20090313Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL

DATE: MARCH 13, 2009

SUBJECT: CASE NO. IPC-E-09-03 (Idaho Power)
CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY –
LANGLEY GULCH POWER PLANT

On March 6, 2009, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) for a Certificate of Public
Convenience and Necessity (Certificate) authorizing construction of the Langley Gulch Power
Plant (Langley Gulch; Project) and inclusion of the Project in the Company’s rate base. Idaho
Code § 61-526, -528; RP 112.
Idaho Power requests authority to construct, own, operate and maintain the Langley
Gulch Power Plant. The Project is a natural gas-fired combined-cycle combustion turbine
(CCCT) generating plant with a nameplate capacity of approximately 330 MW. The Company
proposes to construct the Project on a parcel of land on the south side of Interstate 84 in Payette
County approximately four miles south of the town of New Plymouth, Idaho.
The Project is a base load generating resource of the size and type identified as the
preferred resource in the Company’s June 2008 update to its 2006 Integrated Resource Plan
(IRP). The Project was selected as a result of a competitive process (request for proposals or
RFP) in which the Company solicited proposals from independent power supply developers.
The proposals were compared to each other and to a benchmark utility-owned and operated
CCCT (Benchmark Resource). Langley Gulch project is the Benchmark Resource. The RFP
process assessed the price and non-price attributes of the responses to the RFP. The RFP process
identified the Project as the preferred resource. The RFP process selected the Project principally
DECISION MEMORANDUM 2
because the 20-year revenue requirement for the Project was significantly less than the other
proposals under consideration.
The Application and supporting testimonies describe in greater detail the RFP process
and description of the Langley Gulch project. Idaho Power’s commitment estimate for the
Project is $427,400,000. On a net present value basis, over the 20-year term of a power purchase
agreement (PPA) or tolling agreement (TA) the Project is estimated to have a revenue
requirement impact of approximately $108 million lower than the next least expensive proposal
in the Company’s RFP process.
The Company commits to procure and construct the Project for an amount that will
not exceed the commitment estimate. Amounts incurred in excess of the commitment estimate
will be subject to a “soft cap”; that is excess costs could only be included in rates if the
Commission agreed the additional amounts expended were prudent and should be included in
fair, just and reasonable rates.
The Company commits to provide the Commission with periodic percentage of
completion and cost expenditure reports during the construction phase of the Project. The final
report on the Project will compare the actual completed cost to the commitment estimate.
A major component of the operating cost of a combined-cycle combustion turbine
generating plant is the cost of natural gas fuel. The Company states that it currently owns or will
acquire firm fuel transportation rights that can be utilized by the Project. As part of its
Application, the Company is requesting that the Commission’s Order issuing the Certificate
authorize Idaho Power to include the Project’s prudently incurred costs for fuel, fuel storage and
fuel transportation for recovery through the Company’s existing Power Cost Adjustment (PCA)
mechanism.
The Company is requesting that the Commission include in its Order issuing a
Certificate authority for the Company to utilize one of two alternative ratemaking mechanisms
that will put the Company in the best position to finance this project. (1) The first ratemaking
mechanism would be to allow the Company to annually collect construction work in progress
(CWIP) in its rates for all or a portion of the construction expenditures the Company incurs as it
moves forward with construction of the Project or alternatively commit to apply specific
ratemaking treatment that the Company can rely upon when the Project is completed and
providing service to customers. (2) The second alternative, the ratemaking commitment, the
DECISION MEMORANDUM 3
Company contends, is identical to the mechanism envisioned in the rate certainty legislation that
is currently being discussed in the Idaho Legislature in Senate Bill 1123.
Until the Commission issues a Certificate with ratemaking assurances and provisions,
the Company states it cannot prudently proceed with the Project. As a result, the commercial
operation date of the Project is directly related to the issuance of a Certificate, including the
necessary cost-recovery and ratemaking commitments. To the extent the Commission can
expedite its review of the Application; the Company contends that it will redound to the benefit
of customers and system reliability.
Idaho Power requests that its Application be processed under Modified Procedure,
Commission Rule of Procedure 201, allowing for consideration of issues by written submissions
rather than evidentiary hearing.
COMMISSION DECISION
Idaho Power recommends Modified Procedure. Staff recommends that the
Commission issue a Notice of Application, establish an intervention deadline and schedule a
procedural conference of parties. Does the Commission find Staff’s proposed procedure
acceptable?

Scott Woodbury
Deputy Attorney General

bls/M:IPC-E-09-03_sw