20110119final_order_no_32162.pdf

Office of the Secretary
Service Date
January 19, 2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPROPRIATE
DISPOSITION OF PROCEEDS FROM THE
. SALE OF IDAHO POWER COMPANY'S S02
EMISSION ALLOWANCES IN CALENDAR
YEAR 2010
ORDER NO. 32162
CASE NO. IPC-I0-
During calendar year 2010, Idaho Power Company filed three reports declaring that it
sold a total of 20 000 surplus sulfur dioxide (S02) emission allowances. In total, the Company
reported net sale proceeds of $543 000 (after deducting brokerage fees of $5 000). Third Report
at 2. Consistent with the Commission s prior Orders, the Company proposed to "share" the
proceeds 95% to customers and 5% to shareholders. The Company also proposed to use Idaho
current jurisdictional percentage and to use the accounting treatment approved in Order No.
29852.
On December 2, 2010, the Commission issued a Notice of Modified Procedure
requesting public comments regarding the appropriate disposition of the S02 proceeds. In
response to the Notice, the Commission received comments ftom the Idaho Energy Education
Project (IEEP), members of the public, the Snake River Alliance (SRA), and the Commission
Staff. Idaho Power did not file reply comments. After reviewing the comments in this case, the
Commission finds that it is appropriate to use the S02 proceeds in the Company s annual Power
Cost Adjustment (PCA) to benefit all Idaho ratepayers.
BACKGROUND
A. The SOl Program
In Order No. 29852 issued August 22, 2005, the Commission granted Idaho Power
blanket authority to sell its surplus S02 emission allowances. Title IV of the Clean Air Act
Amendments of 1990 establishes a national program for the reduction of acid rain. 42 US.C. 99
7651 et seq. The centerpiece of the acid rain program is the incentive- or market-based "cap and
trade" S02 emission program. Under the cap and trade program, the Environmental Protection
Agency (EP A) sets a cap or ceiling on the total amount of S02 emissions allowed nationwide.
Based on this cap, EP A allocates a certain number of S02 emission allowances to thermal power
plant owners. Each allowance provides the authority to emit one ton of S02. Order No. 29852
at 1.
ORDER NO. 32162
Each year a thermal power plant owner must hold sufficient allowances to cover
actual S02 emissions. A thermal power plant owner holding insufficient 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 thermal power plant holding surplus
S02 allowances in a given year may save the surplus allowances or sell them. SO2 emission
allowances are fully marketable commodities and can be traded on the open market or in special
EP A-sponsored auctions. Idaho Power has an ownership interest in three thermal power plants
in the western United States that receive S02 allowances from EP A. Id.
B. Prior Commission Orders
In October 2005, the Commission initiated a proceeding to determine the appropriate
ratemaking treatment of the S02 proceeds. In March 2006, interested parties stipulated that
proceeds from Idaho Power s sale of S02 allowances should be included in the Company
annual Power Cost Adjustment (PCA) "with 90% of the net proceeds to be passed onto
customers, and 10% of the net proceeds to be retained as a shareholder benefit." In Order No.
30041 , the Commission approved the stipulation. The Commission found that the PCA "is the
logical mechanism to track and distribute proceeds from the sale of excess S02 allowances.
Order No. 30041 at 4.
In Order No. 30715 issued January 9, 2009, the Commission adopted changes to
Idaho Power s PCA mechanism based upon a stipulation executed in Case No. IPC-08-19. In
particular, the parties agreed and the Commission approved changing the sharing methodology
that assigns power purchase costs or benefits to customers and shareholders. "Since inception of
the PCA, annual deviations in normal power supply costs have been shared 90%/1 0% by
customers and Company shareholders, respectively." Order No. 30715 at 2. The Commission
adopted the parties' recommendation that the sharing percentage should be changed to a 95%/5%
sharing percentage for customers and the Company, respectively. Id. at 5.
In the Commission s last S02 Order No. 30790 issued May 1 2009, the Commission
allocated all of the available S02 proceeds to offset the PCA balance. In a previous case, the
Commission had used a portion of the SO2 proceeds to fund a two-year energy education
proposal that began at the start of the 2009 school year. Order No. 30790 at 3. In Order No.
30790, the Commission found that "it is not appropriate to set aside additional SO2 proceeds for
ORDER NO. 32162
energy education (programs) until the two-year pilot project has been evaluated.Id. The two-
year pilot will be completed in June 20 II.
THE COMMENTS
A. JEEP and the Public Comments
After Idaho Power submitted its first S02 report in June 20 I 0, IEEP and five
supporters filed comments. These comments recommend that the Commission use a part of the
S02 proceeds to continue funding the energy education and efficiency programs in public
schools. More specifically, IEEP recommended that 8% of the S02 proceeds should be used
fund the Energy Efficiency and Education Program authorized by the Commission in Order No.
30760 (March 27, 2009). IEEP also suggested that a portion of the SO2 proceeds be used to
implement the energy efficiency upgrades identified by students conducting in-school energy
audits.
B. Staff Comments
Staff audited the three S02 reports submitted by Idaho Power and verified that Idaho
Power received net proceeds of $543 000. Consistent with the Commission s last SO2 Order
No. 30790, Staff recommended that all of the S02 proceeds offset the PCA deferral balance.
Staff believed that applying the S02 proceeds in the PCA mechanism appropriately benefits all
Idaho Power customers. Staff Comments at 1-
The net proceeds are jurisdictionally allocated to Idaho at 94.8% for January through
May 2010, and at 95% beginning June 2010. Accumulated interest is also added to the Idaho
S02 net proceeds. Staff calculated that the total Idaho jurisdictional amount after the addition of
interest is $490,498.43. Id. at 2.
Turning to the IEEP comments, Staff asserted that using the proceeds for energy
education programs or to implement measures identified by school energy audits would not be
appropriate at this time. Staff observed that the Commission found in Order No. 30790 that "it is
not appropriate to set aside additional SO2 proceeds for energy education (programs J until the
two-year pilot project has been evaluated.Id. citing Order No. 30790 at 3. Staff also noted that
the Notice of Modified Procedure in this case stated that the two-year pilot will not be completed
until June 2011. Order No. 32129 at 3. Moreover, as of October 31 , 2010 , almost $375 000 of
the $500 000 funding allocated for the energy education program is still available for use.
Comments at 2. Thus, Staff asserted additional funding is not justified at this time. Staff
ORDER NO. 32162
believed that the most appropriate disposition of the 2010 S02 proceeds would be to offset the
PCA balance in the 2011 PCA case.
C. Snake River Alliance
In its comments, the Alliance acknowledged that the Commission s prior Order No.
30790 stated that it is not appropriate to set aside additional S02 proceeds for energy education
projects "until the two-year pilot project has been evaluated." Comments at 2. Consequently,
SRA opined that it "is unlikely S02 proceeds in this case will be used for anything but passing
them through the PCA at the 95-5 split and apportioned equitably between Idaho Power s Idaho
and Oregon (customers).Id.
Nevertheless, the SRA indicated that it was appropriate for the Commission and
others to consider the appropriate disposition of future SO2 proceeds. (Emphasis added.) In
particular, SRA noted that the Boardman coal plant may finish its operational cycle in 2020 and
the Bridger and Valmy plants may be retrofitted with additional S02 conservation equipment in
the future. Thus, the Alliance suggested that the Commission and all parties begin serious
consideration for the future uses and programs which will have "longer lasting impacts and that
can be leveraged with other financial resources" for the public good. Id. at 3. Other beneficial
uses may include: acquisition of real estate for wind projects; real estate acquisition for solar
photovoltaic and thermal solar generating resources; energy efficiency programs, and JEEP'
energy education projects. Id.
DISCUSSION AND FINDINGS
After reviewing our prior Orders and the comments in this case, we find that the
appropriate disposition of the CY 2010 SO2 proceeds is to use the proceeds in the 20 II PCA
case to offset the deferred PCA balance. Applying the S02 proceeds in the PCA mechanism
appropriately benefits all Idaho Power customers. Based upon Staff s audit and comments, we
find that the proceeds should be jurisdictionally allocated to Idaho at 94.8% for January through
May 2010, and at 95% :lTom June to December 2010. We further find that adding the
accumulated interest based upon our customer deposit rate of I % results in S02 proceeds in the
amount of $490 948 being credited to the Idaho PCA.
We appreciate the IEEP suggestions but those suggestions to use the S02 proceeds to
fund energy education and efficiency programs are premature. As noted by SRA and Staff, our
prior Order No. 30790 stated that it is not appropriate to use S02 proceeds to fund energy
ORDER NO. 32162
education programs until the pilot project has been evaluated after June 2011. We affirm this
position.
In conclusion, we agree with Staff and SRA that the best use of S02 proceeds and the
accumulated interest is to offset the PCA balance. By including the SO2 funds in the PCA
mechanism, it will provide an immediate benefit to all customers. Interest shall continue to
accumulate until the S02 funds are dispersed.
ORDER
IT IS HEREBY ORDERED that the $490 498 in jurisdictional S02 funds be used to
offset the Company s PCA deferral balance this year. The S02 proceeds shall continue to accrue
interest at the 1 % customer deposit rate (IDAP A 31.21.01.106) until dispersed.
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-I0-
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. 32162
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /1f41
day of January 2011.
w.&~JI D. K MPTO , P SIDENT
LL~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~&J~~
a D. Jewell
C mmission Secretary
bls/O:IPC-IO-20 dh2
ORDER NO. 32162