20151113HellsCanyon AFUDC Status Report.pdf

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An IDACORP Company
LISAD. NORDSTROM
Lead Counsel
[e-mail]
November 13,2015
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
RE: Response to Order No. 30722 (Case No. IPC-E-08-10)
2015 Hells Canyon Allowance for Funds Used During Construction ("AFUDC")
Status Report
Dear Ms. Jewell:
ln Order No. 30722, the ldaho Public Utilities Commission ("Commission") ordered ldaho
Power Company ("Company") to file a status report for the relicensing of the Hells Canyon facilities
along with an update on the accumulation of AFUDC by November 15, 2009. The Company has
continued to file annual updates and therefore, enclosed for filing are an original and seven (7)
copies of the 20'15 status report.
This report details the Company's efforts to obtain the license, supporting continued
collection of AFUDC in rates beyond December 31,2010. ldaho Power now estimates that the
issuance of the license will be delayed until at least 2020 due to the unresolved issues related to
watertemperature. The Company has spent in excess of $158.1 million in support of the Hells
Canyon relicensing ($214.4 million less $56.3 million in pre-tax AFUDC estimated collections) and
will continue collection of AFUDC in rates going forward as authorized in Order No. 30722 unless it
receives a Commission order directing otherwise.
lf you have any questions regarding this filing, please contact Senior Regulatory Analyst
Courtney Waites at 388-5612 or [e-mail].
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Very truly yours,
LDN:kkt
Enclosures
P.O. Box 70 (83707)
1221 W ldaho 5t.
Boise, lD 83702
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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 ldaho Power Company's ("ldaho Powe/' or "Company") customers.
With this in mind, ldaho Power considers the HCC relicensing project to be a viable,
cost-effective effort that will ultimately serve the best interests of customers.
ln Case No. IPC-E-08-10, ldaho Power's 2008 general rate case, the Company
included construction work in progress ("CW!P") related to the Hells Canyon relicensing
as part of its revenue requirement. The Company did not request that the Hells Canyon
relicensing CWIP be included in rate base; instead, the Company requested that
ongoing financing costs, or Allowance for Funds Used During Construction ("AFUDC'),
associated with the Hells Canyon relicensing project, be allowed in rates. The ldaho
Public Utilities Commission ("Commission") agreed with ldaho Power and the
Commission Staff that the Hells Canyon relicensing project presented unique
circumstances and that it was in the public interest to include 2009 AFUDC levels in
rates. Order No. 30722 at 14.
ln Order No. 30722, the Commission ordered ldaho 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. !f 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. While not required by Order No. 30722,hhe Company is filing its
2015 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 Enerqv Regulatorv Commission ("FERC") License Application
ldaho Power filed a license application with FERC in July 2003, two years before
the original license for the HCC expired in 2005. Since 2005, ldaho Power has been
operating under annual licenses issued by FERC. The relicensing of the HCC is
complicated by its location on a river that borders ldaho and Oregon and is located
immediately above (1) critical habitat for anadromous and native fish (salmon and bull
trout) listed as "threatened" under the Endangered Species Act ("ESA"); (2) the federally
reserved Hells Canyon National Recreation Area; and (3) 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 federa! lands
managed by the Bureau of Land Management ("BLM").
ldaho Power filed the HCC license application with FERC under the "traditional
licensing process." FERC has now implemented two other licensing processes, the
"alternative !icensing 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 ldaho 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, ldaho Power had committed
substantial resources to technica! studies and analyses in support of the traditional
process. The traditional licensing process generally consists of three stages. The first
and second stages typically 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 ldaho 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, ldaho Power hoped to engage interested
stakeholders on the development of studies and technical analyses 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, ldaho 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 fina! license application, and the
technical and environmenta! studies that support it, is in excess of 35,000 pages and
provides a 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 ldaho Power's final
application and soliciting motions to intervene and protests. Twenty-seven parties filed
formal motions to intervene in the relicensing proceeding (some also filed protests),
including four Native American tribes, as well as numerous federal and state resource
agencies and non-governmental organizations such as American Rivers, Columbia
River lnter-Tribal Fish Commission, American Whitewater, the Northwest Resource
lnformation Center, and ldaho Rivers United.
B. Federal Power Act ("FPA") and the National Environmenta! Policv Act of
1969 ("NEPA") Proceedings
Under the FPA, and other applicable laws, FERC must determine that a project,
as licensed, wi!! be best adapted to a comprehensive plan for improving and developing
a watenruay. ln 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.
Fifteen parties filed comments, terms, prescriptions, and recommendations in response
to the FERC notice. ldaho Power filed responses to these filings in April 2006.
Some of the filings by federal agencies, particularly the U.S. Forest Service
('USFS') and the BLM, contained mandatory conditions under Section 4(e) of the FPA.
Section 4(e) provides that FERC must include in a license for a project within a federal
reservation (such as USFS 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. ln other words, the
applicable resource agency (USFS or BLM) may not prevent FERC from issuing the
license, but when FERC issues a license, the resource agency's conditions must be
included in the license. ln 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. ldaho 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. ln May 2006, ldaho Power resolved its contests to the
mandatory conditions through favorable settlements with the USFS and BLM.
C. FERC's Additional lnformation Requests
Once a license application is filed, FERC may request additional information that
it believes will help inform or support its licensing decisions. ln May 2OO4,ldaho Power
received notification that FERC would need additional information to complete their
evaluation of the Company's license application. ln all, ldaho Power received 14
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Additional lnformation Requests ("AlRs") covering the following categories: general
operations, geology and soils, water quantity and quality, aquatic resources, terrestrial
resources, land use, developmental resources, and transmission lines. FERC allowed
the Company between three and nine months, depending on the extent of the study, to
provide the information requested in the AlRs. ln some cases, FERC requested some
follow-up AlRs to further clarify the results of what had been completed earlier. The
final AIR responses to FERC were filed in 2007.
D. Environmental lmpact Statement
On July 28, 2006, consistent with the requirements of NEPA, FERC staff issued
a draft environmental impact statement ("ElS') for the licensing of the HCC, which
reviewed and analylzed ldaho Power's proposed operations and mitigation measures
together with the comments, terms, prescriptions, and recommendations previously
received. Various parties, including ldaho Power, filed comments to the draft EIS and
on August 31, 2007, FERC staff issued a final EIS for the Iicensing of the HCC. This
fina! EIS contains FERC staffs recommended terms and conditions for the licensing of
the project and will be used by FERC in the development of fina! license conditions.
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). ln addition, depending upon the final conditions in the water quality
certifications, FERC may decide that a supplement to the final EIS should be prepared
in accordance with NEPA guidelines. ldaho Power has reviewed the final EIS but does
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not anticipate filing comments until the processes progress to a point where their
influence upon provisions of the final EIS can be determined.
E. Clean Water Act Proceedinss
Because the HCC is located on the Snake River on the border between ldaho
and Oregon, ldaho 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 ldaho and Oregon
Department of Environmental Quality (.DEQ') in conjunction with the filing of the final
license application with FERC in 2003.
Since 2003, ldaho 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 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 Section 401 certification,
or a waiver of that certification, from each state. Once the Section 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 Section 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. However, due to the
complexities involved and the need for additional technical analysis, ldaho Power, with
the concurrence of the states, has withdrawn and re-filed its Section 401 applications
annually since 2003. This process of withdrawing and refiling applications is
procedurally necessary because Section 401 of the CWA requires that a state act on a
pending 401 application within one year or be deemed to have waived its certification
authority, To avoid this result, states generally allow the withdrawal and refiling of an
application that is still under consideration. This process is consistent with the CWA. !n
2014, FERC noted that 67 percent of the licensing proceedings pending before it are
awaiting water quality certification (see PacifiCorp. 149 FERC fl 61,038, October 16,
2014).
ldaho Power's most recent applications were filed with the ldaho and Oregon
DEQs on February 23, 2015. The applications contained proposed measures for
complying with applicable water quality standards related to dissolved oxygen, total
dissolved gas, and temperature. The measures proposed in the application to address
dissolved oxygen and total dissolved gas have been pending before the DEQs for
several years and appear to be acceptable. lssues related to temperature remain
unresolved.
ln 2004, as part of the Snake River Hells Canyon Total Maximum Daily Load
process, the HCC was assigned a temperature load allocation related to the salmonid
spawning temperature standard criteria below the Hells Canyon dam. At that time, the
applicable salmonid spawning temperature criteria was 13' C. ln 2010, Idaho Power
filed petitions in ldaho and Oregon to change the 13'C criteria to 14.5" C, based on
support by peer reviewed technical studies. ln 2012, ldaho changed the temperature
criteria and submitted the change to the U.S. Environmental Protection Agency ('EPA')
for approval. Oregon deferred action on the Company's petition until the next triennial
review of its water quality standards. The EPA has yet to take action on the criteria
change approved by ldaho. The applicable salmonid spawning criteria remains 13" C as
the 14.5' C standard change cannot become effective without EPA approval. The
National Marine Fisheries Service ("NMFS') and the U.S. Fish and Wildlife Service
("USFWS") have advised the EPA that 14.5' C is protective of downstream aquatic
resources and that they do not oppose the proposed standard change from 13' C to
14.5" C.
Working with outside consultants The Freshwater Trust and River Design Group,
ldaho Power has developed a river restoration and water quality plan that will promote
the natural restoration of the Marsing reach of the Snake River above the HCC and
riparian restoration in five tributaries to the HCC to address the temperature standard
below Hells Canyon dam. ln the May 2014 Section 401 application, ldaho Power
presented its Snake River Stewardship Program to the ldaho and Oregon DEQs.
Since the filing of the Section 401 application, ldaho Power has continued to meet with
the DEQs and refine the proposed plan in an effort to resolve the temperature issue.
These meetings continued through 2014 and necessitated a February 2015 withdrawal
and re-filing of the applications for certification. ldaho Power will be withdrawing that
Section 401 application and submitting a subsequent application in December 2015.
lf the DEQs determine that the proposed Temperature Management and
Compliance Ptan, which includes the Snake River Stewardship Program, is not
sufficient to address the temperature standard below Hells Canyon dam, the only
measure available to ldaho Power to address a 13'C temperature standard below the
HCC is the installation of a temperature control structure ("TCS') in Brownlee Reservoir
to access cool water from lower reservoir levels and pass it downstream below the Hells
Canyon dam. ldaho Power biologists do not believe that a TCS in Brownlee is the most
effective measure to protect salmonid spawning below the Hells Canyon dam and are
concerned that accessing and releasing cool, low level Brownlee water downstream will
result in the release of anoxic water with elevated levels of toxics, including mercury, to
the potential detriment of downstream and in-reservoir aquatic resources and habitat.
Fish consumption advisories for Brownlee Reservoir have been in place for
several decades because of elevated mercury levels. Elevated mercury levels, coupled
with stakeholder interest in having ldaho Power install a deep-water pump in Brownlee
Reservoir, have prompted the need to study mercury in Hells Canyon. ldaho Power has
contracted with nationally recognized mercury research experts from the USGS to study
the status of mercury in the HCC. This is an ongoing cooperative study between ldaho
Power, USGS, and the ldaho DEQ designed to understand mercury issues and
processes in Hells Canyon. The overall study effort will continue for at least the next five
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years. ldaho Power will continue to work with the DEQs and resource agencies to
resolve issues associated with Section 401 certification for temperature.
F. Endanqered Species Act Consultation
ln conjunction with the issuance of the final ElS, on September 13,2007, FERC
requested formal consultation under Section 7 of the ESA with the NMFS and the
USFWS regarding the effect of HCC relicensing on several aquatic and terrestrial
species listed as threatened under 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 Section 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 ElS, as supplemented by ldaho 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. ldaho 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 permanent license order for the HCC after
completion of the Section 401 certification and the ESA consultation processes. As
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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. ln addition, if the foregoing
certifications or consultations result in modifications or additions to project structures or
operations not previously evaluated, FERC may conclude that a supplement to the final
EIS should be prepared. 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 permanent license for the HCC until the
states have issued water quality certifications under Section 401 of the CWA.
Under the most optimistic scenario, ldaho Power expects that a permanent
license could be issued in 2020. However, due to the potential for further delay in the
issuance of the Section 401 certification and biological opinions, it is possible that a
FERC license may not be issued until sometime after 2020.
IV. CONTINUED AFUDC COLLECTION
Based upon the current status of the HCC relicensing efforts detailed in Sections
l! and lll of this report, ldaho 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 pre-tax as authorized by Order No. 30722 and $6,520,122 annually for the
ldaho jurisdiction, as authorized by Order No. 32426. Continued collection in rates
remains consistent with the Commission's stated rationale for authorizing such
collection in Order No. 30722. ldaho Power is still more than a year away from
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acquiring a permanent 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 $15.7 million. However, at this time, the
Company is not requesting to adjust the amount currently collected through rates.
Through September 30, 2015, ldaho Power has spent in excess of $158.1 million
in support of the Hells Canyon relicensing ($zlq.q million less $56.3 million in pre-tax
AFUDC estimated collections). As the Commission previously explained, "The lengthy
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, ldaho 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 ldaho normalized monthly retail sales
revenues included in Order No. 32426. 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:
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(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 untilthe new license is received.
449108 Provision for Rate Refunds $XXXX
229105 Accumulated Provisions for Rate Refunds - Pre-Tax $XXXX
229100 Accumulated Provisions for Rate Refunds - Tax $XXXX
(2)
To record monthly interest.
431090 Other lnterest Expense $XXXX
229105 Accumulated Provision for Rate Refunds - Pre-Tax $XXXX
As of September 30,2015, the accrued balances in the accounts associated with
the AFUDC costs are as follows:
22g1OS - Accumulated Provision Pre-Taxl
229106 - Accumulated Provision 2009 Tax
($56,330,800.55)
($27,939,586.36)
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.
V. CONCLUSION
The Company is filing this status report regarding relicensing of the Hells Canyon
facilities, including the accumulation of AFUDC, in response to Order No. 30722,
because the relicensing of the HCC has not occurred. ln this report, the Company
'The balance in Account2291OS also includes interest in the amount of $12,811,194.58.
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details its efforts to obtain the license, supporting continued collection of AFUDC in
rates. ldaho Power now estimates that the issuance of the license will be delayed until
at least 2O2O and lhe Company will continue to annually update the Commission until
the licensing process concludes.
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