVENUES
48 OPERATING EXPENSES
49 OPERATION & MAINTENANCE EXPENSES
50 DEPRECIATION EXPENSE
51 TAXES OTHER THAN INCOME
52 PROVISION FOR DEFERRED INCOME TAXES
53 INVESTMENT TAX CREDIT ADJUSTMENT
54 FEDERAL INCOME TAXES
55 STATE INCOME TAXES
56 TOTAL OPERATING EXPENSES
57 OPERATING INCOME
56 ADD: IERCO OPERATING INCOME
59 CONSOLIDATED OPERATING INCOME
60
61 POWER SUPPLY COSTS:
62 ACCT. 447/SURPLUS SALES
63 ACCT. 501/FUEL.THERMAL PLANTS
64 ACCT. 547/FUEL-0THER
65 ACCT. 555/NON-FIRM PURCHASES
66 TOTAL POWER SUPPLY COSTS
56,690,763 53,839,913
6,747,214 5,820,158
794,168 730,632
64,232,145 60,390,703
810,965 751.353
63,421,180 59,639,350
4,156,333 3,935,970
1,672,717 1,584,363
1,794,956 1,690,927
192,000 180,428
810,965 784,172
1,900,417 1,837,631
375,982 363,560
(1,984,298)(1,918,741)
4,762,739 4,522,341
(606,06)(586,371)
E10
(606,406)(586,371)
4,156,333 3,935,970
(1,879)(1,779)
7,916,038 7,496,341
16,371,633)16,033,818)
(2,613,807)(2,475,227)
Attchment A
Case No. IPC-E-08- I
Staff Comments
05/13/08 Page 2 of2
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 13TH DAY OF MAY 2008, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO.
IPC-E-08-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DONOV AN E WALKER
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: dwalker(fidahopower.com
MICHAEL J YOUNGBLOOD
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: myoungblood(fidahopower.com
CONLEY E WARD
MICHAEL C CREAMER
GIVENS PURSLEY LLP
601 WBANNOCKST
PO BOX 2720
BOISE ID 83701-2720
E-MAIL: cew(fgivenspursley.com
DENNIS E PESEAU Ph D
UTILITY RESOURCES INC
SUITE 250
1500 LIBERTY STREET SE
SALEM OR 97302
E-MAIL: dpeseau(fexcite.com
~b~SECRETAR --
CERTIFICATE OF SERVICE