20080523Reply Comments.pdf

RE ;::D
?5IDA~POR(I
An IDACORP Company
07
BARTON L. KLINE
Senior Attorney
May 23,2008
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-08-07
PCA
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of Idaho Powets
Reply Comments regarding the above-referenced matter.
I would appreciate it if you would return a stamped copy of this transmittal letter
to me in the enclosed self-addressed stamped envelope.
Very truly yours,~J~
Barton L. Kline
BLK:cb
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, ID 83702
t
DONOVAN E. WALKER ISB #5921
BARTON L. KLINE ISB #1526
Idaho Power Company
P.O. Box70
Boise, Idaho 83707
Phone: [phone]
FAX: [phone]
dwalkercqidahopower.com
bklinecqidahopower.com
o
2008 HAY 23 PH 2= 07
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 APPLICATION
OF IDAHO POWER COMPANY FOR CASE NO. IPC-E-08-07
AUTHORITY TO IMPLEMENT POWER
COST ADJUSTMENT (PCA) RATES FOR IDAHO POWER'S REPLY COMMENTS
ELECTRIC SERVICE FROM JUNE 1, 2008
THROUGH MAY 31,2009
Idaho Power Company ("Idaho Power" or "Company") submits the following
Comments in response to the Comments filed by the Commission Staff and intervenors
on May 20, 2008.
1. Introduction
These reply comments break into two general categories. First, Staff and all of
the intervenors responded to Idaho Power's proposal for a one-year deviation from the
standard 90%/10% sharing of excess power supply costs. These Comments wil
IDAHO POWER'S REPLY COMMENTS - 1
address that issue comprehensively as the arguments and analyses presented by Staff
and the intervenors are very similar.
Issues unrelated to the one-year deviation proposal are addressed separately.
2. Proposed One-Year Deviation from the 90%/10% Sharing Arrangement
In its Application, Idaho Power proposed a one-year deviation from the usual
90%/10% sharing provisions of the PCA. The Company proposed that 100 percent of
the deviations in non-PURPA power supply expenses be recovered from or returned to
customers in the coming year. The current streamflow forecast is for slightly above-
normal runoff at Brownlee, which would correlate to an expectation of below-normal
power supply expenses and a reduction in customer rates to recover power supply
expenses.
Staff and all the intervenors opposed the Company's proposal. The reason is
simple. Even with an expectation of above-normal streamflows, all the parties,
including the Company, have an expectation that power supply expenses wil not be
below-normal in the coming year and as a result, next year's true-up calculations wil
require customers to pay additional amounts.
With that background, the Company stil believes that its proposed one-year
deviation has merit for the following reasons:
(a) The PCA is not currently providing symmetry.
One of the principal tenets supporting the use of the PCA for ratemaking
is the assumption that over time there wil be reasonable symmetry of power supply
expenses at levels either above or below base levels established in general rate cases.
However, with the occurrence of the prolonged period of drought, that southern Idaho
IDAHO POWER'S REPLY COMMENTS - 2
has experienced over the past 7 years described in Mr. Said's testimony, that expected
symmetry has not occurred. As a result, the Company has been unable to recover its
prudently incurred power supply expenses on a continuous basis during the prolonged
period of drought. Mircron refers to those unrecovered power supply expenses as
"PCA losses" incurred by the Company at 10 percent and by customers at 90 percent.
(Micron Comments, p. 2) Such a characterization is inaccurate. Idaho Power has
incurred 100 percent of the power supply expenses needed to serve on behalf of its
customer loads. Customers have only been required to pay 90 percent of the actual
cost the Company incurred to serve their loads. The Company is the only "loser."
During the current prolonged drought, customers have received a consistent 10 percent
discount on the additional costs the Company incurred to serve their electric
requirements.
The problem goes even deeper. Even without a drought, if base level power
supply expenses are set artificially low, the expectation of symmetrical distribution of
power supply expenses at levels above or below base levels is frustrated. For these
reasons, in considering whether the one-year deviation proposed by the Company is
reasonable, the Commission should not ignore the question of whether or not the PCA
has fulfilled the expectation that it would be symmetrical over time. If that expectation
has not been met, how can the rates provided by the PCA be just, reasonable, and
sufficient as required by Idaho Code § 61-502?
IDAHO POWER'S REPLY COMMENTS - 3
(b) The 90%/10% sharing ratio is only one of several "incentives" placed on
the Company.
In their Comments, Staff and the intervenors all remind the Commission that the
90%/10% sharing arrangement provides the Company with an incentive to prudently
manage its power supply expenses. While the Company acknowledges the laudable
purpose of the sharing arrangement, it is important for the Commission to remember
that the Company has multiple "incentives" to act prudently.
Micron correctly notes in its Comments that Idaho Power is legally required to
establish its rates, charges, rules, and regulations so that they are "just and
reasonable." (Idaho Code § 61-301 and § 61-303.) If Idaho Power does not manage
its power supply expenses in a prudent matter, the Commission has the legal authority
to require the Company to do so. This is the principal incentive for the Company to
manage its power supply expenses prudently.
In light of the above-referenced provisions of Idaho law, the 90%/10% sharing
arrangement actually provides an additional incentive to manage power supply
expenses in a prudent manner.
In addition to the above-described incentives, the Company's risk management
policies are another process implemented to further ensure that the Company makes
prudent power purchase decisions. Hedging activity that occurs as a result of the risk
management policy is not reflected in base rates. As Mr. Said explained in his
testimony, such hedging activity, which is governed by procedures adopted by the
Commission in accordance with Order No. 29102 issued in Case No. IPC-E-0-16, is
prescriptive in nature and thus is more akin to purchases from PURPA projects than it is
IDAHO POWER'S REPLY COMMENTS - 4
to non-firm purchases of power the company makes to optimize the economics of
system operations. Deviations in PURPA purchase expenses are tracked at 100
percent in the PCA and similarly the Company's hedging activity should be tracked at
1 00 percent.
The DOE states in its comments that "the Company has not presented anything
which would indicate that the Commission's approved risk management policy is so
unsatisfactory as to justify the one issue ratemaking that the requested waiver would
demand." (DOE Comments, p. 3.) The DOE misses the point. The Company does not
contend that the risk management policy is unsatisfactory. Applying the 90%10% PCA
"incentive" to risk management policy-driven power supply expense when the Company
has little or no discretion as to whether or not to incur such expense is what is
unsatisfactory .
(c) The effect of QF Contract Performance on the PCA needs further review.
The DOE suggests that the Company should have known that PURPA
wind projects would not come on-line in the time frames stated within their contracts.
The Industrial Customers of Idaho Power ("ICIP") asserts that Idaho Power is itself
responsible for PURPA wind projects not coming on-line in the time frames stated
within their contracts. Neither of these parties raised concerns in the general rate case
about the assumption that these resources would be available in 2007. The reason for
their prior silence is evident. The inclusion of these PURPA wind projects as 2007
resources resulted in lower power supply expenses than would have occurred in their
absence. Now that these projects have not lived up to their contracts, the DOE and the
IDAHO POWER'S REPLY COMMENTS - 5
ICIP believe it is fair that customers be shielded from 10 percent of the cost to replace
the power from PURPA projects that did not fulfil their contractual obligations.
Idaho Power respectfully submits that, at this juncture, assessing blame and
finger pointing is not productive. In fact, neither the DOE nor the ICIP addressed the
real problem with the PCA exposed by the failure of the PURPA wind developers to
perform their contracts in a timely fashion. This situation demonstrates how the current
PCA methodology can shift risk and expense in an arbitrary and capricious manner. At
a minimum, it provides additional support for the recommendations that the PCA
methodology should be reviewed in a workshop setting.
3. Base Power Supply
The Commission Staff recommended an adjustment to levelize and redistribute
base power supply expenses included in PCA true-up computations in order to address
PCA true-up computational effects on the Company's quarterly earnings. The
Company appreciates the Staff proposal because it wil provide for quarterly earnings
,that more closely align with financial operating results. While the Staff proposed that
the monthly shape of power supply expenses included in the base level for deferral
purposes be a flat distribution with each month equal to 1/12 of the annual power
supply expenses, the Company would propose a slightly different approach. Idaho
Power recommends distribution of the annual power supply expenses to months based
upon the 2007 monthly normalized loads of the Company. This would match the
monthly shape of power supply expenses to the monthly shape of revenues resulting
from normalized loads. If this tweak to the Staff recommendation is not viewed
IDAHO POWER'S REPLY COMMENTS - 6
positively by the Commission, the Company would certainly view the Staff
recommendation as appropriate for implementation.
4. Rate Phase-In
The Industrial Customers of Idaho Power ("ICIP") recommends that the current
year's PCA expense be deferred and recovered in three equal annual installments.
ICIP reminds the Commission that in its 1993 Order (Order No. 24806), the
Commission retained the right to spread PCA expenses over a period longer than one
year. No other party has suggested a rate phase-in.
Idaho Power believes there are a number of reasons why the Commission
should resist ICIP's invitation to mute the price signal sent by the PCA. For
background, it should be noted that in 1992, when the Commission was originally
considering the PCA mechanism, the ICIP suggested the use of deferral accounting to
minimize rate changes from year to year. (Order No. 24806, pp. 7-8.) In Order 24806,
the Commission decided not to adopt the deferral approach proposed by the ICIP but
instead to utilize a forecast-based PCA with a true-up. (Order No. 24806, p. 8.) In its
Order, the Commission explained that one of the benefits of a PCA was to "most
closely match costs to the time period in which they are incurred. This sends the more
appropriate price signals to ratepayers." (Order No. 24806, p. 8.) The Commission
further noted in its Order that use of deferral accounting for PCA expenses means that
customer rates would not be adjusted until several years after the costs which caused
the adjustment had been incurred. (Order No. 24806, p. 8.) Idaho Power believes that
this reasoning remains valid today and ICIP's recommendation should not be accepted
by the Commission.
IDAHO POWER'S REPLY COMMENTS - 7
Idaho Power concurs with one portion of ICIP's suggestion in this regard. ICIP
notes in its Comments that the bulk of the PCA expense for which it is requesting
deferral arises out of the true-up portion of the PCA. What this suggests to Idaho
Power is that the current method for forecasting power supply expenses has not kept
up with changes in the market for wholesale power and, as a result, PCA rates do not
reflect today's reality. Idaho Power believes that the forecasting methodology is also an
appropriate ,subject for the PCA workshop.
5. Conclusion
The Commission Staff and the Idaho Irrigation Pumpers Association ("Irrigators")
appear to have given the question of a one-year deviation in PCA methodology the
most thought. While they both recommend rejection of the Company proposal, they
also suggest that the question of PCA expense-sharing ratios be discussed further in
workshops to be held following this case. Staff acknowledged in its Comments that a
number of the issues raised in the Company's PCA filing present legitimate questions
that can best be addressed and resolved in a workshop setting rather than trying to
resolve them in either an abbreviated PCA proceeding or in a general rate case. In the
last general rate case, the parties to the settlement agreed that the load growth
adjustment rate (LGAR) issue could be most effectively addressed in a workshop
setting. It seems logical that consideration of the other PCA related issues raised in the
Comments in this case be merged into the LGAR workshops to allow a comprehensive
review of the entire PCA mechanism.
The Company continues to believe that a one-year deviation from the 90%/10%
sharing provisions of the PCA as supported by Mr. Said's testimony in this case is both
IDAHO POWER'S REPLY COMMENTS - 8
fair and appropriate. The Company also strongly urges the Commission to adopt the
Staffs and the Irrigators' suggestion to establish a workshop process to consider
prospective adjustments to the PCA methodology.
Y'CRespectfully submitted this 2. '3 ~ day of May, 2008.
~
BARTO L. KLINE
Attorney for Idaho Power Company
IDAHO POWER'S REPLY COMMENTS - 9
CERTIFICATE OF SERVICE
'C~I HEREBY CERTIFY that on the 23 day of May 2008, I served a true and
correct copy of the within and foregoing document upon the following named parties by
the method indicated below, and addressed to the following:
Commission Staff
Donald L. Howell, II
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ID 83720-0074
Industrial Customers of Idaho Power
Peter J. Richardson, Esq.
Richardson & O'Leary
515 N. 2ih Street
P.O. Box 7218
Boise, ID 83702
Don Reading
Ben Johnson Associates
6070 Hil Road
Boise, ID 83702
Idaho Irrigation Pumpers
Association, Inc.
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey
P.O. Box 1391
201 E. Center
Pocatello, ID 83204
Anthony Yankel
29814 Lake Road
Bay Vilage, OH 444140
IDAHO POWER'S REPLY COMMENTS -10
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Micron Technology
Conley Ward
Givens Pursley
601 W. Bannock Street
P.O. Box 2720
Boise, ID 83701
Dennis E. Peseau, Ph.D.
Utility Resources, Inc.
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Department of Energy
Lot Cooke
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IDAHO POWER'S REPLY COMMENTS - 11
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~
BARTON L. KLINE