20100311Comments, Protest.pdf

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Peter Richardson
Tel: [phone] Fax: [phone]
peterli richardso n andol eary. com
P.O. Box 7218 Boise,lO 83707 - 515 N. 27th St. Boise, ID 83702
11 March 2010
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington
Boise, 1083702
RE: IPC-E-10-o1
Dear Ms. Jewell:
We are enclosing an original and seven (7) copies of the COMMENTS AND
PROTEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER in the
above case.
An additional copy is enclosed for you to stamp for our records.
~
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Nina urtis
Richardson & O'Leary PLLC
encl.
REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately riled.
Peter J. Richadson ISB # 3195
Gregory M. Adams ISB # 7454
RICHASON & O'LEARY PLLC
515 N. 27th Street
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter($richardsonandoleary.com
greg($richardsonandoleary .com
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Attorneys for the Industral Customers of Idao Power
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN TH MATTER OF THE ) CASE NO. IPC-E-IO-Ol
APPLICATION OF IDAHO POWER )
COMPANY TO ESTABLISH ITS ) COMMENTS AN PROTEST OF
BASE LEVEL FOR NET POWER SUPPLY) THE INDUSTRI CUSTOMERS OF
EXPENSES FOR 2010. ) IDAHO POWER
)
Pursuat to Rule 203 of the Rules of Procedure of the Idaho Public Utilties Commission
(the "Commission") and the Commssion's Notice served Janua 28,2010, the Industrial
Customers ofIdaho Power ("ICIP") hereby fie these comments and protest. For the reasons set
fort below, ICIP protests Commission approval ofIdaho Power Company's ("Idaho Power's"
or the "Company's") request for a $74.8 milion increase in its base level Net Power Supply
Expenses ("NPSE") for 2010 in its Idaho jurisdiction. ICIP respectfully requests that the
Commssion disallow inclusion of increased costs of surace coal mined from the Company's
affiliate coal mine for its Jim Bridger coal plant. Additionally, with regard to afliate
relationships, ICIP respectfully requests the Commission issue an order (1) requirig Idaho
Power to seek prior approval of contracts with, and price increases for supplies provided by, the
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OF IDAHO POWER-IPC-E-1O-01
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secrets or confidential material and are separately filed.
utilty's affiiate companes, and (2) requiring that such affiliate sales be recorded in the
Company's accounts at the lesser of the affiliate's cost or the market rate. ICIP also respectfuly
requests that the Commission require Idaho Power to account for projected decreases in energy
costs that the Company should achieve with its DSM programs durng the NPSE test period.
Finally, ICIP respectfuly requests that the Commssion disallow inclusion in the base level
NPSE of increased expenses related to PURP A contracts not yet online and the expected Hoku
Materials, Inc. ("Hoku") load not yet online.
BACKGROUND
Idaho Power requests that the Commission issue an Order approving an increase in the
Company's base level ofNPSE, which the Company would use prospectively to set both base
rates effective June 1,2010, and for use in the 2010 though 2011 Power Cost Adjustment
("PCA") calculations. The Commission tyically "determines the normal or expected anua
power supply costs for Idaho Power in a general rate case and incorporates recovery of those
costs in base rates. Actual power supply costs that var from the normal amount included in
rates are captued each year though the Company's (PCA)." In the Matter of Idaho Power
Company for Authority to Increase its Rates and Charges for Electric Service to its Customers in
the State of Idaho, Case No. IPC-E-08-10, Order No. 30722, p. 19 (Janua 30, 2009).
Under the PCA mechansm in a poor water year, however, the Commission requires ''the
Company's shareholders pay 5% of the costs that exceed power costs recovered though base
rates to provide incentive to the Company to make only prudent power cost decisions." In the
Matter of the Application of Idaho Power Company for Authority to Implement Power Cost
Aclustment (PCA) Ratesfor Electric Service from June 1,2009 through May 31, Case No. IPC-
E-09-11, Order No. 30828, p. 10 (May 29,2009). Conversely, in a good water year, the
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OF IDAHO POWER-IPC-E-10-01
REDACTED VERSION - The redacted portons of this document allegedly contain trade
secrets or confidential material and are separately filed.
Commission requies Idaho Power to credit its ratepayers with 95% of the below normal cost
savings. See id at p. 1. Thus, miscalculations one way or the other in the base level NPSE will
result in the utilty or the ratepayers losing the ability to recover costs or savings to which they
would otherwise be entitled.
The Commission set the Company's curently authorized base level NPSE in the
Company's 2008 general rate case. See Order No. 30722 at pp. 19-21. There, the Company
sought approval of a base level NPSE of $9 i,4 72,564, but the Commission only approved a base
level NPSE of $80,243,253. Id Subsequently, the Company and severa paries entered into,
and the Commssion approved, a settlement stipulation in a docket regarding amortization of ta
credits, wherein the Company agreed not file a general rate case to become effective prior to
Janua 1,2012. See In the Matter of Idaho Power Company for an Order to Amortize
Additional Accumulated Deferral Income Tax Credit and Approving a Rate Case Moratorium,
Case No. IPC-E-09-30, Order No. 30978 (Janua 13,2010). As par of that stipulation, the
paries also agreed to "make a good faith effort to reach agreement on the maximum change of
the base level for net power supply expenses and submit any agreement to the Commission for
approval." Application, In the Matter of Idaho Power Company for an Order to Amortize
Additional Accumulated Deferral Income Tax Credit and Approving a Rate Case Moratorium,
Case No. IPC-E-09-30, Atthment 1, ir 7.1 (November 9, 2009).
On Janua 19,2010, the Company fied its application to set the base level NPSE for
2010. Application, In the Matter of the Application of Idaho Power Company to Establish its
Base Levelfor Net Power Supply Expensesfor 2010 (hereinafter "Application"), Case No. IPC-
E-10-01 (Janua 19,2010). The Company's filing asserts that the difference between the base
level NPSE authorized in the 2008 general rate case and that for the 2010 is $78.4 milion
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OF IDAHO POWER-IPC-E-10-01
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secrets or confidential material and are separately fied.
system-wide, and $74.8 milion on an Idaho jursdictional basis. Application, at ~ 4. The fiing
submits that increases in payments to PURP A facilties, increased coal costs for the Company's
three coal-fired power plants, and reduced revenues from surlus sales due to decreased gas
prices are the principal drivers of this $74.8 milion increase. Id at ~ 5. The Company states,
however, that these "expenses are also affected by" a decrease in load durng the 2010 test period
from 15.9 milion MWhs to 15.7 MWhs, which would presumably decrease the base level of
NPSE.
On Februar 2, 2010, shortly after the Company's initial filing, ICIP filed its petition to
intervene, and commenced discovery in an effort to reach an agreement on the base level for
NPSE in 2010 pursuat to the stipulation in Case No. IPC-E-09-30. Then, on March 2,2010, the
paries who had intervened at that time convened a settlement conference, but were unable to
reach an agreement. ICIP therefore respectfully submits these comments and protest to the
Company's filing for approval ofa $74.8 milion increase in its curently authorized base level
NPSE.
DISCUSSION
A. The Commission should disallow increases in affiliate surface coal cost and should
issue orders requiring procedures that wil ensure fair aff"iIate transactions in the future.
Idaho Power seeks to include a huge increase in its coal costs to its Jim Bridger Coal
plant ("Bridger") in ths 2010 NPSE. 1 The increased cost of coal at Bridger has resulted in an
The prudency of this expense is also an issue in Idaho Power's ongoing Oregon energy
cost update docket -- Public Utility Commission of Oregon Docket DE 214. Because of the
unavailabilty earlier of cert items produced in discovery in ths Idaho NPSE case, these
comments will cite and refer to testimony and discovery provided in the Oregon docket, to the
extent it is not subject to the protective order in the Oregon docket. The redacted versions of the
Oregon Commission Staff s testimony and exhibits relevant to the Bridger coal issue are Exhibit
1 to these comments.
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OF IDAHO POWER-IPC-E-1 0-01
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secrets or confidential material and are separately filed.
increase fuel cost at the plant from $16.12 per MWh to $21.29 per MWh. Direct Testimony of
Scott Wright, Idaho Power Company, Case No. IPC-E-10-01, at p. 8 (Janua 20, 2010).
Idaho Power and PacifiCorp curently supply about one-thrd of Bridger's coal needs
from a thrd-par mine, the Black Butte Coal mine. Exhbit 1, at p. 9. The utilties have
supplied the remainder of Bridger's needs with coal from the Bridger Coal Company ("BCC").
Idaho Power's subsidiar, Idaho Energy Resources Company ("IERCO"), owns 33.33% of that
mine, with PacifiCorp's subsidiar, Pacific Minerals, Inc.. Exhibit 1, at p. 6. BCC is therefore
an affiiate of Idao Power. Id. For rate makng puroses, Idaho Power treats the ming costs
at BCC like any other regulated expense for which it ears a rate of retu. The "sales price" for
the BCC coal used in this NPSE docket "includes an operating margin, equa to the overall rate
of retu autho:rized in general rate cases where IERCO/BCC operations are treated as par of the
reguated activities of the Company." Exhbit 2. Idao Power adjusts the sales price
"periodically as updated BCC mining expense data becomes available." Id.
So although there is little risk of tre cross subsidization with ths affiliate relationship,
Idaho Power and PacifiCorp have been a operating captive mine for a long period of time rather
than purchasing the coal on the open market. Furer, unike coal Idaho Power purchases from
thrd paries, Idaho Power ears a retu on its investment and operations at BCC, and thus has
embedded incentives to continue operating the captive mine. The Commission should pay close
attention to ths affiliate relationship because free-market forces do not reguate the price of coal
from the affiliate mine.
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REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately filed.
1. The Commission should not approve the Company's request for increased
cost for coal supplied to the Jim Bridger Plant from its affilate mining company.
BCC coal includes both surace-mied and underground-mined coal. Idaho Power stated
in discovery in ths case that of the _ tons of coal consumed at Bridger anually, .
_ tons come from the Black Butte Mine. Idaho Power's Whte Paper, at p. 2.1 The
Company projects that the BCC surace coal deliveries will be _ tons in 2010 and.
_ tons in 2011, and the underground BCC coal deliveries will be _ tons and.
_ tons in 2010 and 2011, respectively. Id Because of requied changes in minig and
accounting, the price of BCC surface-mined coal increased substantially at the conclusion of
2009. See Exhibit 1, at pp. 39-41.
According to Idaho Power's discovery responses, the average cost of surace and
underground BCC coal, not including Idaho Power's "operating margin," or added profit, is
_ in 2010, Exhbit 3, at p. 4, and ICIP calculates the average "sales price" including the
operating margin to be _, Exhibit 3, at p. 2. In contrast, Idaho Power will only pay_
per ton for Black Butte coal (presumably including Black Butte's profit margin). Exhbit 3, at p.
4. Inexplicably, however, Idaho Power apparently used an even higher BCC sales price of
_ per ton and a cost of_ per ton for Black Butte coal in its AURORA ru for this
NPSE filing. See Exhbit 4. Absent a convincing explanation, that difference alone is grounds
for a disallowance of some of Idaho Power's requested base level NPSE for Bridger coal costs.
2 References to Idaho Power's White Paper refer to the confdential document Idao Power
provided in response to Idaho Commission Staffs Production Request 4. Because ICIP expects
Idaho Power to provide the Whte Paper to the Commssion, ICIP does not include it as an
exhbit to these comments.
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REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately ried.
Neverteless, the high cost of BCC coal appears to be attbutable to the surace-mined
coal, which according ICIP's calculation of data provided in discovery will average _ per
ton in 2010, and will be as high as" per ton in one month. Exhbit 3, at p. 2. And those
costs Idaho Power provided for the surace-mined coal.exclude Idaho Power's operating margin
which it will charge ratepayers.
In Oregon Commission Docket DE 214, the Oregon Commssion Sta calculated that
replacing the BCC surace-mined coal with the coal from Black Butte Mine for Oregon's 2010
energy cost update test year (April 2010 to March 2011) would result in a system-wide savings
of about $15.6 millon, only $723,110 of which is attbutable to Oregon. Exhbit 1, at p. 12.
Oregon Commssion Staf proposed disallowing ths amount in its testimony, and argues
replacing BCC surace coal with Black Butte coal is feasible based on the information Idaho
Power supplied in that docket. Exhibit 1, at p. 16.
Late last week, Idaho Power provided responses to discovery requests in ths Idao case
from Idaho Commission Staf and ICIP, including a confidential white paper disputing the
conclusions reached by the Oregon Commission Staf regarding the availabilty and usefulness
of Black Butte coal. ICIP's counsel and expert received the confidential portions of ths latest
round of discovery last Friday, March 4,2010 - hardly enough time to fuly analyze ths
complex issue. Idao Power primarily defends its continued use of surace-mined BCC coal on
the grounds that the Black Butte coal is either an unavailable replacement or of an unsuitable
quaity given the required coal quality and coal blending metrcs required by the Bridger plant.
But even Idaho Power's own white paper indicates that at least some additional Black
Butte coal appears to be available. Idaho Power admits that as of communcations _
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REDACTED VERSION - The redacted portions ofthis document allegedly contain trade
secrets or confidential material and are separately filed.
. Idaho Power's
Whte Paper, at p. 8.
d. (emphasis added).
In sum, Idaho Power's white paper and its discovery responses have raised as many
questions as they have answered. Although ICIP canot speak for Staf or the Idaho Irrigation
Pumpers Association, ICIP is skeptical that anyone could fully analyze this issue prior to the
filing deadline for these comments. At this time, therefore, as far as ICIP is aware, nobody but
Idaho Power and PacifiCorp has fully analyzed whether it is prudent for the utilties to continue
supplying Bridger with large quantities of their surace-mined, affliate coaL.
Nevertheless, it is highly likely that there is a cheaper alternative to continuing to use the
now-very-costly, surface-mined coal from BCC. This is not an ar's lengt negotiation for the
purchase of coal from a mine independent from Idaho Power and PacifiCorp. Idaho Power
asserts in its white paper that
Idaho
Power's Whte Paper, at p. 9. But this overlooks that Idaho Power has incentive to continue and
expand mining operations at BCC because - unike the third pary Black Butte Mine - the
Company ears a retur on its investments and operations at BCC. Thus, the utilty should have
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secrets or confidential material and are separately fied.
a higher burden to prove the prudency of the affiliate costs and operating margins it charges its
ratepayers than it would have when simply buying necessar supplies on the open market. Here,
however, the Company has not provided adequate information in a timely fashion for the
Commission and interested paries to fuly consider and vet this issue.
Thus, ICIP respectfuly requests that the Commission disallow these increased costs for
surace-mined BCC coal from the base level NPSE until the issue is fully analyzed. In addition,
the Commssion should require the Company to prove that there is no market for additiona coal,
or on a long-term basis that their affiliate surace-mined coal is cheaper than the market. The
Commission could do so by expanding ths docket to fuer investigate the issue. Or the
Commission could disallow the increased Bridger coal costs from the base level NPSE in ths
case and require Idaho Power to prove them to be prudently included expenses in its forecasted
expenses exceeding the base level NPSE in the upcomig PCA case. If the Company is able to
do so, it may recover its costs though the PCA.
2. Disallowing the increased surface-mined BCC coal expenses in this NPSE
filing cannot constitute a taking of Idaho Power's propert.
The Commission should reject any arguent that disallowing the increased cost of
surace-mined affliate coal from its base level NPSE for 2010 and requiring the Company to
prove them to be prudently incured in the upcoming PCA docket would constitute a tag. As
mentioned above, Idaho Power's PCA mechansm only allows for the Company or the ratepayers
to recover 95% of energy costs that var from the base level ofNPSE. The Company could lose
the abilty to recover 5% of the increased surface-mined BCC coal costs disallowed from the
base level NPSE even if it later proves those continued operations to be prudently incured in the
upcoming PCA docket. So one could argue that, to avoid a tang, the Coniission should allow
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secrets or confidential material and are separately filed.
the increased BCC surace-mied coal expenses into the base level NPSE in ths docket and then
analyze the issue in detail in the upcoming PCA.
No taing will occur here, however. The U.S. Constitution provides that private propert
shall not be taen for public use without just compensation. United States Constitution
Amendment V. The Fifth Amendment is made applicable to the states though the Foureenth
Amendment. Texaco, Inc. v. Short, 454 U.S. 516, 523 n. 11 (1982). The Idaho Constitution
provides that "(p )rivate property may be taken for public use, but not until a just compensation,
to be ascertined in the maner prescribed by law, shall be paid therefor." Idaho Constitution
Aricle I, § 14. With regard to ratemakg, "(t)he Constitution protects utilties from being
limited to a charge for their propert serving the public which is so 'unjust' as to be
confiscatory." Hayden Pines Water Co. v. Idaho Public Utilties Commission, 122 Idaho 356,
358,834 P.2d 873,875 (1992) (internal quotation omitted).
Idaho Power is a regulated monopoly with the burden to timely prove the prudency of the
investments on which it intends to ear a retu from its ratepayers. Idaho Power's openig
testimony in ths docket does little to explai the prudency of the increased coal costs overall,
and does not even distinguish between increased costs at BCC for surace versus underground
coal. See Direct Testimony of Scott Wright, at pp. 8-9. Determining the increase to be largely
attibutable to increased costs for affiliate, surface-mined coal required extensive additional time
to obtain and review materials in discovery. When a regulated utilty provides inadequate
information regarding the prudency of the costs of its operations, a limited disallowance of
recovery of those costs that results from the utilty's own delay is not "so 'unjust' as to be
confscatory." Hayden Pines Water Co., 122 Idaho at 358.
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secrets or confidential material and are separately filed.
Furer, based on the inormation provided so far, it seems equaly likely that the
Commssion could determine that continued operation of some or all of the surace mining at
BCC is imprudent. If the Commission allows these costs into the base level NPSE for 2010 and
then determines after June 1,2010 that they are not prudent expenses, ratepayers would lose the
abilty to ever recover a refud of 5% of the imprudent costs incured afer June 1 though a
futu PCA. Requiring ratepayers to pay Idao Power 5% of those imprudent costs by allowing
them into the base level NPSE in this docket would be patently unjust. The Company bears the
burden to prove prudency. The Company has not met that burden in a timely fashion, and
delaying a disallowance of these expenses for fear of a "tag" will expose ratepayers to the risk
of losing the abilty to ever obtain a ful refud of amounts imprudently spent on afliate coaL.
3. The Commission should issue an order requiring Idaho Power to seek prior
approval of contracts with, and price increases for supplies provided by, the
Company's affiliates.
Ths case demonstrates why the Commission should require Idaho Power to file for pre-
approval of increases in costs for supplies provided by an affliate. When there is not an ar's
lengt relationship between the utilty and its supplier, the utilty should have a heightened
burden to prove the prudency of the costs. And the utilty should obtan pre-approval of
increases in such costs so tht the Commission and the interested paries have an adequate
opportity to fuly analyze the issue with all necessar information. Such a pre-approval
process would prevent a situation as exists here -- where the utilty seeks an almost immediate
approval of a massive increase in costs from an affiliate supplier.
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secrets or confidential material and are separately ried.
4. Additionally, the Commission should issue an order that, when Idaho
Power's affiliate sells services or supplies to Idaho Power, the sales shall be recorded
in the utilty's accounts at the aff"iIate's cost or the market rate, whichever is lower.
Idaho has no official policy on how to chage ratepayers for a utility's affliate-provided
expenses. Because market forces do not regulate the transaction, the Commission should require
that affiiate costs be recorded in the Company's accounts at the affliate's cost or the market
rate, whichever is lower. ICIP respectfully requests that the Commssion issue an order making
this the offcial policy in Idaho. The Commission has the authority to issue such an order and
doing so would clarfy the law in ths state.
B. The Commission should require the Company to include the reductions in demand
it expects to achieve with its demand side management programs in its AURORA runs
calculating the base level NPSE.
Idaho Power's testimony in ths docket does not state that the Company has factored in
the additional demand and peak reductions it expects to achieve through its demand side
reduction ("DSM") programs in 2010 when calculating the base level ofNPSE for 2010 The
Company therefore appears to assume there will be no additional reductions in overall load or in
peak load from its DSM programs that will impact the cost of power supply. In addition, if there
are reductions in the 2010 energy costs from the operation of the DSM programs, the ratepayers
would presumably have to rely on the PCA to refud to them only 95% ofthose savings.
The Company should account for anticipated DSM achievements when calculating its
base level NPSE. Idaho Power curently collects an energy effciency rider of 4.75% of base
rates, which Idaho Power projected will amount to over $33 millon in 2010. See Direct
Testimony of Tim Tatu, Idaho Power, Exhbit No.3, Case No. IPC-E-09-05 (March 16,2009).
The Company calculates very detailed projections for how much overall load reduction the
Company will achieve and how much peak reduction it expects to achieve though the DSM
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programs. See, e.g., Idaho Power Company 2009 Integrated Resource Plan, Case No. IPC-E-09-
33, pp. 41~47 (December 28, 2009) (projecting DSM savings in futue years). The Commssion
should requie the Company to calculate and use DSM projections, including the benefits of
shifting load off of peak hours, in its model rus for its base level NPSE test year. Doing so
would provide incentive for the Company to actually achieve the demand and peak reductions it
projects to be achievable. On the other hand, failure to account for all projected energy cost
savigs from DSM achievements in the base level NPSE calculations will force ratepayers to
finace DSM programs without allowig them to recognize the ful benefit of those programs.
C. The Commission should not approve the Company's request to be compensated for
increased energy costs it expects to pay PURP A projects under contracts not yet supplying
power to Idaho Power, or for the projected Hoku load that is not yet online.
Idaho Power should not charge ratepayers for energy costs for which it is incuring no
expense. If a power project or new load is under contract to come online durg the test period,
the Company should not include that load and its revenues in the base level NPSE for the test
period uness the Company is reasonably certn the project or load will come online at the tie
the Company forecasts it to come online in AURORA rus calculatig NPSE.
1. Eleven PURP A Projects are not yet online.
Although there are several PURPA projects scheduled to come online in 2010 pursuant to
recently executed contracts, ratepayers should not compensate the utilty for the expected
payments the utilty will make under those contracts until the projects are actually delivering
power to the utilty for ratepayer use. The Company has included 169 aMW of PURP A
generation the 2010 test year. Direct Testimony of Scott Wright, at p. 13. This is an increase of
42 aMW and $24.5 milion in PURA expense. According to Idaho Power's Response to
Commssion Staffs Production Request 2, these amounts include 11 projects for which the
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secrets or confidential material and are separately filed.
Company has signed contracts but are not curently on-line. Although ICIP has not had access to
AURORA in this case, Stahas indicated that rung AURORA without these 11 new PURPA
contracts reduces the base level NPSE by over $7 milion. Because PURP A expenses are not
subject to the PCA's 95% limitation on cost recovery, removing these anticipated PURPA
expenses from the base level NPSE will not expose the Company to any loss when they are
subsequently included a PCA to account for exact date when they came online.
2. The Hoku load is not yet online.
Likewise, ratepayers should not pay for increased energy costs associated with the
expected new load from Hoku, which signed a contract to begin service in December 2009. See
Direct Testimony of Scott Wright, at p. 7. Hoku has not yet taen such servce, and the
Company provides no evidence that it wil do so durg the 2010 test year. Yet the Company
included $15.77 milion in revenues from the first block of that Hoku contract in ths filing. See
id at Exhibit 1, p.l. Although ICIP has not had access to AURORA in ths case, Staffhas
indicated that ruing AURORA without the Hoku load results in a decrease in base level NPSE
of almost $4 millon.3
CONCLUSION
ICIP protests Commission approval ofIdaho Power's request for an increase of $74.8
millon in base level NPSE for 2010 in the Idaho jursdiction. ICIP respectfuly requests that the
Commission disallow inclusion of the increased costs of surface-mined coal from the Company's
Although Staff provided I CIP with the impact to base level NPSE from removal of all
increased energy costs at Bridger, the 11 PURP A contracts, and the Hoku load, ICIP received no
such calculations of the rate impact of surface-mined BCC coal alone, such as those provided in
the Oregon Commission Star s testimony for the test period in the Oregon docket. Assuming no
other paries will provide such a dollar figue in their comments, ths lack of inormation fuer
underscores the need to fuher examine the Bridger issue or to issue an order requiring
procedures that will prevent such a lack of knowledge in futue cases.
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secrets or confidential material and are separately filed.
afliate coal mine for its Jim Bridger coal plant in the base level NPSE. Additionally, with
regard to afliate relationships, ICIP respectfuly requests the Commission issue an order (1)
requing Idaho Power to seek prior approval of contracts with, and price increases for supplies
provided by, the utilty's affliate companes, and (2) requiing that such afliate sales be
recorded in the utilty's accounts at the lesser of the affiliate's cost or the market rate. ICIP
respectfully requests also that the Commission require Idaho Power to account for projected
decreases in energy costs that the Company should achieve with its DSM programs durg the
NPSE test period. Finally, ICIP respectfuly requests that the Commission disallow inclusion of
energy costs related to PURP A contracts not yet online and the expected Hoku load not yet
online.
Respectfuly submitted this 11th day of March 2010,~
ams
SON & O'LEARY, PLLC
Page 15 - COMMENTS AND PROTEST OF THE INUSTRIAL CUSTOMERS
OF IDAHO POWER-IPC-E-10-01
RECEI
PUBLIC UTILITIES COMMISSION 2010 MAR" PM 3= 07
OF IDAHO
CASE NO. IPC-E-IO-Ol
COMMENTS AND PROTEST OF
INSTRIAL CUSTOMERS OF IDAHO POWER
EXHIBIT 1
REDACTED TESTIMONY AND EXHIBITS OF OREGON PUBLIC
UTILITY COMMISSION STAFF TESTIMONY IN OREGON
COMMISSION DOCKET UE 214
MACH 11,2010
CASE: UE 214
WITNESS: Michael Doughert
PUBLIC UTILITY COMMISSION
OF
OREGON
STAFF EXHIBIT 200
OPENING TESTIMONY
January 20,2010
00001
CERTAIN INFORMATION CONTAINED IN STAFF EXHIBIT 200
IS CONFIDENTIAL AND SUBJECT TO PROTECTIVE
ORDER NO. 09 - 418. YOU MUST HAVE SIGNED
APPENDIX B OF THE PROTECTIVE ORDER IN
DOCKET UE 214 TO RECEIVE THE
CONFIDENTIAL VERSION
OF THIS EXHIBIT.
00002
Docket uE: ~14 ~iâff/a9P
DoÝghertl1
\1
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,:',i,t
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1 Q. PLEASE STATE YOUR NAME, OCCUPATION, AND SUSíNESS
2 ADDRESS.
3 A. My name is Michael Doughert. I am the Program Manager for the Corporate
4 Analysis and Water Regulation Section of the Public Utilty Commission of
5 Oregon (Commission). My business address is 550 Capitol Street NE Suite
6 215, Salem, Oregon 97301-2551.
7 Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND WORK
8 EXPERIENCE.
9 A. My Witness Qualification Statement is found in Exhibit Staff/201.
10 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
11 A. i describe my adjustments to Idaho Power Company's (Idaho Power) power
12 supply costs concerning its three coal plants: Bridger, Boardman, and Valmy
13 as listed in Idaho Power/1 01, Wright/1.
1f1 Q. HAVE YOU PREPARED ANY EXHIBITS FOR THIS DOCKET?
15 A. Yes. I prepared:
16 Confidential Exhibit Staff/202, consisting of 2 pages;
17 Exhibit Staff/203, consisting of 21 pages; and
18 Confidential Exhibit Staff/204, consisting of 2 pages.
19 Q. PLEASE PROVIDE A SUMMARY OF YOUR ADJUSTMENTS.
20 A. The following table summarizes my adjustments to Idaho Power's power
21 supply costs concerning its three coal plants: Bridger, Boardman, and Valmy
22 as listed in Idaho Power/1 01, Wright/1.
23
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Docket UE 214 Staff/200
Doughert/2
1 T bl 1 S f Staff Ad" tm ts
2
3 Q. PLEASE SUMMARIZE THE ANALYSES SUPPORTING YOUR
a e -umma.,0 !JUS en
Exhibit
Idaho
Power/101,
Plant Wriaht/1 Staff Adjustment
Bridger $105,249,100 $89,664,839 $15,584,261
Boardman $6,773,800 $6,773,800 $0
Valmy $50,266,500 $50,266,500 $0
Total Adjustment $15,584,261
Total Oregon Adjustment (.0464 allocation)$723,110
4 RECOMMENDED ADJUSTMENTS.
5 A. Bridger- Because Bridger receives coal from an affliated interest coal mine; I
6 performed several lower-of-cost-or-market (LCM) analyses pursuant to Oregon
7 Administrative Rule (OAR) 860-027-0048, Allocation of Costs by an Energy
8 Utilty. The primary LCM analysis results in an Oregon adjustment of $723,110
9 to the Idaho Powets Bridger power supply costs.
10 Boardman and Valmy - These coal plants are supplied by third party mines.
11 examined the costs per ton of coal and the tons of coal delivered. As a result
12 of my analysis, i do not have any adjustments to the Boardman and Valmy
13 power supply costs.
14
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Docket UE 214 Staff/200
Doughert/3
1 Q. DO YOU PROVIDE ALTERNATIVE RECOMMENDATIONS FOR THE
2 COMMISSION TO CONSIDER?
3 A. Yes. Concerning coal costs from affliate, Bridger Coal Company (BCC)
4 supplied to Bridger, I penormed four LCM analyses. My primary analysis, as
5 shown in the above table, results in an Oregon adjustment of $723,110 for
6 Bridger power supply costs. A first alternative analysis results in an Oregon
7 adjustment of $691 ,354 for Bridger power supply costs. i also penormed a
8 second and third alternative analysis that I did not use as recommended
9 adjustments. These analyses are explained later in testimony and are shown
10 in Staff Confidential Exhibit/202, Dougherty/1-2. The following table shows the
11 power supply costs adjustments based on two LCM analyses concerning BCC.
12 T bl 2 Alt R d dO Ad
13
14 Q. DOES THE COMMISSION HAVE A TRANSFER PRICING POLICY
15 CONCERNING TRANSACTIONS BETWEEN A UTILITY AND ITS
16 AFFILIATED INTERESTS?
a e -ernative ecommen e reaon liustments
Primary Adjustment $723,110
Alternative Adjustment $691,354
17 A. Yes. OAR 860-027-0048, Allocation of Costs by an Energy Utilty, sets forth
18 the Commission's Transfer Pricing Policy. Section (4)(e) of the rule states:
19 When services or supplies (except for generation) are sold to an
20 energy utilty by an affliate, sales shall be recorded in the
21 energy utility's accounts at the approved rate if an applicable
22 rate is on file with the Commission or with FERC. If services or
23 supplies (except for generation) are not sold pursuant to an
24 approved rate, sales shall be recorded in the energy utility's
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Docket UE 214 Staff/200
Doughert/4
1 accounts at the affliate's cost or the market rate, whichever is2 lower.
3
4 Under the rule, supplies that are not under an approved rate shall be recorded
5 in the energy utilty's accunts at the lower of the affliate's cost or market rate.
6 BCC is an affliate of Idaho Power. As a result, this transfer pricing rule is
7 relevant concerning pricing of coal supplied from BCC to Bridger.
8 Q. PLEASE EXPLAIN THE AFFILIATED RELATIONSHIP BETWEEN IDAHO
9 POWER AND BCC.
10 A. According to Idaho Power s 2008 Affliated Interest Report, Idaho Energy
11 Resòurces Co. (IERCO) is a regulated subsidiary of Idaho Power in all
12 jurisdictions including Oregon. IERCO owns 33.33 percent of BCC, the coal
13 mining joint venture with Pacific Minerals Inc (PMI),1 which is a subsidiary of
14 PacifiCorp. The Commission approved a coal supply agreement betwen
15 IERCO and Idaho Power in Commission Order No. 91-567 (UI107), dated
16 April 25, 1991.
17 Q. PLEASE DISCUSS BCC'S OPERATIONS AND COSTS.
18 A. BCC's overall costs are a weighted cost of surfce mining operations and
19 underground mining operations. The average BCC cost per ton for the April
20 2010 to March 2011 timeframe is_.
21 Q DID COMMISSION ORDER NO. 91-667 (UI107) RESERVE THE RIGHT
22 TO REVIEW FOR REASONABLENESS ALL FINANCIAL ASPECTS
23 CONCERNING PRICING OF COAL FROM BCC?
24 A. Yes. The Commission Order states:
1 PMI owns the remaining 66.67 percent of BCC.
noons t ,
Docket UE 214 Staff/200
Doughert/5
1 The transfer price for the coal which is provided to Bridger to
2 Idaho shall be biled at actual cost. Cost in this case is
3 equivalent to market for the services. Since all of IERCO's
4 results of operations are merged with and made part of Idaho's
5 for ratemaking, there is no possibilty of cross-subsidization.2
6
7 The order also states on page 5:
8 The Commission reserves the right to review for
9 reasonableness all financial aspects of this arrangement in any10 subsequent rate proceeding.3
11
12 Q. IF THE ORDER INDICATES THAT COST IN THIS CASE IS EQUIVALENT
13 TO MARKET AND THAT THERE IS NO POSSIBILITY OF CROSS-
14 SUBSIDIZATION, WHY DO YOU RECOMMEND AN ADJUSTMENT?
15 A. i made an adjustment because BCC's costs are higher than the current market
16 cost. Staffs memo in U1189, Commission Order No. 01-472 (PacifiCorp's
17 affliated interest agreement with PMI) provides a description concerning the
18 historical costs of BCC and states:
19 The company (PacifiCorp) states that BCC coal provides it with
20 advantages such as a consistently reliable coal source and a
21 minimization of fuel transportation and handling costs.
22 Historically, from 1990 through 1999, the average cost of coal
23 provided by the Coal Supply Agreement ranged from $3 to $9
24 per ton less than the average market price of Southern
25 Wyoming coal delivered to the plant.4
26
27 However, after calculating four LCM analyses, my review indicates that BCC's
28 costs are no longer below market costs for the Green River Basin (GRB) in
29 Southern Wyoming. Therefore, there was a substantial change in costs that
30 results in BCC's cost being higher than market. Although there is no cross-
2 Commission Order 91-567 (UI105), at 4. See Exhibit Staff/203, pages 1 - 5.
3 Id, at 5. See Exhibit Staff/203.
4 Commission Order No. 01-472 (UI 189). Appendix A, page 2. See Exhibit Staff/203, page 9.
00007
Docket UE 214 Staff/200
Dougherty/6
1 subsidization between IERCO and Idaho Power, customers are paying a
2 higher cost for coal being delivered by BCC to Bridger than the "market" (Black
3 Butte Mine) cost of coal, which is also delivered to Bridger.
4 Q. IN UE 207, PACIFICORP STATED IN PPL (TAM)/200, LASICH/65 THAT
5 THERE IS NO ADDITIONAL (COAL) CAPACITY IN THE AREA TO
6 SUPPLY THE BRIDGER PLANT. IN LIGHT OF THIS TESTIMONY,
7 SHOULD THE COMMISSION STILL CONSIDER USING THE TRANSFER
8 PRICING POLICY CONCERNING IDAHO POWER AND BCC?
9 A. Yes. OAR 860-027-0048 applies to pricing and a market. Based on
10 information provided by Idaho Power in confidential responses to Staffs Data
11 Requests Nos. 1 and 2,6 there is a market and pricing for coal in the GRB.
12 Idaho Power uses this market supplied coal for approximately one-third of the
13 coal utilized by Bridger. Therefore, the Commission should use the LCM
14 standard pursuant to OAR 860-027-0048. The rule defines market rate as
15 (emphasis added):
16 "the lowest price that is available from nonaffliated suppliers
17 for comparable services or supplies.,,7
18
19 1. Lowest Price - Because Idaho Power receives coal from a third-part
20 mine to supply Bridger, there is adequate data, which clearly shows there
21 is a lower nonaffliated price for coal in the Green River Basin (GRB) area
22 of Wyoming. The nonaffliated Black Butte Mine (Black Butte) average
5 Included in Exhibit Staff 203, page 13.
6 Included in Confidential Exhibit Staff 204.
7 OAR 860-027-0048(1)(i).
OOO()~
Docket UE 214 Staff/200
Doughertyl7
1 ~elivered coal prices for coal supplied to Bridger _ is signifcantl
2 lower than the SCC mine. delivered coal costs to Briger at _.8
3 2. AViliibilit - The fact th.t nonaffliated Black Butte supplies approximately
4 one-third of Brider clearl demonsqtes that a nonaffliated $Upply Í$
5 available~ Additionally, Commission Order No. 79-754, page 17, ref' to
. the PacifCorp's poiton on third-part availabilit in the GRB and ettti
7 (emphasis added):
8 "(2) Unlike the telephone affliates, an iilterniite mark.t fXM'"
9 for coal sold to PPAL at a price higher than the price charged
10 PP&L ratepayers.u9
11
12 Q. HAS IDAHO POWER DISCUSSED COST DRIVERS CONCERNING acc
13 COAL?
14 A. Yes, but Idaho Power focuse on long-term coal supplies that expired at the
15 end of 2009.10 In contrast, PacifCorp eXPlained certain change in BCC's
16 co,. in PPL (TAM)/200, Lasich/4 ~md 5 (UE 207) by stating:
17 For ma,ny years, BCC was able to extract coal at the Bridger
l' sumice mine using low-cost highwall mining. The mine h., now19 reach~ the stage, howver, where BCC has replace this
20 producton method wih higher-cst drag line mining to properly
21 steward the resources "f the mine. Additionally, current accounting
22 pronouncement EITF04-6 requires that production cosl$ be
23 a.$signed only to extracted coal, not coal that is uncovered but
24 remains in the pit. This contributes to higher cots in 2010 because
25 more coal is scheduled to be uncovered than will be extracted; the
26 opposite wil be true in a year when previously uncovered coal is27 ultimatelyextracted.11
28
8 Stff notes that In PacifCorp's UI 189 application, PaclfiCorp on page 5, footnote 2, specifically
state that BCC and Black Butte "are of comparable quality." See Exhibit Staff/203, page 14.
9 Include in Staff Exhibit/203, page 15.10 Idaho Power/100, Wright/1.
11 Included in Exhibit Stff1203, pages 16 and 17.
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Docket UE 214 Staff/200
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As can be seen from the above statement, one of the cost drivers is an
accounting requirement concerning extracted coal that BCC (and other mines)
must comply with. As an example of the effect of the accounting requirement,
PacifiCorp stated in UE 207 that PacifiCorp's 2010 test period cost of BCC
would be approximately $30.63 per ton without EITF 04-6 as compared to
$33.54 per ton with EITF 04-6. 12
PLEASE LIST THE LCM ANALYSES THAT YOU PERFORMED.
Because I had concerns with the level of certain cost components embedded in
the BCC's weighted costs, I performed four analyses as follows. These
analyses are explained in greater detail later in testimony.
1. Primary Analysis - Replaced BCC surface operations costs with market
(Black Butte) average (spot, deferred, and transportation) costs and
maintained the BCC underground costs to achieve a total BCC cost for
ratemaking purposes.
2. First Alternative Analysis - Replaced BCC surface operations costs with
market (Black Butte) spot and transportation costs (removed lower cost
deferred tonnage) and maintained the BCC underground costs to achieve
a total BCC cost for ratemaking purposes.
3. Second Alternative Analysis (not recommended) - Replaced BCC surface
operations costs with BCC underground costs and maintained the BCC
underground costs to achieve a total BCC cost for ratemaking purposes.
This resulted in all of BCC's costs being determined by the cost of
underground operations.
4. Third Alternative Analysis (not recommended) - Set BCC costs at the
market (Black Butte) average (spot, deferred, and transportation) costs for
both surface and underground operations to achieve a total BCC cost for
ratemaking purposes.
12 Included in Exhibit Staff/203, page 18.
00010
Docket UE 214 Staff/200
Dougher/9
1 Q. PLEASE EXPLAIN YOUR PRIMARY LCM ANALYSIS.
2 A. In my primary market analysis, I use the actal Bee underground mining
3 oprations tons and cost and replace the BeC surface mining operations
4 cos. with the average Black liute cot (spØt coal, deferred coal, and
5 transporttion) 13 for each mt;nth April 2010 to March 2011.'4 i u$ed the
6 average ~t to allow customrs to achieve the benefi of the defrre CO1.
7 The deferred COI represent$ the contract price of $11.07 per ton for coal to bl
8 delivere in 2010 from the Black Butte mine (stand-alone priee per ton). The
9 tonnage to be delivered in 2010 was deferred or delayed from prior yea..,
10 eiter be~use of decrease coal reuirements at Bridger or force majeure
11 events. 15 Black Bute coal is an excellent market proxy for BCC's SUrface
12 opGrations because:
13 . Black Butt will provide _ thousand tons of coal (Idaho Power's
14 share) to the Bridger coal plant in the April 2010 to Marc 2011
15 timeframe;
16 . BI(ick Bute coal also accunts for approximately one-third of the coal
17 burned by Bridger; and
18 . Black Butte is also a surface operation mining operation and is of
19 comparable quality to BeC surfce coaL.
20 i used th underground mining operations in this analysis because it is an
21 essential part of BeC's operations, comprising approximately. percent of
13 "spor refers to the contrct price. . .
14 Surfce coal wa not utilized in all twlve months. As such, I only substituted the monthly Black
Butte costs during the months surfce coal was used at Bridger. See Confidential Exhibit Stff1202.
15 Idaho Powets response to Staff Data Request No. 20. Included in Exhibit Staff1203, page 19.
00011
Docket UE 214 Staff1200
Doughert/10
1 coal produce by BCC. Because Idaho Power did not provide a breakdown
2 between tons supplied by both the surface and undergrounq operations, i use
3 the ratio. percent) of surfce coal provided in PacifCorp's UE 207 filing.
4 This is a reasonable approach because Bridger is jointly operated by
5 PacifiCorp and Idaho Power. As a result of using the market proxy for BCC's
6 surface operations and including the costs of the underground operations, i
7 calculated a $15,584,261 (system-wide) adjustment to Bridger power supply
S costs as highlighted in the following table. The complete calculation is shown
9 in Confidential Exhibit Staff/203, Doughert/1.
10 Table 3 - Recommended Brid er Power Cost Su
Coal Source
Adjusted acc Price
Third Part Coal (Black Butte Mine)
Total Bridger Power Cost Supply
Cost
$89,664,839
Power Cost Supply from Idaho Power/1 01, Wright/1
Adjustment - LCM
$105,249,100
$15,584,261
11
12 Using Idaho Power's allocation Oregon allocation of 0.0464, the Oregon
13 allocated adjustment is $723,110.
14 Q. PLEASE SUMMARIZE WHY YOUR PRIMARY RECOMMENDATION
15 SHOULD BE ACCEPTED BY THE COMMISSION.
16 A. The Commission should accept my primary recommendation because:
17 1. The transfer pricing policy pursuant to OAR 860-027-0048 applies
18. to coal supplied by BCC to the Bridger plant since there is a market19 for coal and pricing is available;
20
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Boeket UE 214 Slaff1200
Doughert/11
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2. The recommendation uses the April 2010 through March 2011
market (Black Butte) cost of coal being supplied to Bridger as a
substitute for surface operations; and
3. The recmendaticm uses BCC's underground costs in order to
recognize an underground component of total costs as BCC ha$
both a surfce and underground operation.
PLEASE EXPLAIN YOUR FIRST ALTERNATIVE MARKET ANALYSIS.
In my first alternative analysis, i follow the same process as the primary market
analysis except that i replace the BCC surface operations with Black Butte's
spot and transporttion costs. This analysis does not utilize the less expensive
deferred price. Because the less expensive deferred coal was not used in the
first alternative market analysis to reflect the carry-over tonnage, this first
alternative recmmended Bridger power supply cost adjustment of
$14,8e9,869 is lower than the primary recommended adjustment. The
following table highlights the Bridger power supply cost using the BCC
underground mining operations and substituting the surface operations with
Black Bute's spot and transporttion costs. The complete calculation Í$ also
shown in Confidential Exhibit Staff/202, Dougherty/1.
Table 4 - First Alternative Market Analysis - Bridger Power Cost Supply
Ex enseCoal Source Cost
Adjusted BCC Price
Third Part Coal (Black Butte Mine)
Total Bridger Power Cost Supply $90,349,231
Power Cost Supply from Idaho Power/1 01 , Wright/1
First Alternative Adjustment. LCM
$105,249,100
$14,899,8$9
00013
Docket UE 214 Staff1200
Doughert/12
1 Using Idaho Powets allocation Oregon allocation of 0.0464, the Oregon
2 allC?cated adjustment is $691,354. I used this as an alternative and not primary
3 adjustment because customers should receive the benefits of the lower cost of
4 deferred coaL.
5 Q. YOU PREVIOUSLY MENTIONED THAT YOU PERFORMED A SECOND
6 ALTERNATIVE MARKET ANALYSIS THAT YOU DID NOT USE, PLEASE
7 EXPLAIN THIS ANALYSIS.
8 A. My second alternative market analysis uses the cost of BCC's underground
9 operations. In this analysis, I replaced the BCC surfce mining operations wih
10 the underground mining operations cost per ton. As previously mentioned, the
11 underground operations comprise approximately. percent of total BCC coal,
12 making it the primary source of coal being supplied by BCC. Because there
13 are no oth~r underground sources in the GRB, BCC's underground operation is
14 the only pricing "available to use as a market price. The complete calculation is
15 . also shown in Confidential Exhibit Staff1202, Doughertl2.
16 Table 5 - Second Alternative Market Analysis - Bridger Power Cost17 Su I Ex enseCoal Source Cost
Adjusted BCC Price using 100% Underground
Third Part Coal (Black Butte Mine)
Total Bridger Fuel Bum Expense $88,697,476
Power Cost Supply from Idaho Power/1 01, Wright/1
Adjustment - LCM (Not recommended)
$105,249,100
$16,551,624
18
00014
Docket UE 214 Staff1200
Doughert/13
1 Using Idaho Powets allocation Oregon allocation of 0.0464, the Oregon
2 allocted adjustment is $767,995. I used this as an alternative and not primary
3 adjustment because a surface oomponent of costs should be reconized in the
4 weighted costs. While this adjustment is provided for Commission
5 C(nsideniion, i do not believe this alternative Ì$ reasonable, given that th.
e surfce CQmponent of costs is not recnized, and thus should not be adopte.
7 Q. VOU PREVIOUSLY MENTIONED THAT VOU PERFORMED A THIRD
8 ALTERNATIVE MARKET ANAL VSIS THAT YOU DID NOT USE, PLEASE
9 EXPLAIN THIS ANAL VSIS.
10 A. In my third alternative market analyis, I substituted the Black Butt coal (spo,
11 deferred, transporttion) for all of Bridgets operations including the
12 underground operations. As a result of this lower cost per ton, this analysis
13 would result in a $6,894,461 system-wide adjustment to Idaho Power s Bridger
14 power supply cost. The following table highlights the Bridger powr supply
15 cost using third part coaL. The complete calculation is als shQwn in
16 Confidential Exhibit Staff120Z, Ooughert/2.
17 Table 6 - Third Alternative Market Anal sis - Brid er Fuel Bum Ex n..Coal Source Cost
Adjusted SCC Price
Third Part Coal (Black Butte Mine)
Total Bridger Fuel Bum Expense $88,354,839
Power Cost Supply from Idaho Power/1 01, Wnght/1
Adjustment - LCM (Not recommended)
$105,249,100
$6,894,41
18
00015
Docket UE 214 Staff/200
Doughert/14
1 Using Idaho Powets allocation Oregon allocation of 0.0464, the Oregon
2 allocated adjustment is $319,903. As previously mentioned, this analysis does
3 not include an underground component. As a result, I did not include this LCM
4 analysis as a recommended cost concerning Bndger power cost supply
5 expense. As previously mentioned, the underground mining operations are an
6 essential part of BCC's operaons and the cost of this operation should be
7 reflected in BCC's total costs under any LCM scenario.
8 Q. IN BOTH THE PRIMARY AND FIRST ALTERNATIVE ANALYSES, YOU
9 ARE SUBSTITUTING ONLY THE COST OF ONE COMPONENT OF BCC'S
10 TOTAL COSTS IN YOUR LCM ANALYSIS. PLEASE EXPLAIN WHY THE
11 COMMISSION SHOULD ACCEPT THIS METHOD.
12 A. As previously mentioned, the major cost dnver of BCC's higher than market
13 cost is the surfce operations. The average sunace cost of coal for the
14 timeframe is _ as compared to the average underground cost of coal of
15 _. Although there is a distinct diference between the two costs, my
16 recommendation is an adjustment from BCC's weighted cos. In reviewing
17 data supplied by Idaho Power, sunace and underground operations are
18 budgeted (controllable and non-cntrollable) as separated operations wih
19 specific, dedicated costs. As previously mentioned, the underground
20 operations are the primary source of coal being supplied from BCC.
21 Q. BECAUSE OF THE VARIATION IN BCC SURFACE OPERATIONS COSTS
22 THAT RESULT FROM EITF 04-6, DO YOU BELIEVE THE SURFACE
23 COSTS RELATED TO EITF 04-6 SHOULD BE LEVELIZED OR TREATED
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Docket UE 214 Staff/200
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AS A DEFERRAL TO SOFTEN THE ANNUAL VARIATION ON TOTAL
COSTS FOR BCC?
No. Although EITF 04-06 requires mines to include stripping costs in the cost
of coal that is extracted in a given year, the ratemaking standard for affliated
interest contracts is the LCM pricing policy outlined in OAR 860-027-0048,
Allocation of Costs by an Energy Utilty. As previously noted, PacifiCorp, which
is part owner of BCC, claims in UE 207 PPLl201, Lasich/2-3,16 that the
magnitude of the disparity (resulting from EITF 04-6) wil fluctuate based on the
amount of coal extracted. However, what wil not change is the LCM standard
that affliated pricing is determined for ratemaking. The affliate's cost, no
matter how costs are affected by EITF 04-6 (increased or decreased), should
always be examined in comparison to market costs. As previously mentioned,
other mines contracted by Idaho Power must comply with this accounting
requirement; and it is not a unique phenomenon to BCC.
Because the PCAM is an annual filing that includes other changes in power
supply costs from year to year, Staff will be able to penorm analyses of the
affliated mines' cost and relationship to market on an annual basis. Because
BCC's costs wil be reviewed in context of the LCM standard on an annual
basis, there is no need to levelize these costs or create a regulatory asset
balancing account. In any scenario that compares extracted coal to stripped
coal, the affliate's coal costs would stil be the starting basis for Staffs
recommendation. It is also important to note that customers would only see a
16 Included in Exhibit Staff/203, pages 20-21.
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Docket UE 214 Staff/200
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1 "benefit"of EITF 04-6 if Idaho Powets costs are lower than market in low cost
2 years.
3 Q. DID YOU REVIEW SPECIFIC LINE ITEM COSTS FOR BCC?
4 A. As part of my review, I reviewed the projected 2010 line item costs for BCC.
5 This review resulted in the identification of costs (certain bonus amounts,
6 donations, fine/citations, etc.) that Staff would recommend as adjustments for
7 the parent company (Idaho Power) during a general rate case review.
8 However, as a result of the LCM analyses, i did not make these adjustments,
9 as the LCM analyses resulted in greater adjustments to Bridger costs.
10 Q. PLEASE SUMMARIZE YOUR ADJUSTMENTS TO COAL IDAHO
11 POWER'S COAL POWER SUPPLY COSTS.
12 A. The following table summarizes my recommended adjustments to Idaho
13 Powets coal power supply costs:
14 T bl 7 AI f R d dO Ad" t ts
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16 Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
a e -terna ive ecommen e regon lJus men
Primary Adjustment $723,110
Alternative Adjustment $691,354
17 A. Yes.
00018
CASE: UE 214
WITNESS: Michael Doughert
PUBLIC UTILITY COMMISSION
OF
OREGON
STAFF EXHIBIT 201
Witness Qualification Statement
January 20, 2010
00019
NAME:
EMPLOYER:
TITLE:
ADDRESS:
EDUCATION:
EXPERIENCE:
Staff/201
Doughert/1
WITNESS QUALIFICATION STATEMENT
MICHAEL DOUGHERTY
PUBLIC UTILITY COMMISSION OF OREGON
PROGRAM MANAGER, CORPORATE ANALYSIS AND
WATER REGULATION
550 CAPITOL ST. NE, SALEM, OR 97308-2148
Master of Science, Transportation Management, Naval
Postgraduate School, Monterey CA
Bachelor of Science, Biology and Physical Anthropology,
City College of New York
Employed with the Oregon Public Utility Commission from
June 2002 to present, currently serving as the Program
Manager, Corporate Analysis and Water Regulation. Also
serve as Lead Auditor for the Commission's Audit Program.
Performed a five-month job rotation as Deputy Director,
Department of Geology and Mineral Industries, March
through August 2004.
Employed by the Oregon Employment Department as
Manager - Budget, Communications, and Public Affairs from
September 2000 to June 2002.
Employed by Sony Disc Manufacturing, Springfield, Oregon,
as Manager - Manufacturing, Manager - Quality Assurance,
and Supervisor - Mastering and Manufacturing from April
1995 to September 2000.
Retired as a Lieutenant Commander, United States Navy.
Qualified naval engineer.
Member, National Association of Regulatory Commissioners
Staff Sub-Committee on Accounting and Finance.
00020
CASE: UE214
WITNESS: Michael Doughert
PUBLIC UTILITY COMMISSION
OF
OREGON
STAFF EXHIBIT 202
Exhibits in Support
Of Opening Testimony
REDACTED VERSION
January 20, 2010
000,21
STAFF EXHIBIT 202
IS CONFIDENTIAL AND SUBJECT TO PROTECTIVE.
ORDER NO. 09 - 418. YOU MUST HAVE SIGNED
APPENDIX B OF THE PROTECTIVE ORDER IN
DOCKET UE 214 TO RECEIVE THE
CONFIDENTIAL VERSION
OF THIS EXHIBIT.
00022
CASE: UE 214
WITNESS: Michael Doughert
PUBLIC UTILITY COMMISSION
OF
OREGON
STAFF EXHIBIT 203
Exhibits in Support
Of Opening Testimony
January 20,2010
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Staff/203 . Ff
Doughert/1 'J.i
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ORDER NO. 91-567
ENTERED APR 2 5 1991
1-
BEFORE THÉ PUBLIC UTILI1Y COMMISSION
OF OREGON
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¡Matter pf the Application of IDAHO )
:Jt COMPANY for Hpproval of an )
.W'nt for coal sales with Briuger ~()al . )'i,ny; a joint venture consisting of Idaho )
'lResources Company, A WyomÇng Cor- )
'h, and Pacifc Minerals, Inc., A 'Nyo- )'rporation. .)
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ORDER
. DISPOSITION: GRANED
....... On Jamlfry22; .1991, IdlillO Power Company (Idaho) tiled an application
,;Public Utilty Commission pursuant to ORS Chapter 757 and OAR 860-27-040.
:yested approval of certain coal sales agreements between Idaho, PacitiCorp
ç ,Power '& Light Company (Pacific), and Bridger Coal Company (Bridger).
'V;: At its April 16, 1991, public meeting, the Commission adopted staff's
gation that the application be granted.
The Commission makes the following:"
FINDINGS OF FACT
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i:i~t,aho is an Idaho corporation, duly qualified to tnmsact business in the
"QLl. Idaho engages in the generation, purchase, transmission, distribution,
ectricenergy to the public in the state of Oregon. Idaho Enerb'Y Resources
:)ls a wholly owned suhsidiary of Idaho. IERCO was incorporated under
;~ Jltate of Wyoining. Pacitc Minerals, Inc. (PMI), is a wholly owned sub~
.(c, incorporated under the l~lWS of the state of Wyoming. Bridger is a
,Jisjsting of IERCO and PMI.
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ORDER NO. 9 i .. &6 '1
On September 22, 1969, Pacific and Idaho entere into agreements for the
,ßrsbip, construction, and operation of a 1,500 MW coal-fir~d electric power plant in
,', ,ming, known as the Jiir Bridger Project. The owiiership agreement provided for
Qint ownership of certn leaes coveriiig cow deposits located near the Jim Bridger
,.t. The operation agieement contemplated joint operation of these coal properties.
.. Idalio and Pacific subsequently agreed that the coal properties, rather
being jointly owned and operated by Pacifc and Idaho, would be owned and
.... ed pursuat to a jo,iilt vepture agreement dated February 1, 1974. The joint
e, known as the Bridger Cnal Compaíy, consists of IERCO, owning one-third
',ger, and Pacific, owning two-thirds. Idaho transferred to IERCO al of its right,
;allfi interest in these coal leases. IERCO, in tum, tranferred its interest to lJrid-
.ø.isuant to the joint ventureÚlgreement. On February 1, 1974, Pacifc and Idaho
ij into a coal sales agreement wherein Pacifc and Idaho agreed to purchase, and
"'Coal agreed to deliver an~ sell coal from coal properties located near the Jim
. plant. Pursuant to an amc1dment dated December 14, 1973, Pacifc and Idaho
to .the constrctiOll of a fourth 500 MW unit at Jim Bridger. On September 1,
,jt coal sales agreement was amended to increase the total annual tonnage of coal
¡provide coal for the newly constructed unit. Other amendments to the coal saes
j:ît were entered into. by agreements dated March 7, 1988, and by an agreement
"uar 1, 1990.
'\",. IERCO is a wholl owned subsidiary of Idaho and is an afilated interest
, :aid IBRCO have four directors and/or offcers in common. Bridger iii
afliated interest of Idaho in that one-third of Bridger is owned by IERCO,
J1y owned subsidiary, and therefore Bridger is an entity, 5 percent or more of
· ned by Idaho pursuant to ORS 757.015(6).
Idaho had previously understood that IERCO and Bridger were not subject
. ,'int.erest fing requirements under ORS 757.495 aid OAR 860-27-040
J..aii 'of IERCO's tranactions with Idaho have been subject to regulatory
'....IERÇO is disregarded as a separate entity for rate-making purposes. How-
. ,t discussions with Commission staf and the Attorney General's office,
'~tormed that transactions with IERCO are technically subject to affilated
',~ requirements, notwthstanding the fact that iERCO operations are included
" perations for purposes of rate making. Idaho desires to comply fully with
,"t.he letter of affilated interest fiirg requirements and makes this appIica-
. compliance with ORS 757.495 and OAR 860-27-040.
~parate records and accounts for IERCO are maintained and the
CO as a joint venturer in Bridger are subject to regulatory review and
, ,with those of Idaho during general rate cases. The operations of
,l1aried iii Idaho's semiamiual report of operations fied with the
ommssion. ~RCO's results of operations have been merged, consolida.t-
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Doughert/3
ORDER NO.91-567
Rrid included with Idaho's for the purposes of fig of income tax return and for
makig purposes. Therefore, there is no danger of cros-subsidition between
'Ò;and IERCO, nor is there any danger of Idaho payig in excess of market vaue to
GO or its assignees for' the coal purchased. Idaho is paying for its coa Uie same as if
'CO were not even involved in ths tranaction. Furer, the coal sales agreements
,:iånd wi continue to provide a reliable source of low-cost coal for the operation of
Kjn Bridger plant. .
". Idaho believes thal the proposed coal sales agreements ate of benefit to its
tners and permit the coal to be purchased by Idaho at reasonable prices. The coal
'''j~teements do not impai Idaho's abilty to provide its public utity service.
(Idaho proposes tht ~he coal sales agreements be approved in their'
?t
OPINON ¡J
'J.';.
The foUowing statutes are applicable to this transaction:,h. i'i
ORS 757.005 defines a public utility as, inter alia, an entity which owns,
','manages, or controls al or part of any plant or equipment in this state for
Ú.ction, transmision, delivery, or furnhing of heat, light, or power, directly
,tly to the public. Idaho is a public utilty subject to the Public Utilty Com-;d,útisdíction. .
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,.,' ORS 757.015(5) defines an "affliated interest" as "every corporation which
.lmore offcers or two or more directors in common with such public utity."
,JERCO have four offcers and/or directors in common; therefore, an "aff-
~~tir relationship exi~ts. Likewise, ORS 757.015(6) defies an affJiated inter-d;i!ßvery corporation and person, five percent or more of which is directly or
;q"'.I1ed by a public utility." One-third of Bridger is owned by IECO, Idaho's
#;~d SUbsidiary. Therefore, an affliated interest exists between Idaho and
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'ORS 757.495 provides that no public utilty shall contract with an affliated
~ervce~ without the Commssion's approvaL. The statute was designed to
" customers from abuses which may arise from less-than-arm's-length trans-
ati at Co a', UF 3842, Order No. 82-93 at 2; Portland General
, UP 3739, Order No. 1-737 at 6. The standard of.review is whether
on tract is ". . . fai and reasonable and not contrar to the publiè interest.
.757.495(3).
Staff/203
Dou~.rt/4
ORDER NO. 9 i "661
Th application should be .granted. The coal sales agreements in ques-
:w not harm Ida!o's customers because the agreements provide to Idaho a reli-
'~ource of low-cost coal for operation of the Jim Bridger plant.
'" The transfer price for the coal which is provided by Bridger to Idaho shall
'led at a~tual cost. Cost in thi cae is equivalent to market for the servces. Since
.. IERCQ's results of operation are merged with and made a part of Idaho's for rate
g, there is no possibilty of cross-subsidization. The Comrissiol1 concludes that the
'ent is fai and reasonable and not contrar to the public interest.
Idaho's contract with Bridger has and shal continue to be recognized for
'atng purposes. Expenditures made snould be charge~ to accounts in the manner ,
;, by the Federal Energy Regulatory Commission regulations and by the Comi-
.fties.
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CON~USIONS OF LAW
", 1. Idaho is a public utility subject to the jurdiction of the Public
i.~mmssion.
ORDER
", 2. An afilated interest relatiònship'exists between both Idaho and
~atd Idaho and Bridger.~;" ;
";,. 3. The coal sales agreements referred to hereinabove and made a par
'Ucants case are fai and reasonable and not contrar to the public interest.
IT IS ORDERED that:
The application of Idaho Power Company for approval of its coal
sales agreements, dated Februar 1, 1974, between Pacic Mierals,
Inc.; Idaho Power Company; and Bridger Coal Company, as amend.
ed, by amendments dated December 14, 1973; September 1, 1979;
March 7, 1988; and January 1, 1990, is granted. This approval shall
be effective for accountig purposes as of Januar 1, 1991.
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Idaho shall provide staff access to all books of account, as well as all
documents, data, and records of Idaho and Idaho's affliated interest
. which pertain to the trana,ctions between Idaho and its affiiated
interests, IERCO, and Bridger Coal Company.
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ORDER NO. 91 - 567
3.Idaho Power Company shal noti the Commsion in advance of
any substative changes to the agreement, includig any material
changes Íf any cost Any changes to the agreement terms which
alter the intent and exent of activities under the. agreement from
those approved herein shall be submitted for approval in an applica-
tion for supplemental order (or other appropriate format) in this
docket.
4.Idaho PQwer" çompany has the responsibilty of timely notifyng the
Commssion of all management studies and/or analyses, internal or
exteinal audit reports, and any related studies or reports pertaiing
to the services aßleement between Idaho, Pacic, and Bridger and
shall promptly provide such inormation to the Commssion upon
request.'-
5. The Commission ¥eserves the right to review for reasonableness all
fiancial aspects of this arrangement in any subsequent rate pro-
ceedig.
6. Idaho shal comply with the anual reporting requiements for
afated interest transactions.
.APR ." 5 1991
'~ìequest rehearing or reconsideration of this order withi 60 days from the
:pë pursuant to ORS 756.561. A party may appeal this order pursuant to
00028
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ORDER NO. 01-472 Doughert/e
END JU 122001
'fil" lU eIk copy. Attcbmeots m.y Dot apper.BEFORE TH PULIC UT COMMON
OF OREGON
UI 189
hi th Ma of th Aplication ofPACIFCORP )
fo App of a Co Suply Ap wi )BRI COAL COMPAN. )
)
ORDER
DISPOSITION: APPLICATION APPROVE WI CONDmONS
On Janua 26, 2001, Pac fi an apli wi th Puli Ut Comon
ofQrgon (Comission) purt to ORS 757.495 and OAR 860-027-0040 reueg appal of
it co suply ageeent with Bridger Coa Coy (BCC), an Afliat hitest
Ba on a reew of th applion an the Commision's rerd th Coision
fids th 1he aplion safi aplile st an adve mles At it Puli Me on
May 22, 200 1, th Comission adop Stas reendaon to approve th aplican wi
ce st coditons. Stas recon is atthed as Appedix A and is incorate by
refeence.
OPINON
JuriictD
ORS 757.005 de a "pulic utilty" as anyone prvidig het, ligt, wa or power
se to th publi in Orn. Th Com is a public ut subjec to th Commiss'sjurct.
AftiD
An af in relahip exst under ORS 757.015.
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Applicable Law Staff/203
Doughert/?ORS 757.495 reuir public utilities to sek apval of contac with af
intere with 90 da afr exeution of the cotrct The intet of the st is to prote rateyer
from the abuses which may arse from les th ar's legl trons. Portlan General Electric
Company, UF 3739, Order No. 81-737 at 6. Fai to fie wi th 9Oday tie li ma prlude
the utty :f reverg cost incu un th co
See ORS 757.495.
ORS 757.495(3) requires the Commssion to approve the cotr if the Commission
fids that the contrct is fa an reanale and not co to the public inte However, the
Commission nee not detenne the reasonableness of al th ficial asec of th contrt for
ramakg pur. Th Commsson may rerve th isse for a subsequent proceding.
CONCLUSIONS
1. The Compa is a public ut suec to th jucton of the Commion.
2. An afated in rela ex
3. The agment is m, renable, and not cont to the public intees
4. The application should be,grte wi coitons.
ORDER
IT is ORDER th the aplica ofPaif for aurity to engage in a Co
Supply Agreement with Bridger Coal Copay, is grante subje to the conditions stted in Appedix
A.
Made, entered, and effective
BY TH COMMSSION:
Vikie Bailey-GogCoion Sec
A pa may reuest reheag or recnsideraon of th orer put to ORS 756.561. A par may
appeal ths orr to a cour pursuant to ORS 756.580.
:¡ :00030
PUBLIC UTILITY COMMISSION OF OREGON
STAFF REPORT
PUBLIC MEETING DATE: MAY 22, 2001
ITEM NO'_Staff/203
Doughert/8
REGULAR AGENDA__ CONSENT AGENDA.. EFFECTIVE DATE
DATE:May 16,2001
TO:Phil Nyegaard through Marc Hellman and Mike Myers
FROM:Tom Riordan
SUBJECT: UI 189 - PacifiCorp Application for approval of a Coal Supply Agreement
with Bridger Coal Company, Inc. (BCC), an Affiiated Interest
SUMMARY RECOMMENDATION:
Irocommend approval of the requested agreement with the conditions noted in the
detailed recommendation.
DISCUSSION:
Background:
PacifiCorp filed this application on January 26, 2001, pursuant to ORS 757.495 and
OAR 860-027-0040. The company seeks a Commission order finding that since 1979,
its coal supply agreement with BCC, has previously been considered and approved in its
prior general rate cases. Alternatively, PacifiCorp, in an effort to eliminate any questions
of compliance with statutory requirements governing affliate transactions, seeks a
Commission order approving its coal supply agreement with BCC.
PacifiCorp owns a two-thirds interest in the Jim Bridger coal-fired steam electric
generating plant in Wyoming. This generating plant obtains a substatial majority of its
needed coal supply from BCC, a joint venture owned one-third by an Idaho Power
Company subsidiary and two-thirds by Pacific Minerals, Inc. (PMI), an indirect wholly
owned subsidiary of PacifiCorp. The joint venture owns significant leases covering coal
deposits located near the Jim Bridger generating plant. Affiliated interest relationships
exist between PacifiCorp and BCC, and between PacifiCorp and PMI.
Currently, the PacifiCorp and BCC relationship is governed by the Third Restated and
Amended Coal Sales Agreement, dated January 1, 1996 (Third Restated Agreement) and
00031
the First Amendment thereto of January 1999. Together they are known as the Coal Staff/203
Supply Agreement. The agreement establishes annual base tonnages for coal purchases Doughert/9
Phil Nyegaard
May 16,2001
Page 2
which for 2000 and 2001 are 5,232,600 on a total system basis. Coal prices are
determined through establishment of component base price, consisting of several costs
related to BCC coal operations, as adjusted pursuant to the price change provision in the
agreement.
The company states that BCC coal provides it with advantages such as a consistently
reliable coal source and a minimization of fuel transportation and handling costs.
Historically, from 1990 through 1999, the average cost of coal provided by the Coal
Supply Agreement ranged from $3 to $9 per ton less than the average market price of
Southern Wyoming coal delivered to the plant.
Therefore, PacifiCorp believes that the Coal Supply Agreement provides it with a
reliable, long-term source of low-cost coal for the operation of the Jim Bridger
. generation plant. Furher, the company states that since it was limited, for ratemaking
purposes, to prudently incurred coal expenses plus a reasonable return on the Company's
coal investent, the Commission should determine that the Coal Supply Agreement is not
contrary to the public interest. Staff believes that the appropriate standard the
Commission has used and continues to use for ratemakg is its affiliate interest transfer-
pricing requirements, namely that the price is the lower of cost or fair market rate. See
furter discussion below.
Issues
I have investigated the following issues:
1. Scope and Terms of Agreement
2. Transfer Pricing and Allocation Methods
3. Public Interest Compliance
4. Records Availabilty, Audit Provisions, and Reporting Requirements
Scope and Terms of Agreement - Based upon my analysis of the agreement, there
appear to be no unusual or restrictive terms that would harm customers. Accordingly, I
am not concerned about this issue.
Transfer Pricing and Allocation Methods - The Commission's transfer policy for goods
and services purchased by a regulated electric utilty from an affliate shall be priced at
the lower of cost or fair market rate. This policy likely has been met because BCC is
00032
charging PacifiCorp a price for its coal supply based on BCC's fully distributed cost thSStaff/203
is currently less than the market rate. The company's rate of return used in biling fro~ h rt/10
13CC to PacifiCorp is at the same rate authorized by the Commission in PacifiCorp's oug e
iio,t recent rate case. This is consistent with the Commission's affiliated interest (AI)
00033
Phil Nyegaard
May 16,2001
Page 3
Staff/203
Dougherty/11
transfer pricing policy. Proposed ordering condition No.4 is included to ensure that
PacifiCorp adheres to the Commission's policy.
Public Interest Compliance - PacifiCorp's customers are likely not harmed by this
transaction, because the company is paying, with the provision of my proposed ordering
condition No.4, a fair and reasonable price for tl;e coal supply. Therefore, the purchase
price meets the lower of cost or fair market requirement of the Commission AI transfer
pricing policy. Also, Staff noted that in 2000 and estimates for 200 i, the average price
savings per ton to PacifiCorp from the BCC Coal Supply Agreement are trending lower.
If there should. be a further lowering of the savings to PacifiCorp and its customers, it
may necessitate a modification to the transfer price to meet the Commission's AI policy.
This would then require PacifiCorp to comply with proposed ordering condition No.3 to
protect the public's interest.
Records Availabilty, Audit Provisions, and Reporting Requirements - Proposed ordering
condition No. i provides the necessary records access to BCC's relevant books and
records
CONCLUSIONS:
Based on an investigation and review of the application, i conclude the following:
i. PacifiCorp is a regulated electric company, subject to the jurisdiction of the Public
Utilty Commission of Oregon.
2. An affliated interest relationship exists between PacifiCorp and Bridger Coal
Company.
3. The application is fair and reasonable and not contrary to the public interest.
DETAILED RECOMMENDATION:
I recommend that the Commission approve PacifiCorp's alternative request, namely, the
application of PacifiCorp for a Coal Supply Agreement with Bridger Coal Company, an
affiliated interest and include the following standard Commission conditions in this matter:
n rin. ....~ 4....IfUv
1. PacifiCorp shall provide the Commission access to all books of account, as we1Staff/203
as all i:ocuments, data, and records of PacifiCorp and BCC's affiliated interesth h rt/12
which pertain to transactions between PacifiCorp and BCC. oug e
Phil Nyeguri:
lvay 16, 2001
Pas~ 4
2. The Commission reserves the right to review for reaonablen.ss all financial
aspects of this arrangement in any rate proceeding or alternative form of
regulation.
3. PacifiCorp shall notify the Commission in advance of any substative changes to
the agreement, including any material changes in any cost. Any changes to the
terms which alter the intent and extent of activities under the agreement from those
approved herein shall be submitted in an application for a supplemental order (or
other appropriate format) in this docket.
4. For accounting purposes, the return component used in calculating PacifiCorp's
cost of service received from BCC shall be limited to the PacifiCorp's current
authorized overall rate of return.
00035
PPL(TAM1200
Lasich!6
i Q.Please compare Bridger Mine costs relative to other supply options.
2 A.The Company's fueling strtegy wa developed to inure low cost, optimum
3 quality, and a secure long-term coal supply for the Company's plants. The
4 Bridger Mine contiues to be the optimum long-term coal supply for the Bridger
5 Plant, in combination with the Black Butte Mine agreement. The Southwest
6 Wyoming coal maket represents a niche market, With tota anual production
7 estimated at only 15 milion tons. The Bridger and Naughton Plants consume,
8 approximately 11.5 millon, or 75 percent of the native production. Most of the
9 remaing locl production is consmed by nearby industral customers. The
Company has contrcted for al availaJJ1e suppltes from the Black Butte Mie.
There is no additional capacity in the ~a to.supply the Bridger Plant.
Q. ,Outside of the Southwest Wyoming area, what options are available to
supply the Bridger Plant?
A. Powder River Basin ("PRB") coals are the most feasible maret alterntive for
supplyig the Bridger Plant. These supplies ar located approximately 560 miles
from the plant, so tranorttion costs ar a major cost drver. The Company has
perodcally evaluated PRB coals relative to the Bridger Mine. Without
considerig the capita modifications to the unloading facilty nor the retrofittg
of the generating unts to bur PRB coas, PRB coal is stil more expensive.
Based on the latest Union Pacific ral trportation proposal, the delivered cost
ofPRB coal is over $5lton higher than coal from the Bridger Mine in the test
perod. Thus, coal from the Bridger Mine rema below the costs of any maket
alterative available to the Company.
Direct Testimony of A. Robert Lasich
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th the Coal SUly Agreeent is in the public interes under the provisions of
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OU II 7S7.490 aJ7S1.49S.
(j, Å.liaJ Jlriier CØl Costs and Recrding of Costs
The coal supply ageent determ the anual Bridger coal costs as describe in
APPlitin Secn 5 above. Expnditures and coal investments are charged to acunts'
in t1
maer direc bytl Federal Energy Reguatory Commssion reguatioJl and the
Commsion's rules.
7. ReasoD$ for Procurg Coal from. Bridger Coal Compay
In 1969, PacifiCorp's predecor (pacific Pow~r & Light Company) and Idao Power
Company agree to construct an operate the Jim Bridger generation plant. Th utilities
possessed joint ownership of certin leases covering coal deposits acquired from the Union
Paifc Raoad, the United States Governent an the State of Wyomig loca ne the
genation pla site. The obvious advantage of constrction of a generatig plant ne tl
pla's fuel source is tht fuel tranortaion and hadling costs would be minimize. In
addition, ßridger Coal Compaiy coal is of high quality, with BTU contet typically rangig
from 9200 to 9400 BTU per pound. This is a high BTU content for Wyoming coaL. The
generation plant faciUties were designed to burn the type and quality of coal from these
locations. Approximately 70 percet of the Jim Bridger generation plant's coal requirement is
obtained from the adjacent mine owned and operated by the Bridger Coal Company. 2
PacifiCorp's decision to execute the coal supply agreement was tied inextricably to th
Company's decision to tae advantage of constrction of a.generatig plan near a source of
quaity fueL.
i Most of the remaing generation plant coal need are purched from the Black Butte C~
Company. The Black Butt Mine is located approximately i 7 mies from the Jim Bridger
generation plat an operates in the same co seam that is being mied by the Bridger Coal
Company. ThiiS, the two coal supplies are of comparable quality.
Page 5 - APPLICATION OF PACIFICORP
00037
Staff/204
Doughert/15
ORDER NO. . 79-754
b. Bridger Coal is unregulated. It is
theoretically capable of earning an
unlimi ted rate of return. This could lead
to a w1n~all to PP&L shareholders by PP&Lratepayers.
c. The original base price of '$3.75 may not
have been reasonable. The actual costsof Br idger Coal may not bear a close
relationship to indices used to adjust coålprice.... .
The staff's ideal coal pr ice would be one permi tting
Bridger Coal to recover expenses and earn a fair and reasonable
rate of return. Staff would allow a 10.06 percent rate of .
return via a $7.07 Pér ton coal price on sales to PP&L.
Staff's repiictng of PP&L coal purchases is based on
the theory that a coilOration should not be permitted to frag-
ment a utility enterprIse by use of affiliated corporations andthereby obtain an increase~ rate of return for its acti vi ty.
See Pacific N. W. Bell v. Sabin, 21 Or. App. 222, 534 P.2d. 984'J1975), rev. denie .
Staff believes this is what PP&L is doing in the case
of Bridger .Coal. However, the effect of staff's adjustment isto hold Bridger Coal's equity return rate èqual to the equi ty
return rate staff recommenas~or PP&L.
3. Company' Š Position
......... The company maintains it is not bound by' the terms':.,.pf the Sabin decision. . It 'argues that there are significant
'd(j,differences in its relationship with Bridger Coal Company and
t: Pacific Northwest Bell's rela-tionship with West.ern Electric
.. Company because: (1) The investJent in' Bridger Coal was sub-
i..stantially more risky than a utility investment, arid (2) Unlike
\¡O;the telephone affiliates, an alternate market exists for coal
~/sOld to PP&L at 'a price higher than the price charged PP&L
,;t~tepayers. Th~ c~mpany asserts that the $7.78 price is
C,teasonable because it is below a current fair mårket price for
ißridger Coal -- $15.00.
4. Discussion
§j The compan¥ provided no' figures to refute staff's
,q~¡9ulation that Bridger Coalts return on investment at the7.78 sales price WOuld be 18.06 percent, or that its return on
pmmòn equity would be 36.80 percent. The company acknowledges
. .00039-17-
PPL(TAM00
Lasich/4
th Bridger suace mie in design an geology. The new agrmen relaces an
Staff/203
Dougtiert/16
extig agreement tht expirs in Decber 2009. The 2010 price unde the new
contrct is approximtely 34 percent higher th the 2008 coal price. This 2010 ';
pri.cii taes into account lower prce carrover tonnage from the prior contrct.
Excludi the carover tonIge, the new contrt price inrea~ is over 50
percent.~ .J f' ...
Q. Please provide an overvew of cost increses at the Bridger Mie reßected in
th f"ding.
A. Bridger Mine costs in the 2010 TAM are projecte to increase fr $29:3 7/ton in
2008 to $33.54/ton in 2010. The Bridger Mie is located in Southwest Wyomi
an operated by the Bridger Coal Company ("BCC"). It consists of
two differe
. mig opertions: an underground mie and a surace mine. The Bridger Mie
is subject to substatially increa taes an royalty payments in the test period
due to higher valuations drven by hi~er maket prices./Highei production taxes
. ~d royalties, alone acount for approximately SL.70/ton. cost inCrease in 2010,
more than 40 percent of the total increase.
Q. How has the Bridger surface mine changed in recentye-ars?\-
A. For many yeas, BCC was able to exct coal at the Bridger suace mine lling
low-cost highwal min. The mie has now reched. thè stage, however, where
BCC has Ieplaced t)s prodction method with highe:r-cost drgline miing to
properly steward the resources of the mi. Additionaly, cunt accounting
pronouncement EITF046 reuires tht prouction costs be asigned only to
extracted coal, not coal that is uncovered but remain in the pit. This contrbutes
Direct Tesony of A. Rober Lasich
00039
PPL(T AM/200
Lasich!s
Staff/203
to higher,costs in 2010 because more coal is scheduled to be uncovere than will Dougherty/17
. actully be exttcted; .the opposite wil be tre in a year when previously
i
uncovered coal is ultimately extred.
Q. Do Bridger sunace mine costs in thisase als reflect an increase-ciate
with final reclamation charges?
A. Yes. The curent filig includes a new contrbution chage of $0.84/ton fo~ fial
.....
reclamation. This reclamation charge reflectS the most recent fin reclamation
stdy prepared by BCC as well as BCe's trt fud balance-~s of
December 2008.- ,
The trt fud is utilid to pedorm fi relation and monitorig activities
required under the Surace Mie Control an Relation Act of 1977. Trust
fud e~gs in 2007 and 2008 wer negatively imacted by the downtu in the
economy.
Q. What other specifc drivers are causing Bridger Mine costs to increase?
A. Other major contrbuting factors include:
. Increases in labor costs due to an incre in workorce size and wage and
benefit increases,
. Commodity cost escalation,
. Maintenace cost incrèases as ming equipment is scheduled for rebuilds,
component exchanges, etc., and
y . Incrases in depreciation, depletion and amortzation expense of. ., ' .
approximately $0.30/ton asociate with(additional mie intrctu .
placed in service in 2010.
Direct Testimony of A. Robert Lasich
00040
,/
ii ~!
UE-207/PacifiCorp
June 15, 2009
OPUC Data Request 51
QPUe Data Request 51
Concernng PPL (T AM/200, Lacbl4-5:
a. Concerg the higher cost in 2010, approximately how much of the
varance frm 2009 costs is atbutable to drline mining?
b. Wil drine minng be the method to surace mine in subsq.t
year? Pleas explain.
c. Approximately how much of the varance frm 200 costs is
attbutable to EITF 04-6?
d. Does PacifiCorp anticipate extng more coal than uncoverd in
2011? Pleae explain.
e. Has PacifiCorp been provide with an estimatedludgeted 2011
surface mining cost from BCC? If so, please provide and explan the
estimatedludgeted cost.
llpoD$e to OPUC Data Request 51
a. Bndger Coal Company 2010 tet period cost are $33.54 with EIT 04-6
and $30.63/ton without EIT 04-6. The 2009 forect ofS30.S7 would
increae to $30.69/ton without EITF 04-6. The impaçt ofEITF 04-6
accounts for almost all of the varance in Bndger Coal Compay mine
cost between 200 and 2010. .
b. Yes, the supply of coal from Bndger Coal Company to the Jim Bridger
Plant will include coal prdution frm the undergroun and sUrace
mines. The draglines will cåntinue to be used by Bridger Coal Compay
to remove overburden.
c. See Response OPUC Sl.a above. The impact on PacifiCor ofEITF 04-6
is to increas Bridger Coal Compay cost in 2010 by $10.86 millon and
to decrease 200 cost by $.48 million in 2009.
d. PacifiCorp does not have a cuent 2011 mie plan for Bridger Coal
Company. Bridger Coal Compay is in the process of developing a long-
term mine plan. The 20 i 1 mine plan including both tonnage uncovered
and extracted, will not be available until later ths faL.
e. See above.
00041
Staff/203
Dougherty/18
,~IDA6t-PORStaff/203
An'DACOPCOparvoughert/19
,. r
December 31, 2009
Subject:Docket No. UE 214
Idaho Power Company's Responses to Staffs Data Requests 20-21
STAFF'S DATA REQUEST NO. 20:
As a follow-up to IPC's response to Staff Data Request #1, please explain the third part
deferred pricing.
a. Is this price added to the spot price to determine the cost for the
associated delivery or is it a stand-alone price per ton?
b. For each month, please provide the total cost and average cost per ton for
the third part mine based on tons delivered.
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S DATA REQUEST NO. 20:
a. The line item entitled "Black Butte Mine - Deferred I Force Majeure" represents the
contract price of $11.07 per ton for coal to be delivered in 2010 from the Black Butte mine
(stand- alone price per ton). The tonnage to be delivered in 2010 was deferred or' delayed from
prior years, either because of decreased coal requirements at the Jim Bridger Plant or force
majeure events. This is the total cost per ton, FOB mine.
b. Please see the attached Excel spreadsheet.
Page 1
D604ii
1 Q.
2 .A.
3
4
5
6
7
8
9
\0
11
12
U
14
15
16
17
18
19 Q.
20
21 A.
22
23
Please explain how EITF 0~6 impacts Bridge~ mine;s 2010 ~Ö!Ît~:(',
Pusut to F ASB stadard. EITF 046, Bridger'mine is requied to itieludê
strpping costs in the cost of coal that is extrcted in a given year, even iftb
strpping-results in ''uaovered'' inventory available for extraction in subseuent
years. The .effect of this accounting reqUirement is that the cost of coal extrcted
in years when more coal has been uncovered than extracted, as a relt of
over~urden strpping~ is more expensivé'than coal extrcted'in yea where more
coal has peen extrjlc~d than uncovere. Dependin
on certai varables,
including minill practices, geology and production schedules, coal mayor may
not be extracted in the same year stripping costs have been incured.
In 2010, the Company is expected to incur strpping costs for coal that wil
reain in the mine and be extrcted in later years. This results in higher costs for
the coal actually extracted in 2010. This wil result in an increase in the cost of
the surace mine operations, frm approximately $39 per ton to $57 per ton, and
an increase in the overall cost of Bridger coal from $30.63 per ton to $33.54 per
ton. Aß noted in Stafts footnote 22, the 2009 weighted cost of
Bridger coal was
$30.57 per ton. Viewed in this maer, it is clear that the 2010 cost increase at
the Bridger mine is largely related to EIT~ 04-6.
Why is the impact of EITF 04-6 in this filing more pronounced than in
previous years?
Bridger mine was first required to comply with EITF 04-6 in 2006. Due to our
objective to focus ming operations to implement a least-cost mine plan Bridger
mine has decreased extraction of surace coal and increased underground mining
Rebuttl Testimony of A. Robert Lasich
00043
\
2
1-
tl
4
5
6
7
8
9
10'
II
12
13
14
15
16
17
18
19
20
21
22
23
1
2
d
e
I
Q.
NiU A.
for
f
id
er
ias
it
)Uf
idger
ning
PPL/201
Laichl3
as sUDace mine strpping ratios increase, thus increasing costs. As a result, there
is a greater disparty in yeas where strppin costs ar incued and when coal has
been extrcted. In futu yea, the magntude of the disparty wil fluctute
dependig on the amount of coal extrted
The Company is "requied to comply with this accounting stadard. While
ICN recommends that the ComIIssion normalize (i.e. eliminate) the costs in the
case resulting from .this accounting change, ICND provides no justification or
basis for denying the Company recovery of these cost as unecessar,
unreasonable or imprudent.
How does the Company propose to handle the impacts of EITF 04-61
In Augut 2009, the Company plans to file accountig applications in all states
seekig to establish a regulatory asset balancing account that would reduce the
volatility of coal costs from the Bridger mie and retu the Company to the
accountig methods tht were used prior to the adoption ofEIT 04-6. Under this
approach, coal costs in rates would be based on "uncovered" inventory (pnor to
EITF implementation) rather than the EITF "extrcted" inventory method. The
Company will seek to receive approval of the accountig orders in time to reflect
the impact in rates by Januar 1,2010. In the case of the Oregon TAM, the '
Company wil seek an order in time to allow the fil TAM updte to reflect ths
accountig treatent and elimiate the arificia incrase in coal costs causd by
the accountig pronouncement and create a timing mismatch of assigng
strpping costs only to the extrcted coaL. Such an order would result in an
effective price for 2010 Bndger coaL. supply th approximates 2009 levels"
Rebuttl Testimony of A. Robert Lasich
00044
Stáff/203
Doughert/21
PUBLIC UTILITIES COMMISSION RECEl'/
2010 MAR i i PH 3: 08
OF IDAHO
CASE NO. 1PC-E-10-01
COMMENTS AND PROTEST OF
INSTRIAL CUSTOMERS OF IDAHO POWER
EXHIBIT 2
IDAHO POWER'S RESPONSE TO INUSTRIAL CUSTOMER'S
PRODUCTION REQUEST 21
MACH 11,2010
e fI,
_! lj.21: As a fOIlQw-up to ldaho Power's response to ¡CIP's Request....'+¡'71't/:,.,,:.,tf...'-..:,'."fi/,....,',"..~..,'T,-i'.,-...,s.'.J'/'.':-,.,.i.,.;:,.....:..'.'....,:/.::,.'" ..
fÐ Pr'uelOf No. 1 in this docket (Oreon PUC Staffs Oatl. Request No. 1 in Oregøn
PUC QQket No~ UE 214), please explein th diference in Bee total prouction cost per
ton and BCe sale pric per ton.
BiltQlI.¡,fi RiQUEST NO. 21: The SCC sales price per ton includes an
operating margin, equal to the overall rate of retum authorized in general rate cases
where IERCOIBBC operations are trated as part of the reulated activites of the
çpmpany. The sales price is adjusted periodically as updated BCC mining expense
data beC(mes available.
The resPQnse to this Request was prepared by Tom Harvey, Joint PfQjeCns
Mll'iger, løeho Power Compenyi iF! consultation with Barton L. Kline, Lead Counsel,
If.a~, Power Company.
IDAHO POWER COM~Y'S RESPONSE TO THE THIRD
PRODUCION REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER -15
PUBLIC UTILITIES COMMISSION
1010 H~.R i i Pt1 3: 08
0E-l'C i~iJi"\ .."..".",':"
OF IDAHO
CASE NO. 1PC-E-10-01
COMMNTS AND PROTEST OF
INSTRIAL CUSTOMERS OF IDAHO POWER
REDACTED CONFIDENTIAL EXHIBIT 3
IDAHO POWER'S RESPONSE TO INUSTRIAL CUSTOMER'S
PRODUCTION REQUESTS 1 & 4
MARCH 11,2010
CONFIDENTIAL - SUBJECT TO ATTORNEY'S CERTIFICATE
OF CONFIDENTIALITY
REQUEST NO.1: For each month in 2010, please provide information in the
following table format. (BCC equals Bridger Coal Company.)
January February March Etc
BCC Surface cost per ton
(with EITF 04-6 effect)
BCC Underground cost per ton
BCC Incremental cost per ton
(if applicable)
BCC Total cost"per ton
3rd Part coal cost per ton
:~list separately for each supplier)
3rd Part coal transportation cost
per ton
(list separately for each supplier)
rr otal Bridger Costs
BCC SurfaCe Cost per ton
(without EITF 04-6 effect)
RESPONSE TO REQUEST NO.1: Please see the enclosed CD.
Since this data i~ confidential, Idaho Power is providing this information only to
parties that have executed the Protective Agreement.
The response to this Request was prepared by Kent Christensen, Joint Venture
Analyst, Idaho Power Company, in consultation with Barton L. Kline, Lead Counsel,
Idaho Power Company.
00001
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST
PRODUCTION REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 2
CONFIDENTIAL
THIS EXHIBIT ALLEGEDLY
CONTAINS TRADE SECRETS
OR CONFIDENTIAL MATERIAL
AND IS SEPARATELY FILED.
00002
REQUEST NO.4: Concerning the Direct Testimony of Scott Wright at pages 8-
9, please provide the 2007, 2008, 2009, and 2010 cost per ton for each (affilate and
third part) coal supplier for Bridger in the following table format. Please list each
supplier separately. Please provide applicable pages, of contract that lists pricing.
2007 2008 2009 2010
BCC
Bridger 3rd part
RESPONSE TO REQUEST NO.4: Please see the enclosed CD which contains
a spreadsheet and applicable pages of amendments and contracts that list pricing.
Since this data is confidential, Idaho Power is providing this information only to
parties that have executed the Protective Agreement.
The response to this Request was prepared by Kent Christensen, Joint Venture
Analyst, Idaho Power Company, in consultation with Barton L. Kline, Lead Counsel,
Idaho Power Company.
00003
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST
PRODUCTION REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 5
CONFIDENTIAL
THIS EXHIBIT ALLEGEDLY
CONTAINS TRADE SECRETS
OR CONFIDENTIAL MATERIAL
AND IS SEPARATELY FILED.
,lDllHfi.4
PE.('F!\f;¡ -,~ . ~ .~.'-.b'PUBLIC UTILITIES COMMSSION
2010 ti~.R I I PM 3: 08
OF IDAHO
CASE NO. IPC-E-IO-Ol
COMMNTS AND PROTEST OF
INSTRIAL CUSTOMERS OF IDAHO POWER
REDACTED CONFIDENTIAL EXHIBIT 4
IDAHO POWER'S RESPONSE TO COMMISSION STAFF'S
PRODUCTION REQUEST 3
MACH 11,2010
CONFIDENTIAL - SUBJECT TO ATTORNEY'S CERTIFICATE
OF CONFIDENTIALITY
REQUEST NO.3: Please provide an analysis showing the current all-in cost of
coal for Bridger by coal source (Le. Bridger coal, Black Butte coal, market, etc.)
R.ESPONSE TO R.EQUEST NO.3: Please see the attached spreadsheet
showing the current all-in cost of coal for Bridger by coal source. The Bridger Plant
does not rely on any market purchases of coaL. The actual sales price per ton for
January Black Butte deliveries reflects amounts of coal deferred from prior periods of
time at prior contract prices into the January 2010 time period. Since this data is
confidential, Idaho Power is providing this information only/to parties that have executed
the Protective Agreement.
The response to this Request was prepared by Kent Christensen, Joint Venture
Analyst, Idaho Power Company, in consultation with Barton L. Kline, Lead Counsel,
Ida~o Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE THIRD PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 2
CONFIDENTIAL
THIS EXHIBIT ALLEGEDLY
CONTAINS TRADE SECRETS
OR CONFIDENTIAL MATERIAL
AND IS SEPARATELY FILED.
CERTIFICATE OF SERVICE
per'. . 'k t,.., 'i~~,-I
lOIUHAR I f PM 3: 08
I HEREBY CERTIFY that on the 11th day of MARCH 2010, a tre ~~ c~ty?l\t~~.H~the
within and foregoing redacted and confidential versions of the COMMENTS.~RR~1J¡~~.llM
INDUSTRIAL CUSTOMERS OF IDAHO POWER were served in the maner shown to:
Ms. Jean Jewell
Comms~on Secreta
Idao Public Utilities Commssion
POBox 83720
Boise, ID 83720-0074
X Hand Delivery
_ U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Scott Woodbur
Commssion Secreta
Idao Public Utilities Commssion
POBox 83720
Boise, il 83720-0074
X Hand Delivery
_ U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Lisa Nordstrom
Baron L. Kline
Idaho Power Company
POBox 70
Boise, Idaho 83707-0070
_ Hand Delivery
.. U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Gregory W. Said
Idaho Power Company
POBox 70
Boise, Idaho 83707-0070
_ Hand Delivery
LU.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Eric L. Olsen
Racine, Olson, Nye, Budge &
Bailey, Charered
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
_ Hand Delivery
LU.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Anthony Yanel
29814 Lake Road
Bay Vilage, Ohio 44140
_ Hand Delivery
LU.S. Mail, postage pre-paid
Facsimile
Electronic Mail
/ -
\ \ (4/(jJ---\Cj~i ¿U'J'\~\ \,
Nina Curis
Administrative Assistant