20090417Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
RECE
2009 APR 11 PM 2: 1 l
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 APPROPRIATE
DISPOSITION OF IDAHO POWER
COMPANY'S SULFUR DIOXIDE EMISSION
ALLOWANCES FOR 2008 AND 2009.
)
) CASE NOS. IPC-E-08-14) IPC-E-09-08
)
) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilties Commission, by and through its Attorney of
Record, Donald L. Howell II, Deputy Attorney General, submits the following comments in
response to Order No. 30761 issued on March 27, 2009.
On March 18, 2009, Idaho Power Company filed a report disclosing that the Company
recently recorded the sale of surlus sulfur dioxide (S02) emission allowances. The Company
reported that thus far in 2009, it has either sold or entered into contracts for the sale of 16,500
S02 allowances. i After deducting its brokerage fees of$4,125, Idaho Power booked S02
proceeds of$2,341,375. The Company's report also noted that during calendar year 2008, it
sold 10,000 S02 allowances. After deducting brokerage fees, the Company reported net S02
revenues in 2008 of $2,958,500. See Case No. IPC-E-08-14 (report fied July 24, 2008).
i In January 2009 Idaho Power booked 802 net proceeds in the amount of$1,781,875. In Februar 2009 the
Company booked 802 net proceeds of $559,500.
STAFF COMMENTS 1 APRIL 17, 2009
On March 27, 2009, the Commission issued Order No. 30761 initiating this proceeding.
In its Order, the Commission requested written comments concerning the appropriate disposition
and ratemaking treatment for the reported S02 revenues. The Commission directed that written
comments be filed no later than April 17, 2009.
BACKGROUND
Title IV of the Clean Air Act Amendments of 1990 established a national program for the
reduction of acid rain. 42 U.S.C. §§ 7651 et seq. The centerpiece of the acid rain program is the
incentive- or market-based "cap and trade" S02 program. Under the cap and trade program, the
U.S. Environmental Protection Agency (EPA) sets a cap or ceilng on the total amount of S02
emissions allowed nationwide. Based upon this cap, EPA allocates a certain number of S02
emission allowances to thermal power plant owners. Each allowance or credit provides the
authority to emit one ton of S02. Idaho Power has an ownership interest in three thermal power
plants: Jim Bridger, North Valmy, and Boardman.
A thermal power plant owner must hold sufficient allowances each year to cover its
actual S02 emissions. A power plant owner that does not possess sufficient allowances to cover
its annual emissions must purchase additional allowances or it is automatically fined and must
surrender future-year allowances to cover the shortfall. A power plant owner holding surplus
S02 allowances in a given year may retain the allowances or sell them. S02 allowances are
fully marketable commodities and can be traded on the open market or in special EPA-sponsored
auctions. ¡d.
STAFF REVIEW
Staff verified that the S02 sales transactions were booked accurately. The review
included inspection of all contracts, sales terms for allowances sold, vintage of allowances, price
per allowance, and brokerage fees. Interest is calculated monthly on the balance and will
continue to accrue, increasing the total funds to be dispersed. Consistent with prior treatment,
Staff recommends that the Commission direct the Company to continue to accrue interest on the
S02 proceeds until the funds are used. Interest through March 31, 2009 is $47,578 ($43,983 on
2008 sales and $3,595 on 2009 sales).
Include Proceeds in the PCA
Staff believes that the proceeds from the sale of S02 allowances should be used to satisfy
the greatest need at this time, which in Staffs opinion, is to offset the purchased power costs in
STAFF COMMENTS 2 APRIL 17, 2009
this year's Power Cost Adjustment (PCA) case (Case No. IPC-E-09-11). The PCA costs subject
to recovery this year wil be some ofthe highest on record, surpassed only in 2000 and 2001
during the western energy crisis. PCA costs to be included in rates were estimated at nearly
$200 milion at the end of March 2009. The extremely high PCA costs are due to a below
average water year in 2008 and an expected below average water year in 2009. The PCA
surcharge that is curently in place is designed to recover approximately $105 milion.
Therefore, if the current PCA cost estimate neither increases nor decreases an additional $93
milion more than is currently being collected must be collected through a higher PCA surcharge
beginning June 1,2009. The result could be a PCA surcharge that is nearly twice the current
surcharge.
Two Accounting Adjustments
In its report, Idaho Power noted that there were two accounting adjustments applicable to
the sale ofS02 allowances in 2009. First, Idaho Power observed that the 90/10 percent PCA
sharng mechanism was changed in Order No. 30715. Beginning in Februar 2009, revenues
from S02 sales are subject to the new 95/5 percent sharing methodology. See Order No. 30715
(Case No. IPC-E-08-19). Second, Idaho Power asserted that its jurisdictional allocations were
adjusted in the Company's 2008 rate case. In particular, Idaho's jursdictional percentage
increased from 94.70% to 94.79%. Order No. 30722. Both these adjustments became effective
in February 2009. Consequently, the $559,500 in net S02 proceeds booked in Februar 2009 are
subject to these two adjustments. Staff has examined the Company's workpapers and verified
that these Commission-approved adjustments were made.
STAFF RECOMMENDATION
In summary, Staff recommends that the customers' share ofS02 proceeds be passed
through the PCA for the curent year. Passing the customers' share of funds through the PCA
wil reduce the current PCA cost subject to recovery and mitigate the impact of what wil likely
be a very large surcharge for 2009. Given the Commission's recent Order allocating $500,000
(plus accrued interest) of S02 proceeds to fund an energy education program, Staff believes that
all available S02 revenues this year should be applied to offset PCA costs. Order No. 30760.
Given the forecasted PCA balance, Staff believes that reducing the PCA balance represents the
greatest need and is of the highest value for use of the S02 proceeds at this time. Thus, Staff
STAFF COMMENTS 3 APRIL 17,2009
recommends that the proceeds of the S02 sales on a system basis of $5,347,453 ($5,299,875 plus
interest of $47,578 as of March 31, 2009) be included in this year's PCA.
Respectfully submitted this I 7~ay of April 2009.
D"~
Deputy Attorney General
Staff: Terri Carlock
i: umisc/commentsipce08. i 4 _ipce09. 8dhtc.doc
STAFF COMMENTS 4 APRIL 17, 2009
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 17TH DAY OF APRIL 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NOS. IPC-E-08-141 IPC-E-09-08, BY MAILING A COPY THEREOF, POSTAGE
PREPAID, TO THE FOLLOWING:
BARTON L KLINE
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: bklinearidahopower.com
lnordstromaridahopower .com
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: gsaidaridahopower.com
JJl~.kVc~
SECRETARY
CERTIFICATE OF SERVICE