20090929Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
RECEIV
2009 SEP 29 PH 3: 39
IDAH'r\..,'!tì\""I ¡'I. U t' l, t,.~,., ~,:f ", ", ",;
tJTILlTIES COM:!¡;I::;bllAi
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 APPLICATION OF )
IDAHO POWER COMPANY FOR AN )
ACCOUNTING ORDER AUTHORIZING THE )
DEFERRL OF TRANSMISSION COSTS )
ASSOCIATED WITH THE ORDER ON INITIAL)
DECISION (FERC DOCKET NO. ER06-787) )
)
CASE NO. IPC-E-09-21
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. 30890 issued on September 1,2009.
BACKGROUND
On July 20, 2009, Idaho Power Company fied 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 following a recent transmission rate case
before the Federal Energy Regulatory Commission (FERC), Docket No. ER06-787. The
Company requested and Staff concured that the Application for an Accounting Order be
processed under Modified Procedure.
STAFF COMMENTS 1 SEPTEMBER 29,2009
In March 2006, Idaho Power fied 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 (OATT) 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 Inital Decision, 126 FERC ~
61,044 (Jan. 15,2009). The "formula" rate methodology would be calculated using data reported
anually in the Company's FERC Form 1.
In its FERC application, the Company noted that it had not adjusted transmission rates
since 1996. Neverteless, several of the Company's transmission customers opposed the FERC
rate application. Although the paries settled most of the issues, they were unable to resolve the
proper ratemaking treatment of the "Legacy Agreements." Id. at ~ 11.
Staing in the 1960s, Idaho Power entered into three long-term transmission service
contracts (commonly referred to as the "Legacy Agreements") with PacifiCorp to provide
transmission service from the Jim Bridger power plant in western Wyoming. Idaho Power and
PacifiCorp jointly own the Bridger facilty. Both companies built and now operate transmission
power lines from Jim Bridger to their respective service territories. Under the terms of the Legacy
Agreements, Idaho Power charges PacifiCorp "use of facilty fees" to use Idaho Power's
transmission facilities until 2025. Id. at ~~ 3-9.
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 OATT rates Idaho Power proposed to charge other customers for similar
transmission services. This rate "disparty" between the old Legacy Agreements and the OATT
rates has grown over time. Id. at ~ 127. The ALJ fuher 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-pary transmission customers accounted
for only 15% of the total firm capacity of the subject Idaho Power facilties. Id. at ~ 128. Based
upon the principles of cost causation and allocation, the Judge found that it was uneasonable for
Idaho Power to shif its proposed rate increase to its third-pary 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 canot require its third-pary OATT
transmission customers to pay more than their prorate load share of Idaho Power's total
STAFF COMMENTS 2 SEPTEMBER 29,2009
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 revenue 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 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.
APPLICATION
In response to FERC's Initial Decision, Idaho Power has taen three actions. First, on
Febru 27,2009, Idaho Power fied 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 has initiated actions to amend portions of the Legacy Agreements
which are subject to change or re-negotiation. See FERC Docket No. ER09-1335-000. Finally,
Idaho Power has fied the present Application with this Commission for an Accounting Order to
defer and eventually recover the disallowed transmission costs associated with the above FERC
Decision. The cost estimate is $8,084,251 for the period March 2008 through May 31, 2010.
Application at,~ 9. If Idaho Power is able to reduce its revenue shortfall by virtue of the first two
alternatives, 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 unecovered
transmission-related costs associated with the outcome ofFERC's Decision. The Company
proposes to amortize the unecovered 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 carying charge on the
STAFF COMMENTS 3 SEPTEMBER 29,2009
deferral balance based upon its latest authorized rate of return on rate base (i.e., 8.18% per Order
No. 30722). Id. at ~ 11.
STAFF REVIEW
Staff review included a review of the reconsideration status at FERC and actions related to
the Legacy Agreements. Staffs primary objective is to evaluate the appropriateness of the
requested Accounting Order for deferral of unecovered transmission-related revenues. The
determination of revenue recovery from native load customers is appropriately determined in a
futue proceeding when the reconsideration issues at FERC have been finally decided.
In Staffs view, the unrecovered transmission-related revenues are generally costs
previously associated with and recovered from third-pary 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 unecovered amount. With the FERC reconsideration and Legacy
Agreement actions incomplete, Staff believes deferral accounting for these unecovered
transmission revenues is appropriate through May 2010 as requested by Idaho Power. Whether
the deferred amount should be recovered from Idaho ratepayers should be reserved for a future
proceeding.
The estimated unrecovered transmission-related revenues through May 31,2010 to be
deferred were estimated by Idaho Power to be $8,084,251. As the contested issues are decided or
resolved, the deferral wil be reduced. Since this Application was fied, FERC increased the
OATT revenues Idaho Power is authorized to collect and Idaho Power fied its anual OATT
update to change rates effective October 1, 2009. These actions reduce the estimated deferral by
approximately $3.4 milion to reflect the curent unrecovered estimate to be deferred of
approximately $4.675 milion.
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 recommends the amortization begin Januar 1, 2011 even if
STAFF COMMENTS 4 SEPTEMBER 29,2009
the Idaho ratemaking treatment is not fully decided. This provides time for Idaho Power to
resolve the FERC contested issues and the Legacy Agreement actions along with its rate case
reviews.
Idaho Power proposes to account for the unecovered transmission revenues by charging
them to Account 182.3 (Other Regulatory Assets) and amortizing these amounts to Account 407.3
(Regulatory Debits). These accounts are appropriate and Staff recommends that the proposed
accounting treatment be approved.
Idaho Power also proposes to accrue a caring charge on the deferral at the most recent
retur on rate base (currently 8.18%). Staff believes deferral in itself provides adequate benefit to
the Company without it earing a retu on the deferraL. Absent an Accounting Order authorizing
deferral, Idaho Power would not recover any of the transmission-related revenues or receive a
retur on them. Staff recommends no caring charge on the deferral be authorized.
The deferral as requested in the Application acknowledges the extraordinary natue of
these unecovered transmission-related revenues. Deferred accounting treatment for regulatory
purposes is an appropriate, just and reasonable means of providing the Company the opportity
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 paries and 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 unecovered third-pary transmission revenues once the contested issues before FERC
are decided.
STAFF RECOMMENDATION
Staff recommends 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 utilzed with the unecovered transmission-related
revenues charged to Account 182.3 (Other Regulatory Assets) and the amortization
charged to Account 407.3 (Regulatory Debits).
3. An amortization period of three years should be approved.
STAFF COMMENTS 5 SEPTEMBER 29, 2009
4. The amortization period should begin on Januar 1, 2011.
5. No caring charge should be authorized.
6. The ratemaking treatment and recovery should be addressed in a future proceeding.
Respectfully submitted this 2í~ of September 2009.
Donald L. Ho l, II
Deputy Attorney General
Technical Staff: Terri Carlock
i:umisc/commentsipce09.2I dhtc comments
STAFF COMMENTS 6 SEPTEMBER 29, 2009
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 29TH DAY OF SEPTEMBER 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-09-21, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
DONOV AN E WALKER
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalker§idahopower.com
bkline(ßidahopower.com
COURTNEY WAITES
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: cwaites§idahopower.com
gsaid§idahopower.com
J:) .~ cSECRETØ
CERTIFICATE OF SERVICE