20080520Comments.pdf

Peter J. Richardson
ISB No. 3195
Richardson & O'Leary
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone] Tel
Fax: [phone] Fax
peter~richardsonandolear .com
Attorneys for the Industrial Customers of Idaho Power
zonB l1AY 20 At; 10: 49
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF)
IDAHO POWER COMPANY FOR )
AUTHORITY TO IMPLEMENT POWER )
COST ADJUSTMENT (PCA) RATES FOR )
ELECTRIC SERVICE FROM JUNE 1,2008 )THROUGH MAY 31, 2009 )
)
)
CASE NO. IPC-E-08-07
COMMENTS
OF THE INDUSTRIAL CUSTOMERS
OF IDAHO POWER
COMES NOW, Thelndustrial Customers ofIdaho Power ("ICIP") and pursuat to this
Commission's Notice of Application and Notice of Modified Procedure embedded in Order No.
30504 provides its Comments on Idaho Power Company's ("Company" or "Idaho Power") 2008
anual Power Cost Adjustment ("PCA") Application:
1.
SUMMARY
The ICIP opposes the use of a 100% recovery mechansm for the current PCA year and
for true-up puroses next year. Due to the large increase in the PCA rate, and its disparate
impact on high load factor customers, the Industrial Customers of Idaho Power respectfully ask
this Commission to spread this year's PCA baiances over a three-year period.
II.
IDAHO POWER MUST SHARE THE RESPONSIBILITY
FOR THE LACK OF NEW WID PURP A
PROJECTS COMING ON-LINE IN 2007
Idaho Power is asking the Commission to waive, on a one-year basis, the 90/10% split in
recovery of the difference between normalized power supply expenses and projected PCA costs.
Idaho Power bases its request on two primar arguments. The Company argues that the failure
of expected PURP A projects to come on line as projected will result in the Company's
expending more to acquire off system power to replace the PURP A power that was anticipated.
According to Company witness Said;
Q. Have all of the new PURPA wind projects that were included in the test year
determination of power supply expenses in the 07-08 case come on-line as
anticipated?
A. No. Apparently a number of wind projects initially signed contracts to be on-line
by the end of 2007 in order to receive ta credit benefits that required an on-line
date prior to December 31, 2007. Once the tax credit benefits were extended, the
wind projects sought to have their contracts amended to allow for later on-line
dates. As a result, 62 average megawatts of energy the Company had envisioned
receiving in 2008 from new PURP A projects, wil not be available and the
Company will be forced to replace this amount of energy with purchases from the
market.
Said, Di. pp. 4-5.
According to Mr. Said's testimony, the failure of these PURPA projects to come on line
in 2007 will reduce anticipated PURP A expenses by $30 milion dollars; however the cost of
replacement power is nearly $40 milion dollars. Said, Di. p. 5. Because the Company recovers
100% of its PURP A related power supply costs and 90% of the increased market purchases
necessary to replace the PURP A power that did not materialize, the Company complains that it
will lose "$1 milion for every $10 milion of additional purchased power expenses."
Comments - IPC-E-08-07 2
Mr. Said's explanation for the lack of new wind coming on-line in 2007 would benefit
from an understanding of Idaho Power's role in delaying the connection of new wind projects in
Southern Idaho pending an expensive upgrade to its backbone transmission system. See, Cassia
Gulch Wind Park LLC and Cassia Wind Farm LLC v. Idaho Power Company IPC-E-06-21
(Sept. 13,2006). In light of rapidly escalating constrction costs, and in light of the fact that
wind developers do not get paid uness they are producing, most wind developers would report
that a delay in an anticipated on-line date is harful to them. A more credible explanation for
the lack of wind projects coming on line in 2007 would be Idaho Power's attempt to upgrade its
transmission system at the expense of the wind industry. It is possible, likely in fact, that Idaho
Power's own actions resulted in the lack of new wind projects coming on line in 2007 rather than
the wind industry's leisurely approach to on-line dates as implied by Mr. Said.
Regardless of who caused the problem with wind projects failng to coming on
line in 2007 - Idaho Power or the wind industry - the ratepayers should not be caught in the
cross fire. The fact that Idaho Power was unaware that there would be difficulties for contracted
wind projects to come on line in the face of overwhelmingly high transmission costs suggests
that the Company was not paying attention to the facts on the ground. This lack of foresight is
not sufficient to insulate the Company's shareholders from a very modest 10% exposure to
power supply deviations.
Comments - IPC-E-08-07 3
III.
THE COMPANY'S RISK MANAGEMENT POLICY
is A CREATION OF THE COMPANY AND
SHOULD NOT BE USED TO THWART THE COMMISSION'S
WELL REASONED COST SHARING METHODOLOGY
Whle not specifically asking the Commission to permanently remove the 90/10%
sharing of PCA costs in this case, Idaho Power is apparently laying the groundwork for such a
request. According to Company witness Said:
With the onset of the prescriptive buying and sellng methodology embodied in the Risk
Management Policy, the concept of providing incentives to encourage wise decisions
based upon the Company's market price view has been greatly diminished. It is the
Company's belief that because of the prescriptive risk management policy 100% pass-
through of the PCA expenses to customers is appropriate.
Said, Di. p. 7.
The Company's Risk Management Policy, at the end of the day, is the Company's Risk
Management Policy. The extent and the degree to which that policy puts blinders on the
Company's management when it comes to risk management may be the subject of debate.
Although that policy was developed with the assistance of various stakeholders, the ICIP
included, that policy is in place because the Company adopted it and the Company advocated for
its implementation. The ICIP, as a paricipating stakeholder, was not squarely faced with the
proposition that the policy's adoption would result in the elimination of the 90/1 0 sharng of
deviations in expected power supply costs. The Company's argument suggests that it may be
time to reevaluate its Risk Management Policy. It doesn't suggest that it is time to eliminate the
sharing methodology this Commission adopted when it first ordered the implementation of the
PCA.
It is instructive to review the Commission's original rationale for adoption of the 90/10
sharing:
Comments - IPC-E-08-07 4
We find that a 90-10 sharing provides the Company with a sufficient incentive to
efficiently manage its power supply costs. Furthermore, it is a better reflection of the
degree to which Idaho Power can infuence those costs. We find that, after the initial
phase-in period. . . allowing Idaho Power to recover 90% of its net power supply costs
through a PCA will achieve the goal of earngs stability while stil providing an
adequate incentive for effciency.
Order No. 24086, IPC-E-92-25, p. 13.
Elimination of power supply cost risk by permitting recovery of 100 % of all deviations
in projected power supply costs will have an impact on Idaho Power's cost of equity. The
impact on cost of equity will also impact Idaho Power's cost of debt. Therefore, the base power
supply costs would also be impacted. None of these associated impacts have been addressed by
the Company in its filing. In order to set fair and reasonable rates, however, all these affliated
impacts should be investigated prior to the elimination of Idaho Power's risk associated with
deviations in projected power supply costs.
Other than shifting the risks associated with its power supply decisions completely to the
ratepayers, (who curently bear 90% of that risk), there is no reason to adopt the Company's
recommendation. The ICIP respectfully requests that this Commission reject the Company's
proposal and maintain the methodology that has been in place since the PCA was first
implemented in 1993.
IV.
THE CONCEPT OF RATE STABILITY
IS EQUALLY COMPELLING FROM THE CUSTOMER'S
PERSPECTIVE - NECESSITATING A PHASE-IN
After taing into account the $16.1 milion in S02 credits the Commission ordered to be
included in the 2008-09 PCA, the Company is proposing a $70.5 milion or 10.36% overall
increase. This 10.36% increase is an overall percentage, with the impact on individual customer
classes varing dramatically. Because the PCA costs are spread on a cents-per-kWh-basis, high
Comments - IPC-E-08-07 5
load factor customers receive a disproportionate share ofthe increase. For example, instead of
receiving the overall ten percent increase, the Schedule 19 customers (ICIP members) wil
receive a fifteen percent increase. The special contract customers are hit even more
disproportionately with increases up to eighteen percent.
It is important to keep the context in which this proposed increase is taking place. This is
only one of many discreet rate increases curently facing Idaho Power's ratepayers. Ratepayers
are faced with a 1.4% increase for the Danskin CT (IPC-E-08-01), and a 1 % to 2.5% increase for
the Energy Effciency Rider (IPC-E-08-04) and the Company has noticed that it wil file a
general rate case by June 1 st. Not including the potential impact of the general rate case the
Industrial Customer of Idaho Power are faced with a total rate increase closer to 20% than the
PCA average of 10%!1
This Commission was very concerned about rate stability when it first allowed Idaho
Power to take advantage of a PCA mechanism. This Commission ariculated its rate stabilty
concerns in response to Idaho Power's offer to attempt to ameliorate potential "rate shock":
Idaho Power represented during the hearing that it was willing to accommodate the
Commission's desire to ameliorate the "rate shock" that could result durng periods of
very low water. We accept this offer but note that the goal of rate stabilty is of such
importance that we would have imposed a similar requirement even in the absence
of the Company's acquiescence.
Order No. 24806, IPC-E-92-25, emphasis provided.
This Commission was so concerned about possible rate shock that it set a bright line test
for triggering an investigation into deferrals of large PCA rate increases:
For the purpose of giving a degree of specificity to this rate stability goal, we require the
following: if forecasted increases above normalized power supply costs in any given year
are predicted to exceed 7% of the Company's normalized base revenues for the Idaho
jursdiction, then Idaho Power is instructed to make a filing with the Commission for
1 PCA 15.07% plus Danskin 1.4% plus Efficiency Rider 2.5% equas 18.97%/
Comments - IPC-E-08-07 6
the purose of determining whether a means to defer a percentage of that year's power
supply cost recovery should be investigated.
Id, emphasis provided.
Without explaining why it has chosen to ignore this Commission's requirement, Idaho Power has
made no "filing for the purose of determining whether a means to defer" this very large PCA
should be investigated.2
Due to this large PCA increase, and in conformance with this Commission's guidelines
on deferrals for PCA's in excess of 7%, the ICIP respectfully requests that the curent year's
PCA be deferred and recovered in three equal annual installments. This water year is projected
to be slightly above normal; as a result the Snake River hydro storage system is scheduled to
refill. In considering a deferral, the Commission should be cognizant that this year's PCA is
NOT driven by the curent water conditions. Indeed, the current year's PCA, standing alone,
would result in a rate decrease. The large PCA balance is driven by the true up from last year's
failure to accurately project power supply costs. It is therefore reasonable to spread the impact
of that aberration over a three year time frame.
RESPECTFULL Y SUBMITTED THIS 20th day of May 2008.
Richardson & O'Lear, LLP
ByflJ~
Peter J. Richardson
Industrial Customers of Idaho Power
2 The Commission explained that the notification requirement is applicable when curent rate
changes, when combined with the true up adiustments for the previous year, exceed 7% as is the
case this year.
Comments - IPC-E-08-07 7
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 20th day of May, 2008 a true and correct copy of the
within and foregoing COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO
POWER, was served by HAND DELIVERY, to:
Baron L. Kline
Donovan E. Walker
Idaho Power Company
1221 West Idaho Street
Boise, Idaho 83707-0070
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 West Washington
Boise, Idaho 83702
~ÚU~
Nina Curis
Administrative Assistant
Comments - IPC-E-OS-07 8