20121109HellsCanyon AFUDC Status Report.pdf

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LISA D. NORDSTROM
Lead Counsel UTILITIES CO44ISSIO Inordstromidahopower.com i 41
November 9, 2012
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-08-10 - Compliance Filing
2012 Hells Canyon Accumulated Funds Used During Construction
("AFUDC") Status Report
Dear Ms. Jewell:
In Order No. 30722, the Idaho Public Utilities Commission ("Commission")
ordered Idaho Power Company ("Company") to file a status report for the relicensing of
the Hells Canyon facilities along with the accumulation of AFUDC. Therefore, enclosed
for filing are an original and seven (7) copies of a status report which describes the
relicensing process along with evidence to support collection of AFUDC in rates beyond
December 31, 2010. The Company will continue collection of AFUDC in rates going
forward as authorized in Order No. 30722 unless it receives a Commission order
directing otherwise.
If you have any questions with regard to this report, please do not hesitate to
contact me.
Very truly yours,
Xt, ~, -
QL
Lisa D. Nordstrom
LDN :csb
Enclosures
cc: Service List (w/encl.)
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
2012 HELLS CANYON ACCUMULATED FUNDS USED
DURING CONSTRUCTION ("AFUDC") STATUS REPORT
I. PURPOSE OF STATUS REPORT
The Hells Canyon Complex ("HCC"), comprised of the Brownlee, Oxbow, and
Hells Canyon dams, represents approximately 1,167 megawatts of nameplate
generation capacity. The HCC continues to be an important source of low cost, clean
electric energy for Idaho Power Company's ("Idaho Power" or "Company") customers.
With this in mind, Idaho Power considers the HCC relicensing project to be a viable,
cost-effective effort that will ultimately serve the best interests of customers.
In Case No. IPC-E-08-10, Idaho Power's 2008 general rate case, the Company
included construction work in progress ("CWIP") for the Hells Canyon relicensing as part
of its revenue requirement. The Company did not request that the Hells Canyon CWIP
be included in rate base; instead, the Company requested that the financing costs of
AFUDC be allowed in rates as they occurred in 2009. The Idaho Public Utilities
Commission ("Commission") agreed with Idaho Power and the Commission Staff that
the Hells Canyon project presented unique circumstances and that it was in the public
interest to include the AFUDC in rates. Order No. 30722 at 14.
In Order No. 30722, the Commission ordered Idaho Power to file a status report
with the Commission by November 15, 2009, regarding relicensing of the Hells Canyon
facilities, including the accumulation of AFUDC. If the relicensing is not complete by the
aforementioned date, the report should explain the Company's efforts to obtain the
license, with evidence supporting continued collection of AFUDC in rates beyond
December 31, 2009.
1
While not required by Order No. 30722, the Company is filing its 2012 Hells
Canyon AFUDC status report in recognition of the Commission's stated desire to be
updated on the Company's ongoing relicensing efforts.
II. EFFORTS TO COMPLETE RELICENSING
A. FEDERAL ENERGY REGULATORY COMMISSION ("FERC") LICENSE
APPLICATION
Idaho Power filed a license application with FERC in July 2003, two years before
the original license for HCC expired in 2005. Since 2005, Idaho Power has been
operating under annual licenses issued by FERC. The relicensing of the HCC is
complicated by its location on a border river (Oregon/Idaho) immediately above (i)
critical habitat for anadromous and native fish (salmon and bull trout) listed as
"threatened" under the Endangered Species Act ("ESA"); (ii) the federally reserved Hells
Canyon National Recreation Area; and (iii) a seventy-mile stretch of the Snake River
designated as "wild and scenic" under the Wild and Scenic Rivers Act. The project also
potentially affects two National Forests as well as federal lands managed by the Bureau
of Land Management ("BLM").
Idaho Power filed the HCC license application with FERC under the "traditional
licensing process." FERC has now implemented two other licensing processes, the
"alternative licensing process" and the "integrated licensing process." The latter
process became the default process for obtaining a license in 2005, but was not
available in 2003 when Idaho Power filed its license application. The alternative
process was promulgated by FERC in 1997 and provides for pre-filing consultation with
interested agencies combined with a pre-filing environmental review process. However,
at the time the alternative process became available, Idaho Power had committed
2
substantial resources to technical studies and analysis in support of the traditional
process. The traditional licensing process generally consists of three stages. The first
and second stages generally involve pre-filing consultation and completion of studies
and preparation of a draft license application. Anticipating that there would be
widespread interest in the relicensing of the HCC, in the 1990s, Idaho Power began
exploring opportunities to incorporate ongoing consultation throughout the first and
second stages to provide for greater stakeholder involvement in the license application
process. Through this more collaborative process, Idaho Power hoped to engage
interested stakeholders on the development of studies and technical analysis that would
address stakeholder concerns and strike an appropriate balance between project
operations and the protection, mitigation, and enhancement of resource values.
By the time the final license application was filed in 2003, Idaho Power had held
in excess of 200 meetings with stakeholders and completed more than 100 relicensing
studies at an approximate cost of $45 million. The final license application, and the
technical and environmental studies that support it, is in excess of 35,000 pages and
provides a complete and comprehensive analysis of potential project impacts on the
environment and natural resources affected by the project. The filing of the final
application in July 2003 initiated the third stage under the traditional licensing process-
FERC consideration of project effects and the development of proposed license terms
and conditions.
On December 3, 2003, FERC issued a notice accepting Idaho Powers final
application and soliciting motions to intervene and protests. Twenty-seven parties filed
formal motions to intervene (some also filed protests) in the relicensing proceeding,
3
including four Native American tribes, as well as numerous federal and state resource
agencies and non-governmental organizations such as American Rivers, Columbia
River Inter-Tribal Fish Commission, American Whitewater, the Northwest Resource
Information Center, and Idaho Rivers United.
B. FEDERAL POWER ACT ("FPA") AND THE NATIONAL ENVIRONMENTAL
POLICY ACT OF 1969 ("NEPA") PROCEEDINGS
Under the FPA, and other applicable laws, FERC must determine that a project,
as licensed, will be best adapted to a comprehensive plan for improving and developing
a waterway. In addition to the power and developmental purposes for which licenses
are issued, FERC must give equal consideration to the purposes of energy
conservation; the protection of, mitigation of damage to, and enhancement of fish and
wildlife; the protection of recreational opportunities; and the preservation of other
aspects of environmental quality. The NEPA complements the FPA process and is
intended to ensure that federal decision makers, and the public, have a firm
understanding of the environmental consequences of federal decisions so that actions
implemented adequately protect, restore, and enhance the environment.
Pursuant to the FPA and the NEPA, in the fall of 2003, FERC initiated a scoping
process, holding meetings throughout the region on an initial environmental scoping
document prepared by FERC staff. FERC received oral and written responses to this
initial scoping document and, in November 2004, issued a second scoping document.
On the basis of the information received from this scoping process, in October 2005,
FERC issued a notice that the project was ready for environmental review and set a 90-
day period for the filing of comments, terms, prescriptions, and recommendations.
4
Fifteen parties filed comments, terms, prescriptions, and recommendations in response
to the FERC notice. Idaho Power filed responses to these filings in April 2006.
Some of the filings by federal agencies, particularly the U.S. Forest Service
("USFS") and BLM, contained mandatory conditions under Section 4(e) of the FPA.
Section 4(e) generally provides that FERC must include in a license for a project within
a federal reservation (such as a national forest or BLM lands) such conditions as the
applicable agency considers "necessary for the adequate protection and utilization of
that reservation." Section 4(e) is a conditioning as compared to a veto authority. In
other words, the applicable resource agency (USFS or BLM) may not prevent FERC
from issuing the license, but if FERC issues a license, the resource agency's conditions
must be included in the license. In Section 241 of the Energy Policy Act of 2005
("EPAct"), Congress provided license applicants with a right to an evidentiary hearing on
contested mandatory conditions before an administrative law judge. Prior to the
enactment of the EPAct, there was limited opportunity to challenge the factual basis of
mandatory conditions. Idaho Power contested several of the mandatory conditions and
became the first hydroelectric license applicant to take advantage of the evidentiary
hearing process created by EPAct. Idaho Power resolved its contests to the mandatory
conditions through favorable settlements with the USFS and BLM in May of 2006.
C. ENVIRONMENTAL IMPACT STATEMENT
On July 28, 2006, consistent with the requirements of NEPA, FERC staff issued
a draft environmental impact statement ("EIS") for the licensing of the HCC, which
reviewed and analyzed Idaho Power's proposed operations and mitigation measures
together with the comments, terms, prescriptions, and recommendations previously
received. Various parties, including Idaho Power, filed comments to the draft EIS and
on August 31, 2007, FERC staff issued a final EIS for the licensing of the HCC. This
final EIS contains FERC staffs recommended terms and conditions for the licensing of
the project and will be used by FERC in the development of final license conditions.
Idaho Power has reviewed the final EIS and is developing comments for filing with
FERC. However, certain portions of the final EIS involve issues that may be influenced
by the water quality certifications for the project under Section 401 of the Clean Water
Act ("CWA") and the formal consultations under the ESA, which remain unresolved (see
below). Idaho Power anticipates filing comments to the final EIS when these processes
progress to a point where their influence upon provisions of the final EIS can be
determined.
D. CLEAN WATER ACT PROCEEDINGS
Because the HCC is located on the Snake River on the border between Idaho
and Oregon, Idaho Power has filed water quality certification applications, required
under Section 401 of the CWA, with the states of Idaho and Oregon requesting that
each state certify that any discharges from the project comply with applicable state
water quality standards. These applications were filed with the respective states in
conjunction with the filing of the final license application with FERC in 2003. Since
2003, Idaho Power has been working with the states in the development of necessary
information and proposed measures to ensure that any discharge from the project will
comply with applicable standards relating to dissolved oxygen, total dissolved gas,
temperature, and other water quality standards. This work has included the completion
of technical studies and modeling to determine the effects of project operations on water
E.
quality as well as the efficacy of proposed measures to address those effects. When
final proposals are developed and presented to the states for approval, notice will be
given to interested parties with an opportunity to comment on the proposals. The states
will then render a decision on the Section 401 applications, including any measures to
be included in the project license to address water quality impacts. FERC cannot issue
a new license for the HCC without 401 certification, or a waiver of that certification, from
each state. Once the 401 certifications are issued and filed with FERC, FERC will
review the measures required by the certifications in its licensing order and may
comment on whether, in its view, there is a need for such measures based on its NEPA
analysis. But, regardless of FERC's views, in accordance with judicial precedent, it will
incorporate all 401 conditions in the license without modification. Under applicable
provisions of the CWA, the states have one year to issue a decision on a Section 401
application. Due to the complexities involved and the need for additional technical
analysis, Idaho Power, with the concurrence of the states, has withdrawn and re-filed its
Section 401 applications annually since 2003. The states are processing the current
applications, which were filed on April 20, 2012. Idaho Power will continue to work
interactively with the Departments of Environmental Quality to support their processing
of the applications.
E. ENDANGERED SPECIES ACT CONSULTATION
In conjunction with the issuance of the final EIS, on September 13, 2007, FERC
requested formal consultation under § 7 of the ESA with the National Marine Fisheries
Service ("NMFS") and the U.S. Fish and Wildlife Service ("USFWS") regarding the effect
of HCC relicensing on several aquatic and terrestrial species listed as threatened under
7
the ESA. However, because the "proposed action" that FERC will include in any final
license is not adequately defined until the water quality measures to be implemented
under the 401 certifications are identified, FERC has been unable to move forward with
formal consultations as required by the ESA. As with Section 401 certification, FERC
cannot issue a new license for the HCC until formal consultation under the ESA is
complete. These water quality certifications together with the information in the final
EIS, as supplemented by Idaho Power, should provide NMFS and USFWS with
sufficient information to complete ESA consultation, develop biological opinions, and
make appropriate recommendations to FERC for measures to be included in the project
license to address ESA issues. Each agency continues to gather and consider
information relative to the effect of relicensing on ESA listed species. Idaho Power
continues to cooperate with NMFS and USFWS, as FERC's designated non-federal
representative, in the development of this information in an effort to ensure that any
ESA concerns are adequately addressed.
III. COMPLETION DATE
FERC is expected to issue a license order for the HCC upon completion of the
Section 401 certification and the ESA consultation processes. As mentioned above,
certain provisions of the final EIS involve issues that may be influenced by the water
quality certifications for the project under Section 401 of the CWA and the formal
consultations under the ESA. When final proposals are developed and presented to the
states for approval, notice will be given to interested parties with an opportunity to
comment on the proposals. The states will then render a decision on the Section 401
applications, including any measures to be included in the project license to address
E.
water quality impacts. FERC cannot issue a license for the HCC until the states have
issued water quality certifications under Section 401 of the CWA.
Under the most optimistic scenario, Idaho Power expects that a license could be
issued in 2015. However, due to the potential for contests to the Section 401
certification and biological opinions, it is possible that a FERC license may not be
issued until sometime after 2015.
IV. CONTINUED AFUDC COLLECTION
Based upon the current status of the HCC relicensing efforts detailed in Sections
II and III of this report, Idaho Power believes that it is reasonable and appropriate to
continue collecting AFUDC in rates for the HCC relicensing project in the amount of
$6,815,472 ($6,477,352 for the Idaho jurisdiction) pre-tax as authorized by Order No.
30722. Continued collection in rates remains consistent with the Commission's stated
rationale for authorizing such collection in Order No. 30722. Idaho Power is still more
than a year away from acquiring a license and continues to spend money to relicense
the HCC. As a result, the Company believes that it will continue to be appropriate to
collect the AFUDC for the HCC relicensing project in rates until the project is completed
and included in rate base. The amount of current year AFUDC anticipated to be
accrued for the HCC relicensing project is approximately $13.9 million. However, at this
time, the Company is not requesting to adjust the amount currently collected through
rates.
Through September 30, 2012, Idaho Power has spent in excess of $129.5 million
($157 million less $27.5 million in pre-tax AFUDC estimated collections) in support of
the Hells Canyon relicensing. As the Commission previously explained, "The lengthy
9
duration of the project, and an as yet unknown completion date, mean that AFUDC is
already significant and will continue to accumulate to alarming levels. . . . The amount
of AFUDC included in rates now will reduce the total project costs that ultimately will be
included in rate base, thereby reducing future rate increases." Order No. 30722 at 14.
Beginning in February 2009, Idaho Power began recording the accrual of monthly
estimated revenue collections as determined in the Order for both the tax portion and
principal for AFUDC associated with the HCC relicensing. The monthly entries are
shaped based on the Company's forecasted Idaho monthly retail sales. The
amortization of these costs will commence once the HCC relicensing costs are placed
in-service.
The Company is also recording monthly interest on the accrued pre-tax balance
for the AFUDC associated with the Hells Canyon relicensing. The interest is calculated
using the monthly AFUDC rate. The entries will be recorded monthly until the HCC
relicensing costs are placed in-service and are as follows:
(1)
To record the monthly estimated revenue collection for both the tax and pre-tax
portion of the HCC relicensing AFUDC. This entry started in February 2009 and will
continue until the new license is received.
449108 Provision for Rate Refunds $X)O(X
229105 Accumulated Provisions for Rate Refunds - Pre-Tax $XXXX
229106 Accumulated Provisions for Rate Refunds - Tax $XXXX
(2)
To record monthly interest.
431090 Other Interest Expense $XXXX
229105 Accumulated Provision for Rate Refunds - Pre-Tax $XXXX
10
As of September 30, 2012, the accrued balances in the accounts associated with
the AFUDC costs are as follows:
229105— Accumulated Provision Pre-Tax' ($27,452,836.63)
229106— Accumulated Provision 2009 Tax ($15,360,376.40)
The accumulated provisions in both Accounts 229105 and 229106 will be
transferred to a regulatory liability account for subsequent amortization concurrent with
receiving a permanent license and the placing of the Hells Canyon relicensing project
in-service. Amortization of the total estimated AFUDC revenues accrued will be over
the life of the permanent license once it is received.
1 The balance in Account 229105 also includes interest in the amount of $3,527,016.79.
11
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 9th day of November 2012 I served a true and
correct copy of the within and foregoing 2012 HELLS CANYON ACCUMULATED
FUNDS USED DURING CONSTRUCTION ("AFUDC") STATUS REPORT upon the
following named parties by the method indicated below, and addressed to the following:
Commission Staff
Weldon B. Stutzman
Neil Price
Deputy Attorneys General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
Industrial Customers of Idaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, Idaho 83707
Dr. Don Reading
Ben Johnson Associates
6070 Hill Road
Boise, Idaho 83703
Idaho Irrigation Pumpers
Association, Inc.
Randall C. Budge
Eric L. Olsen
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
201 East Center
P.O. Box 1391
Pocatello, Idaho 83204-1 391
Anthony Yankel
Yankel & Associates, Inc.
29814 Lake Road
Bay Village, Ohio 44140
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Energy Strategies, LLC
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Utility Resources, Inc.
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