20091030final_order_no_30940.pdf

Office of the Secretary
Service Date
October 30, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER AUTHORIZING
THE DEFERRAL OF TRANSMISSION
COSTS ASSOCIATED WITH THE ORDER
ON INITIAL DECISION (FERC DOCKET
NO. ER06- 787)
ORDER NO. 30940
CASE NO. IPC-09-
On July 20, 2009, Idaho Power Company filed an Application requesting that the
Commission issue an Accounting Order authorizing the deferral of costs associated with the
Company s transmission services. The Company is requesting authority to record and possibly
recover in Idaho rates its unrecovered transmission costs that were denied in a recent
transmission rate case before the Federal Energy Regulatory Commission (FERC), Docket No.
ER06- 787. The Company requested and Staff concurred that the Application for an Accounting
Order be processed under Modified Procedure.
On September 1, 2009, the Commission issued a Notice of Modified Procedure
requesting that interested persons file comments regarding the Application no later than
September 29, 2009. The only comments received were submitted by Commission Staff. The
Company did not file reply comments. After reviewing the Application and Staff comments, we
grant Idaho Power s Application as conditioned in greater detail below.
BACKGROUND
In March 2006, Idaho Power filed an Application with FERC requesting an increase
in its transmission rates subject to FERC's jurisdiction. In its filing, the Company proposed to
revise its Open Access Transmission Tariffs (OA TT) from "stated" rates to "formula" based
rates. Formula rates would be updated annually based upon Idaho Power s total cost to own
operate and maintain its transmission facilities for its transmission customers. Order on Initial
Decision 126 FERC ~ 61 044 (Jan. 15, 2009). The "formula" rate methodology would use
financial data reported annually in the Company s FERC Form 1.
In its FERC Application, Idaho Power noted that it had not adjusted transmission
rates since 1996. Nevertheless, several of the Company s transmission customers opposed the
ORDER NO. 30940
FERC rate application. Although the parties settled most of the issues, they were unable to
resolve the proper ratemaking treatment of the "Legacy Agreements.Id. at ~ II.
Starting in the 1960s, Idaho Power entered into three long-term transmission service
contracts (commonly referred to as the "Legacy Agreements ) with Pacifi Corp to provide
transmission service from the Jim Bridger power plant in western Wyoming. Idaho Power and
PacifiCorp jointly own the Bridger facility. Both companies built and now operate transmission
lines from Bridger to their respective service territories.Under the terms of the Legacy
Agreements, Idaho Power charges PacifiCorp "use of facility fees" to use Idaho Power
transmission facilities until 2025. Id. at ~~ 3-
The federal administrative law judge (ALJ) initially determined and FERC
subsequently affirmed that Idaho Power s charges to PacifiCorp under the Legacy Agreement are
significantly lower than the OA TT rates Idaho Power proposed to charge other customers for
similar transmission services. This rate "disparity" between the rates in the old Legacy
Agreements and the OATT rates has grown over time. Id. at ~ 127. The ALJ further found that
under the Legacy Agreements, PacifiCorp s load accounted for 40% of the transmission lines
capacity, Idaho Power s load accounted for 45% of the capacity, and third-party transmission
customers accounted for only 15% of the total firm capacity ofthe subject Idaho Power facilities.
Id. at ~ 128. Based upon the principles of cost causation and allocation, the ALJ found that it
was unreasonable for Idaho Power to over-allocate its cost recovery to its third-party
transmission customers. Because of the longstanding Legacy Agreements, Idaho Power is
contractually bound to provide transmission service to PacifiCorp at rates that are now
considered below cost.
In affirming the ALJ, FERC found that Idaho Power cannot require its third-party
OATT transmission customers to pay more than their prorate load share of Idaho Power s total
transmission revenue requirement. Id. at ~ 133. Because its revenue recovery is "locked in" by
the long-term Legacy Agreements, FERC found that Idaho Power must bear the under-recovery
of transmission costs on its own. Id. at ~ 129.
The intervenors in the FERC docket also argued that Idaho Power has other options to
make up for the revenue shortfall. The Company could avail itself of provisions in the Legacy
Agreements that allow some transmission charges to be adjusted. Id. at ~ 163. In addition, the
ALJ observed that Idaho Power could seek to recover its revenue shortfall from its native load
ORDER NO. 30940
retail customers. Id. at ~ 158. He concluded that Idaho Power "has other ways to lessen any
financial blow. . . through appropriate rate changes at the retail level or through re-negotiations
of its legacy agreements with PacifiCorp.Id. at ~ 218.
THE APPLICATION
In response to FERC's Initial Decision , Idaho Power has taken three actions. First
on February 27, 2009, Idaho Power filed a Petition for Rehearing with FERC. On March 18
2009, FERC granted rehearing so it could consider that matter in greater detail. Docket No.
ER06- 787 -006. Second, Idaho Power filed an application with FERC to amend portions of the
Legacy Agreements which are subject to change or re-negotiation. See FERC Docket No. ER09-
1335-000. Third, Idaho Power filed the present Application with this Commission for an
Accounting Order to defer and account for unrecovered transmission costs associated with the
FERC decision in Docket No. ER06-787. The Company estimates its unrecovered costs are
084 251 for the period March 2008 through May 31 , 2010. Application at ~ 9. If Idaho
Power is able to reduce its revenue shortfall by recovering revenue through the first two actions
set out above, then the Company "will reduce the deferral" request that is the subject of this
Application. Id.
The Company seeks an Accounting Order authorizing the deferral of the unrecovered
transmission-related costs associated with the outcome of FERC's Initial Decision.The
Company proposes to amortize the unrecovered transmission revenues on a straight-line basis
over a 36-month period beginning June 1 , 2010, once these costs are included in rates. Id. at ~
10. Idaho Power proposes to account for the unrecovered transmission revenues by charging
them to Account 182.3 (Other Regulatory Assets) and amortizing these amounts to Account
407.3 (Regulatory Debits) upon their inclusion in rates. Until such time as the Company begins
to recover its deferred costs, it requests that the Commission authorize a carrying charge on the
deferral balance based \lpon its latest authorized rate of return on rate base (i., 8.18% per Order
No. 30722). Id. at ~ 11.
STAFF COMMENTS
In its reVIew of the Application, Staffs primary objective is to evaluate the
appropriateness of the requested Accounting Order for deferral of unrecovered transmission-
related costs. Staff does not object to the request for an Accounting Order. However, Staff
believes the decision whether to allow revenue recovery from native load customers
ORDER NO. 30940
appropriately determined in a future proceeding after the reconsideration issues at FERC have
been finally decided, and after Idaho Power s efforts to re-negotiate provisions of its Legacy
Agreements. Staff Comments at 4.
In Staffs view, the unrecovered transmission-related revenues are generally costs
previously associated with and recovered from third-party transmission users until the recent
FERC case described above. The revenues from these transmission users covered a portion of
actual transmission costs and reduced the overall revenue requirement to Idaho customers
through a revenue credit in each rate case. The FERC decision has the effect of reducing the
revenue credit, thereby creating the unrecovered amount. With the FERC reconsideration and
Legacy Agreement actions incomplete, Staff believes deferral accounting for these unrecovered
transmission revenues is appropriate through May 2010 as requested by Idaho Power. The
question whether the deferred amount should be recovered from Idaho ratepayers is a matter that
should be reserved for a future proceeding. Id.
The unrecovered transmission-related revenues to be deferred through May 31 , 2010
were estimated by Idaho Power to be $8 084 251. As the first two recovery alternatives are
decided or resolved, the deferral amount may be reduced. Since this Application was filed
FERC authorized Idaho Power to increase its OATT rates (resulting in more revenue) effective
October 1 2009. This last action reduces the estimated deferral by approximately $3.4 million.
Consequently, Staff estimates the current unrecovered amount to be deferred is approximately
$4.675 million. Id.
1. Deferral Period.Idaho Power is requesting to amortize the deferral over a three-
year period beginning June 1 2010, upon the inclusion in retail rates. Staff believes a three-year
amortization period is reasonable. However, Staff does not believe the amortization should be
timed to coincide with recovery of the amortization in retail rates. Rate case filings are made
based on various considerations of the Company with amortizations being just one of many
factors. With a deferral period through May 31 , 2010, Staff recommended the amortization
begin January 1 , 2011 , even if the Idaho ratemaking treatment is not fully decided. This
provides time for Idaho Power to resolve the FERC rehearing issues and the Legacy Agreement
actions along with its rate case reviews. Id. at 4-
Deferral Accounts.Idaho Power proposes to account for the unrecovered
transmission revenues by charging them to Account 182.3 (Other Regulatory Assets) and
ORDER NO. 30940
amortizing these amounts to Account 407.3 (Regulatory Debits). These accounts are appropriate
and Staff recommended that the proposed accounting treatment for the deferral be approved.
3. Carrying Charge. Idaho Power also proposes to accrue a carrying charge on the
deferral at the most recent return on rate base (currently 8.18%). Staff believes deferral by itself
provides adequate benefit to the Company without the need to earn a return on the deferral.
Absent an Accounting Order authorizing deferral, Idaho Power would not recover any of the
transmission-related revenues or receive a return on them. Staff recommended that no carrying
charge be authorized. Id. at 5.
The deferral as requested in the Application acknowledges the extraordinary nature of
these unrecovered transmission-related revenues. Deferred accounting treatment for regulatory
purposes is an appropriate, just and reasonable means of providing the Company the opportunity
to request and litigate future recovery of unrecovered revenues caused by the FERC decision.
Commission approval of this Application does not relieve Idaho Power of its obligation to
demonstrate the prudence of its actions, or lack of actions, with respect to the FERC cases and
contracts. A deferral order in this case does not limit the right of Staff, other parties or the
Commission to examine the lawfulness, reasonableness and prudence of the actual deferral
amount for recovery in retail rates. This type of review is critical to protect customers before
including unrecovered third-party transmission revenues once the contested issues before FERC
are decided. Id.
In summary, Staff recommended the following:
1. An Accounting Order authorizing deferral of the unrecovered
transmission-related revenues through May 31 , 2010 should be approved.
2. The proposed accounts should be utilized with the unrecovered
transmission-related revenues charged to Account 182.3 (Other
Regulatory Assets) and the amortization charged to Account 407.
(Regulatory Debits).
3. An amortization period of three years should be approved.
4. The amortization period should begin on January 1 2011.
5. No carrying charge should be authorized.
6. The ratemaking treatment and possible recovery should be addressed in a
future proceeding.
ORDER NO. 30940
DISCUSSION AND FINDINGS
After reviewing the Application and Staff comments, we find it reasonable to grant
the Company s request for an Accounting Order conditioned with Staffs recommendations.
authorize the deferral of the unrecovered transmission-related revenues through May 31 , 2010, as
requested by the Company and further find that the proposed deferral should be charged to
Account 182.3 (Other Regulatory Assets) and the amortizations charged to Account 407.
(Regulatory Debits). We find that an amortization period of three (3) years is reasonable and
that the amortization period should begin on January 1 2011.
We are also persuaded by Staffs comments that no carrYIng charge should be
authorized because the deferral provides sufficient benefit to the Company. Finally, the
Commission specifically reserves the right to determine in a future proceeding whether Idaho
Power may appropriately recover the deferred amounts from Idaho customers. Granting the
requested Accounting Order will allow Idaho Power to pursue its two other recovery options at
FERC (rehearing and amending portions of the Legacy Agreements) while deferring
transmission-related costs/revenues.
ORDER
IT IS HEREBY ORDERED that Idaho Power s request for an Accounting Order
authorizing the deferral of unrecovered transmission costs/revenues is granted as conditioned
above.
IT IS FURTHER ORDERED that although Idaho Power may account for these
deferred amounts, the Commission expressly reserves the right to examine the lawfulness
prudence and reasonableness of recovering the deferrals from Idaho customers in a future case.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. IPC-09-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
this case. Within seven (7) days after any person has petitioned for reconsideration, any other
person may cross-petition for reconsideration. See Idaho Code 9 61-626.
ORDER NO. 30940
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 30 t+
day of October 2009.
MPT SIDENT
Ql~. ARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD, COMMISSIONER
ATTEST:
J~Ee
Commission Secretary
bls/O:IPC-O9-21 dh2
ORDER NO. 30940