20100518Comments and Protest.pdf

REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately filed.
Peter J. Richadson ISB # 3195
GrgoryM. Adams ISB # 7454
RICHASON & O'LEARY PLLC
515 N. 27th Street
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(irichardsonandoleary.com
gre g(irichardsonandoleary. com
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Attorneys for the Industrial Customers of Idaho Power
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPANY TO IMPLEMENT POWER
COST ADJUSTMENT ("PCA") RATES
FOR ELECTRIC RATES FROM JUNE 1,
2010 THROUGH MAY 31, 2011.
) CASE NO. IPC-E-IO-12
)
) COMMNTS AND PROTEST OF
) THE INDUSTRIAL CUSTOMERS OF
) IDAHO POWER
)
Pursuant to Rule 203 of the Rules of Procedure of the Idaho Public Utilties Commission
(the "Commssion") and the Commission's Notice and Order served April 29, 2010, the
Industrial Customers ofIdao Power ("ICIP") hereby file these comments and protest. Forthe
reasons set forth below, ICIP renews its protest ofIdaho Power Company's ("Idaho Power's" or
the "Company's") request for recovery of afliate-mined coal costs in its base level Net Power
Supply Expenses ("NPSE") for 2010 in its Idaho jursdiction. ICIP again respectfully requests
that the Commission rue the Company has not met its burden of proving the prudency of its
request for increased costs of surace-mined coal from the Company's affiliate Bridger Coal
Company mine ("BCC") for its Jim Bridger Coal plant ("Bridger"). ICIP therefore requests the
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Commission disallow recovery of all or a portion of those BCC surace coal costs that exceed the
comparable market price. ICIP fuer protests the Company's request to only reduce the Power
Cost Adjustment ("PCA") revenue by $87 milion because that requested reduction allows the
Company to perversely use the PCA's Load Growt Adjustment Rate mechansm ("LGAR")-
which is designed to prevent double recovery in times of load growth - as a means of obtaining
additional recovery similar to decoupling or a fixed cost adjustment at this period of load
reduction. Thus, ICIP respectfully requests that the Commission also disallow recovery though
the PCA of the $23.7 milion associated with LGAR, or at a minimum that the Commssion state
that amount is subject to futue reduction pending fuer review.
BACKGROUND
Idaho Power requests that the Commission issue an order finding the Company has met
its burden of proving the prudency of a $24.8 milion increase of net power supply costs to
Bridger coal plant for inclusion in base rates, and approving the Company's requested
calculation of the Schedule 55 PCA rates. See Application, at pp. 9, 11. The Commission
typically "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. Actul power supply
costs that var from the normal amount included in rates are captued each year though the
Company's (PCA)." See Order No. 30722, atp. 19.
The Commission set the Company's curently authorized base level NPSE in the
Company's 2008 general rate case. See id at pp. 19-21. Pursuant to a settlement stipulation
forgoing a general rate case in 2009, the Company filed its application in Januar 2010 to
increase the base level NPSE for 2010 by $74.8 milion (in the Idaho service terrtory) for
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inclusion in base rates beginning June 1,2010, and for calculation of the 2010-2011 PCA.
Application, Case No. IPC-E-I0.,01 (Januay 19,2010). The Commssion ultimately authorized
an increase of approximately $63.7 milion "as a working number for the Company's 2010-2011
PCA filing deferrng final calculation of authorized NPSE to the PCA case." Order No. 31042,
at p. 1. The Commission left unesolved in that 2010 NPSE case the issue of the prudency of a
$24.8 millon increase in costs to supply Bridger with coal from two mines - the Company's
affliate coal mine operated by BCC and the independently-owned Black Butte Mine. The
Commission authorized inclusion of the increased coal costs as a working number for the PCA
filing, but provided the opportunity for fuher investigation and assessment in the context of the
PCA docket. Id at p. 8.
The Company then fied its PCA application, wherein it calculated the 2010-2011 PCA
utilzing the NPSE approved in the 2008 general rate case and yielded a PCA reduction of
approximately $87 milion. Application, Case No. IPC-E-1O-12, at p. 4 (April 15, 2010).
Pursuat to the sharing of the PCA reduction agreed to in the settlement stipulation approved in
Order No. 30978 in Case No. IPC-E-09-30, the Company calculated a total base rate increase of
approximately $88.7 milion. Id at p. 6. The Company has fied testimony of Tom Harey
regarding the Bridger coal costs. See id. at p. 9; Direct Testimony of Tom Harey, Case No.
IPC-E-I0-12 (April 15,2010) ("Harey Testimony").
ARGUMENT
ICIP respectfuly requests disallowance of the Company's recovery of certn costs
associated with affiliate-mined Bridger coal and disallowance of all cost recovery associated
with the LGAR.
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OF IDAHO POWER - PAGE 3
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A. The Commission should disallow the excessively high affliate sunace coal costs.
1. Background on the Jim Bridger Plant's coal supply.
Idaho Power and PacifiCorp jointly own Bridger, and curently supply about one-third of
Bridger's coal needs from a thrd-par, surace mig operation, the Black Butte Coal Mine.
ICIP Comments, Case No. IPC-E-1O-01, Exhbit 1, at p. 9.1 The utilities have supplied the
remainder of Bridger's needs with coal from the BCC mine. BCC coal includes both surace-
mined and underground-mined coaL. Idaho Power stated in discovery in the 2010 NPSE 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 the underground BCC coal deliveries
will be _ tons in 2010, respectively. Id Thus, in 2010, _ ofBCC coal will be
BCC surface-mined coal.
Idaho Power's subsidiar, Idaho Energy Resources Company ("IERCO"), owns 33.33%
of the BCC mine, with PacifiCorp's subsidiar, Pacific Minerals, Inc. ICIP Comments, Case No.
IPC-E-1O-01, Exhibit 1, at p. 6. BCC is therefore an affliate ofIdaho Power. Id For rate
making puroses, Idaho Power treats the mining costs at BCC like any other regulated expense
ICIP attched to its comments in the 2010 NPSE case (Case No. IPC-E-10-01) many of
the pertinent documents regarding the Bridger coal costs. Idaho Power likewise filed many
additional relevant documents in the 2010 NPSE case, and Idaho Power has requested the
Commission tae administrative notice of its attchments. See Application, at p. 9. ICIP
supports Idaho Power's request, and fuer respectfully requests the Commission tae
administrative notice ofICIP's comments and attchments in Case No. IPC-E-1O-01.
2 Idaho Power's White Paper is a confidential document Idaho Power provided in response
to Idaho Commission Stafs Production Request 4 in the Case No. IPC-E-1O-01. Idaho Power
included that Whte Paper as Attachment NO.1 of its Reply Comments in Case No. IPC-E-1O-01.
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for which it ears a rate of retu. The "sales price" for the BCC coal used in the NPSE
"includes an operating margin, equa to the overall rate of retu authorized in general rate cases
where IERCOIBCC operations are treated as par of the regulated activities of the Company."
ICIP Comments, Case No. IPC-E-I0-01, Exhbit 2. Idaho Power adjusts the sales price
"periodically as updated BCC mining expense data becomes available." ICIP Comments, Case
No. IPC-E-I0-0l, Exhbit 2. In contrast, Idaho Power ears no profit on purchases of coal from
Black Butte Mine, and instead Idaho Power charges ratepayers the same cost it pays for the
Black Butte surface coal.
So although there is little risk of tre cross subsidization with this Bridger-BCC afliate
relationship, Idaho Power and PacifiCorp have been operating, and profiting off of, a captive
mine for a long period of time rather than purchasing all coal on the open market at no profit. In
this case in paricular, Idaho Power's responses to ICIP's production requests 1 (b) and 1(f)
reveal that it will ear an average operating margin of _ on each of the _ tons of
Idaho-allocated BCC coal it will mine for sale to Bridger in the 2010 NPSE test period. See ICIP
Exhibit 1, at pp. 3-4.3 And for the tons of coal from the surace BCC mine, which are now more
costly, the profit per ton would be even higher. The tota profit from the BCC mine in 2010
alone would be But for each ton of coal Idaho Power purchases from Black
Butte mine, Idaho Power ears no retur; Idaho Power's profit from using that mine's coal is
zero. Idaho Power therefore has embedded incentives to mine the most tons of coal as it can at
the BCC mine.
ICIP therefore strongly disagrees with Idaho Power's assertions that there is no incentive
3 For reference, ICIP has attched, as Exhibit 1, Idalo Power's confidential responses to
ICIP's production request 1 in this PCA case.
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secrets or confidential material and are separately riled.
to overcharge for BCC coal and no incentive to continue those afliate operations to the fullest
extent possible. ICIP does not reject the BCC-Bridger plant mine mouth coal supply operation
as per se imprudent, but respectfuly submits that the affiliate relationship and associated profits
warant close scrutiny of the BCC sales price ratepayers will pay. In sum, without market forces,
the only outside force requiring the Company to keep costs down at the BCC mine is a thorough
prudency review by the Commssion.
2. Idaho Power must meet its burden to prove that the increased costs
associated with its affliate mine are prudent by showing the affliate price passed
onto ratepayers is the lower of the Company's affiliate's sales price or the market
price.
In the 2010 NPSE case, Idaho Power stated that, at least for purchases from its affiliate
BCC, it must purchase the afliate coal at the lower of cost or market. See Idaho Power Reply
Comments, Case No. IPC-E-1O-01, p. 13 (March 23,2010) (quoting Order No. 30530, Revised
Code of Conduct, at p. 2, ii 8(g)). The obvious policy reason for requirng this lower of cost or
market analysis is to ensure- in light ofIdaho Power's obvious incentive to mine its own coal ~
that ratepayers are not paying a higher cost for BCC-mined affiliate coal than ratepayers pay for
market-priced coal supplied to Bridger. Ths policy creates an incentive for Idaho Power and
PacifiCorp to properly manage their affliate mine so as to keep the coal costs reasonable.
The Commission found that Idaho Power had not met its burden of proving this lower of
market or cost test. The Commission stated: "We expect the Company in that (PCA) docket to
support its proposed adjustment to the Bridger coal costs. We reject its contention that aprima
facie case has been made for inclusion of same and accordingly do not shift the burden of proof
on this issue to Staf or others." Order No. 31042, at p. 8. Idaho Power stated that if the
Commission were to.find any portion of the Bridger coal costs to be imprudent, 100% would be
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retued to customers, not the 95% tyically refuded though the PCA. Order No. 31042, at p.
7; see also Order No. 30828, at p. 1 (discussing 5% limitation on PCA refuds to ratepayers).
Thus, the Company has the burden of proving in this case that the BCC sales price passed onto
ratepayers is equal to or less than the sales price of a market alternative, and if it fails to do so the
Commission may disallow the difference from the 2010 NPSE.
3. The sales price of BCC sunace-mined coal is far higher than the sales price
of market coal from Black Butte.
Because of required changes in mining and accounting, the price of BCC surace-mined
coal increased substatially at the conclusion of2009. See ICIP Comments, Case No. IPC-E-10-
01, Exhbit 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, and the average "sales price" including the operating margin is
_ per ton. See ICIP Exhbit 1, at p. 2 (providing response to request 1(b)). In contrast,
Idaho Power will only pay _ per ton for Black Butte coal (presumably includig Black
Butte's profit margin). See ICIP Comments, Case No. IPC-E-1O-01, Exhbit 3, at p. 4. The
higher cost ofBCC coal is attibutable to the surace-mined coal, which according to ICIP's
calculation of data provided in discovery will average _ per ton for the eleven months in
which Idaho Power supplied a cost,4 and will be as high as .. per ton in one month. See ICIP
Comments, Case No. IPC-E-10-01, Exhbit 3, at p. 2. And those costs Idaho Power provided for
4 This average cost calculation excludes one month for which Idaho Power provided no
cost data under the assumption that there will be no BCC surace coal deliveries in that month.
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the surface-mined coal exclude Idaho Power's operating margin which it will charge ratepayers.
So the average sales price ofBCC surace-mined coal will easily exceed. per ton in 2010.5
In Oregon Public Utilty Commssion Docket UE 214, the Oregon Commission Staff
calculated that replacing the BCC surace-mied coal with the coal from Black Butte surace
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 milion, only $723,110 of which is attributable to Oregon.
ICIP Comments, Case No. IPC-E-1O-01, Exhibit 1, at p. 12. Oregon Commission Staf proposed
disallowing ths amount in its testimony on the ground that the Black Butte coal sales price
reflected the lower of the cost or market price when compared to BCC surace coaL. ICIP
Comments, Case No. IPC-E-1O-01, Exhbit 1, at p. 16. In ths Idaho case, ICIP likewise submits
that the high-cost of the surace-mined BCC coal at an average sales price passed onto ratepayers
in excess of. per ton is far higher than the Black Butte market coal (which is also surace
mied) at _ per ton, and is therefore simply unjust. The difference in sales prices is at least
. per ton for each of_ tons of Idaho's allocation of BCC surface coal for the 2010
NPSE test year, for a total cost difference to Idaho ratepayers of at least $16 milion.6 Under the
lower cost or market test, the Commission should reduce the preliminarily approved increase to
NPSE by at least that amount.
5 In fact, assuming the same ratio of cost to sales price provided in discovery for tota BCC
coal supplies, see ICIP Exhbit 1, at p. 2, ICIP calGulates the average sales price of BCC surface
coal will be _ per ton in 2010. ICIP notes that ths price is not only in excess of Black
Butte coal, but is also far in excess of the cost of Powder River Basin coal even with the huge
transporttion costs required for that coal. See Harey Testimony, at p. 12.
6 Idaho's allocation of total BCC coal is _ tons for the 2. 010 NPSE test period, Se~
ICIP Exhbit 1, at pp. 2-3, and surace coal is ~ total BCC coal for 2010 - equaing_tons.
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4. The Company has not met its burden of proving the prudency of its request
for increased costs for coal supplied to the Jim Bridger Plant from its affliate
mining company.
ICIP disagrees with Idaho Power's justifications for charging ratepayers $16 millon
higher for its affiliate surface coal than the market price for that amount of coal. Idaho Power
priarly defends its highly priced, surace-mined BCC coal on the grounds that Idaho Power
calculates the "decrementa cost" of BCC surace coal to be lower than the cost of the curently
available Black Butte coaL. Idaho Power also asserts generally that Black Butte coal is either an
unavailable replacement or of an unsuitable quaity given the required coal quality and coal
blending metrics required by Bridger, and thus, according to Idaho Power, could not be used to
replace BCC surface coaL. But ICIP submits that Idaho Power has not met its burden of proving
the extremely high sales price of BCC surface coal is lower than the sales price of market coal,
or is otherwse reasonable.
a. Idaho Power's decremental cost analysis unjustifiably compares the
sales price of Black Butte coal to the cost of mining at BCC without including
Idaho Power's operatig margin or profit on its BCC coal and unjustffably
uses costs from a different mine plan from that utilied in the 2010 NPSE
fiing.
Idaho Power attempted to calculate the decremental cost of BCC coal - the amount Idaho
Power would save by not minig BCC surace coal and therefore the amount Idaho Power could
use to purchase replacement coal on the market. See Harey Testimony, at p. 9; see also Idaho
Power Reply Comments, Case No. IPC-E-I0-0l, Attchment 3, at pp. 8-10 (containig reply
testimony of Tom Harey filed in Oregon, which contans a more detailed explanation of the
decrementa cost analysis); See ICIP Exhibit 1, at pp. 2 -3 (indicating in response to request l(d)
that Idaho Power relies on the very same decrementa cost analysis in the Idaho case as that
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prepared for the Oregon case even though the test periods are different). Idao Power asserts
that "(i)fthe surface mine were shut down, which is the logical implication ofICIP's proposed
adjustment in IPC-E-I0-0l, many of the shared costs would not be avoided but would need to be
reallocated to the cost of the underground coal.,,7 Harey Testimony, at p. 6. Idaho Power
estimates that foregoing mig BCC surace coal would free up only. per ton to purchase
replacement coaL. Id. at p. 10. Idaho Power argues that is not enough to cover the sales price of
Black Butte coal, so there is no cheaper market alternative to which the Commission may
compare the BCC surace-mined coal.
But Idaho Power's decrementa cost analysis fails to substatiate Idaho Power's
assertions for two main reasons. First, Idaho Power's decrementa cost calculation for BCC used
," but the actu ratepayer'
." See ICIP Exhbit 1, at p. 2.
The ratepayer price is higher because it '"
Id So Idaho Power's decrementa cost analysis miscalculates the amount that ratepayers would
save if Idaho Power stopped mining BCC surface coal by using a staing point that is _ per
ton. than it should be. The decremental cost analysis and the lower cost or market analysis
canot exclude Idaho Power's profit margin. Second, Idaho Power's decrementa cost
calculation is "based upon its most curently available mine plan. The curent mine plan projects
BCC costs to be per ton for April
7 As ICIP clarfies in these comments, ICIP does not assert Idaho Power should forego
mining BCC surface coal. ICIP lacks suffcient information and expertise to determine whether
continued mining of surface coal is appropriate. Rather, ICIP maitains that the sales price
ratepayers pay for surface-mined BCC coal should not be vastly higher than the sales price of
similar, nearby surace-mined coal sold on the market.
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2010 though March 2011." Idaho Power Reply Comments, Case No. IPC-E-I0-0l, Attchment
3, at p. 8. Here too, the decremental cost analysis should consider the amount ratepayers will
pay for BCC coal, which uness Idaho Power intends to update its fiing will be _
_ than tht used in the decrementa cost analysis.
Reversing the combined effect of these two errors in the decremental cost calculation
would result in adecremental cost for BCC surace coal that is substantially higher than that
contained Idaho Power's testimony. Idaho Power's analysis of the April 2010 to March 2011
test period prepared for the Oregon case therefore does little to justify the extremely high sales
price of BCC surface coal for Idaho ratepayers in the 2010 NPSE case with a different test
period.
b. Idaho Power's White Paper demonstrates that there is at least some
available market replacement coal, and even if there were none available
Idaho Power must stil demonstrate that its sales price for its affiliate coal is
equivalent to a market price.
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
. Idaho Power's Whte Paper,
at p. 8. Even with transportation costs of approximately aer ton included, that price is far
löwer than the BCC surace-mine coal sales price of over lIer ton in 2010. It is also likely
less than the decrementa cost of BCC surace coal under Idaho Power's own methodology if
Idaho Power had included its operating margin and the old mine plan that it will use to charge
ratepayers. Due to quality constraints, Idaho Power asserts that
d (emphasis added).
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But Idaho Power's Whte Paper does not explai why Idao Power and PacifiCorp would
forego the opportty to secure access to ths additional _ons per year of low-cost Black
Butte coal to at least replace some of the very costly _ons they plan to sell to
themselves from their BCC surface mine. Nor does it explain why Idaho Power and PacifiCorp
waited unti Februar 2010 afer this issue was raised in the Oregon energy cost update case
(Docket No. UE 214) to inquie as to additional supplies from Black Butte. And nothng that
Idaho Power has fied affirmatively states that Bridger could not operate effectively with its
required coal blending metrcs if Idaho Power and PacifiCorp had purchased this available Black
Butte coal and used its BCC surace coal for the remaider of Bridger's needs.
More importtly, however, Idaho Power's assertions that Black Butte coal is not
availåble to completely supplant the BCC surace coal, or could not meet the blendingmetrics at
Bridger misses the point. Idaho Power taes the position that there is no available market
alternative, so there is no is no market price to which the Commission may peg the sales price of
BCC surface coaL. Under this rationale, Idaho Power can charge ratepayers any amount for the
BCC surface coal on the ground that there is no market comparison for it. Idaho Power's
assertions overlook the basic policy behind the lower of cost or market test, which is to require
that the prices passed onto ratepayers -- whether from affliate or market transactions - are
reasonable. An affliate price
_ is simply not reasonable. Black Butte is a surface mine, and Idaho Power has provided
insuffcient explanation why the nearby Black Butte surace mine is not subject to the same cost
considerations as the BCC surace mie. Because nearby Black Butte surface coal is so much
less expensive than BCC surface coal, it is uneasonable to allow Idaho Power to charge
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ratepayers so much more than a comparson market price for its affiliate coaL.
In sum, Idaho Power's comments in the NPSE case, its White Paper, its discovery
responses, and its testimony in ths PCA case have raised more questions than they have
answered. The Company has not established a case that the entirety of the $16 milion cost
difference to Idaho ratepayers between afliate surace-mined coal and the market equivalent
surace.,mined coal from Black Butte is reasonable. . Thus, ICIP respectfuly requests that the
Commission disallow this cost difference for surface-mined BCC coal from the base level NPSE.
5. Idaho Power's most recent mine plan used in its decremen.tal cost anal sis
indicates that BCC costs wil be than those filed, and
As noted above, the average costs for mining all surace and underground BCC coal -
Idaho Power's Idaho share of which is _ tons for the 2010 test period - have _
_ since the time of initial preparation of the filing of the 2010 NPSE case. See, e.g.,
Idah(J Power Reply Comments, Case No. IPC-E-1O-01, Attachment 3, at p. 8 (noting for the
April 2010 to March 2011 test period the difference is _ per ton). Idaho Power stated in
discovery that the Company's stadard practice is to include the most curently available
information at the time each filing is prepared. It used the mine plan for the
2010 NPSE filing in Janua 2010, and used an updated mine plan in its decremental cost
analysis and its filing for this 2010-2011 PCA case. From Idaho Power's discovery responses on
the issue, however, it is not possible to determine precisely how much. the curent mine plan
projects BCC coal to cost during the 2010 NPSE test year. See ICIP Exhbit 1, at pp. 2-4.
ICIP respectfully submits that, whatever Idaho Power's stadard policy may be, the
Commission should, at a minimum, require the Company
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This case is different from one where Idaho Power's tyical policy may
apply because the Commssion rejected Idaho Power's request for full-blown approval of the
coal costs in the 2010 NPSE filing. The Commission required the Company to file additional
testimony to substatiate the NPSE costs in ths PCA docket. By the time of the application in
this PCA docket and the additional testimony attempting to properly establish the Company's
case, the new coal costs from the new BCC mine plan were available. Additionally, as a matter
of simple fairness, the Commssion should not allow Idaho Power to use its new mie plan to
justify use of its high-priced coal in its decremental cost analysis, but ignore the _ in
the new mine plan when determining coal costs ratepayers will pay. The Commission should
reject any assertion that Idaho Power will make up for the cost difference in the new mine plan in
future PCA filings because 95% of those costs.
B. The Commission should disallow the cost recovery associated with the Load Growth
Adjustment Rate from this PCA filing.
Idaho Power is proposing to operate the LGAR mechansm as never before in this PCA
case. ICIP respectfully requests that the Commission disallow the $23.7 millon in cost recovery
requested in the LGAR. At a minimum, ICIP requests that the Commssion expressly state that
any recovery authorized is subject to future reduction pending resolution of the workshops
directed by the Commission in PacifiCorp's energy cost update. See Order No. 31033, at p. 12.
ICIP joins in the comments of the Idaho Irrgation Pumpers Association ("IIPA"), and
respectfully submits these additional comments on LGAR.
1. The PCA and LGAR Background
In 1981, the Commission approved setting power supply costs based on normalized
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conditions from multiple hydro years. See Case No. U-I006-185. Ensuing severe droughts
caused the Company to fie for rate surcharges. The Commission found ths method of dealing
with volatile hydro conditions to be undesirable, and developed the PCA. The Commission
ultimately determined "that the curent system of normalizing power supply costs and granting
Idaho Power a surcharge during drought years is defective because it is unpredictable and
ratepayers do not receive any rate reduction durng high water years." Order No. 24806, at pp.
4-5. The PCA "addresses this concern and will produce consumer benefit in the form of lower
rates durng years of favorable stream flows." Id at p. 5. Thus, the PCA's purose was to create
a system where both Idaho Power and its customers would share in the costs and benefits of
changes in power supply costs, caused primarly by variations in stream flows, that occur
between general rate filings. Neverteless, in approving the PCA, the Commission stated that it
continued ''to believe that normalization is a valuable ratemakng methodology for other types of
expenses and revenues. Nothing in this Order should be constred to the contrar." Id
The Commission implemented LOAR to prevent the Company from double-recovering
certn costs under the PCA. Id. at p. 20. The load growth adjustment factor is used to adjust for
power supply costs that the Company has already recovered from customers though rates.
Although new loads add to Idaho Power's power supply costs over and above those established
through rate case normalization procedures, these new loads pay Idaho Power's rates for the
power they receive. Allowing the Company to automatically recover in the PCA the ful costs of
serving new load would therefore result in an over-recovery by the Company. See id. (stating
"Idao Power's proposed PCA allows it to double recover fuel costs associated with load growt
which, essentially, offsets the cost of constrcting additional plant"). In other words, if the PCA
COMMENTS OF INDUSTRIL CUSTOMERS
OF IDAHO POWER - PAGE 15
. .
REDACTED VERSION - The redacted portons of this document allegedly contain trade
secrets or confidential material and are separately filed.
were not adjusted to tae into account the revenues the Company receives from new customers
or increased load, the Company would again receive them automatically in the PCA as higher
power supply costs. "All paries agree that the principal purose of PCA load growth adjustment
rate is to eliminate the potential for double recovery of power supply expenses. Idaho Power
believes this should the sole purose of the load growt adjustment." Rebutt Testimony of
Gregory Said, Idaho Power Company, IPC-E-06-08, at p. 27 (October 20, 2006).
The method of calculation of the LGAR has undergone significant changes over the past
few years. In 2008, when the paries settled Idaho Power's general rate case (Case No. IPC-E-
07 -08), the Commission approved the Stipulation in that case, and stated:
The Paries agree. to make a good faith effort to develop a
mechanism to adjust or replace the curent Load Growt
Adjustment Rate (LGAR) to address costs of serving load growt
between rate cases. As an interim resolution, the LGAR for PCA
year 2008 (April 2008 - March 2009) wil be $62.79 per MWh
applied to one-half of the load growt occurng during each month
within the PCA year.
Stipulation, IPC-E-07-08, at p. 4, (Jan. 23,2008). This approach deviated from prior method of
using the Company's full marginal cost to determine the LGAR, applying it to one-half the load
or essentially one-half full marginal cost.
The next change in the methodology moved the calculation of the LGAR to include three
different components - a retu component, an expense component, and a revenue component of
the production-related rate base. The Commission's order approving the stipulation
implementing that change stated:
The curent LGAR is calculated by multiplying the marginal cost
of serving new load by one-half of the difference between curent
load and the load established in the Company's last rate case (Case
COMMENTS OF INDUSTRIAL CUSTOMERS
OF IDAHO POWER - PAGE 16
. ,, )REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately filed.
No. IPC- 07-08). The curent rate is effectively $31.39 per MWh.
The proposed new methodology recognzes that the Company
incurs additional power supply costs to serve new load between
rate cases and has no opportty to collect those costs. By using
thee components - a retu component, an expense component,
and a revenue component of the production-related rate base - the
new calculation recognzes the generation related revenue that is
collected from new load though rates. The proposed LGAR using
the Stipulation's formula is $28.14 per MWh.
Order No. 30715, at p. 2.
2. The Commission should not allow the Load Growth Adjustment Rate to
work as a second decoupling mechanism during this time of declining loads.
Although the load growth adjustment was obviously established to deal with double
recovery in rates as the power system experienced load growt, Idaho Power is now
experiencing load declines due to worst economic downtur since the Great Depression and
increased conservation effort. The use of a load growth mechansm in the face of declining
loads is counterituitive and yields unintended consequences.
In the recent PacifiCorp power cost adjustment case (Case No. PAC-E-I0-01), the
Commission recognzed that a load growth adjustment in the face of declining loads can lead to
over recovery by a utilty. The Commission stated that operation of the load growt adjustment
mechansm "reveals an unintended consequence in periods of declinig retail load." Order No.
31033, at p. 12. It "appears to operate much the same as a decoupling mechanism reimbursing
the Company for lost revenue for reductions in customer usage (sales)." Id Specifically
regarding PacifiCorp's fiing, "(s)eventy-five percent of the ECAM deferral in ths case is related
to declining load. The (LGAR) adds power supply costs to make up for the generation portion of
lost sales." Id. It thus "looks less like a power cost adjustment and more like a vehicle to
restore lost revenue due to decreases in customer usage. We find the result that is presented by
COMMENTS OF INUSTRIL CUSTOMERS
OF IDAHO POWER - PAGE 17
, .( .REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately filed.
use of an ECAM containing an LGAR durng periods of declining load growt is a problem that
may also occur in the Power Cost Adjustment (PCA) mechanisms ofIdaho Power and Avista."
Id This creates "benefits differently than (the Commission) anticipated." Id.
In short, "(f)or the (load growt adjustment mechansm) to act as a decoupling
mechansm was unntended." Id. The Commssion concluded that ifPacifiCorp "desires a
decoupling mechansm it should request and justify one in a separate filing." Id. The
Commission therefore directed the Commission Staff to conduct workshops to investigate the
issue for the thee utilties. Id
The same decoupling effect recognzed by the Commission in the PacifiCorp case is in ,
play in this case. Except here, Idaho Power aleady has a decoupling mechansm that applies to
about 60% of its loads. See Order No. 30267 (approvig the fixed cost adjustment ("FCA") for
the commercial and residential classes); Order No. 31063 (renewing the FCA mechansm); see
also Direct Testimony of Steven Weiss, Idao Power Company, Case No. IPC-E -06-08, at p. 2
(discussing the interaction of the FCA and the PCA). The Company acknowledged in its
discovery response to lIP A production request no. 2 that "( t )he 2010 PCA is the first filing where
the annual load growt adjustment reflected negative annual growth." (emphasis in original). In
other words, although the LGAR has logically been used to recognize declining loads within
individual months of test year with an overall increase in load, it has never been used to increase
rates in the same maner as decoupling. So, in ths case for the first time ever, Idaho Power
proposes to charge ratepayers twice for lost revenue for the same load reduction.
Specifically, the Company's curent PCA application includes an increase of$23.7
milion in rates from the LGAR adjustment based on actul loads being 5.94% (889,235 MWh)
COMMENTS OF INDUSTRIAL CUSTOMERS
OF IDAHO POWER - PAGE 18
. ,. .REDACTED VERSION - The redacted portions of this document allegedly contain trade
secrets or confidential material and are separately fied.
lower than normalized loads. See Application, at Exhbit 1, line 13. In addition, the Company
has fied for the recovery of $6.3 millon though decoupling in Case No. IPC-E-IO-07 from the
residential and commercial classes. This means the Company has applied for rate recovery of
over $30 millon due to declining loads. The combination of these two applications amounts to
3.4 cents per kWh in rate recovery for each kWh ofload decline -- based on the 889,235 MWh
lower than normalized loads found in the PCA.
Although ths double recovery will only occur for the residential and commercial classes,
the Commssion has not authorized any decoupling recovery for the other classes, including the
industral class. ICIP is opposed to decoupling and respectfully requests that the Commission
not allow the Company to implement ths decoupling effect of LGAR without providing ICIP the
opportty to fully present its views on decoupling.
ICIP therefore recommends the Commission deny the LGAR adjustment of$23.7 milion
in the curent PCA application. And at the very least, the Commission should expressly state
that any recovery from LGAR is subject to fuer reduction pending resolution ora fuher
investigation of the issue.
CONCLUSION
ICIP respectfuly requests the Commission disallow from inclusion in the 2010 NPSE all
or some portion of the BCC surace-mined coal costs that exceed the comparable market rate for
surace-mined coal by over $16 millon. ICIP fuher protests the Company's request to only
reduce the PCA revenue by $87 milion because that reduction stil allows the Company to ear
an unintended recovery of$23.7 milion from the Load Growth Adjustment Rate mechansm at
ths time of declining loads. ICIP respectfully requests disallowance of recovery of that $23.7
COMMENTS OF INDUSTRIAL CUSTOMERS
OF IDAHO POWER - PAGE 19
. ... .REDACTED VERSION - The redacted portons of this document allegedly contain trade
secrets or confidential material and are separately riled.
milion amount, or at a minimum that Commission state that amount is subject to futue
reduction pending fuher review.
Respectfuly submitted this 18th day of May 2010.
RICHASON & O'LEARY, PLLC
Ch
go M.Adams
ey for the Industral Customers of
Idaho Power
COMMENTS OF INDUSTRIAL CUSTOMERS
OF IDAHO POWER - PAGE 20
PUBLIC UTILITIES COMMISSION
OF IDAHO
CASE NO. IPC-E-10-12
COMMENTS AND PROTEST OF
INSTRIAL CUSTOMERS OF IDAHO POWER
REDACTED EXHIBIT 1
RESPONSE OF IDAHO POWER COMPANY TO ICIP
PRODUCTION REQUEST NO.1 IN CASE NO. IPC-E-10-12
MAY 18,2010
1J..1: In th CÐans reYØ)me On ~i-8;ln Ca No.;/;",i",(f;;':',';::7't/,',::'~/':'-__',_:- -,-. - ", - - - _ '; -,' ',,' -- - " : - ',. _ _ _ '''
~..C:1A,~, 'i.c.~", ~ a.:4 .~.... :.;"'_+ ~ ..-...i," ~ll ton-~ V'1';ir,~;'~l~;'l1;~'U.l'i:i;u. n'~;'lllVOOnW'nlF'" Q~ln.~J . r
~:t_Jft~--..~_Is' p'l..-.-..~..;~o"lùES11...2 of.'1'=: 7W!lill~l:~r.,'f;T;O€~~:----~,¡Îiiíìi'Olr--~-~J"~~ .-. " ---)~-:-_~i,,~;:;-,--';:N:--;:,~:,:---W~t-:____:_,_-_: r-":_'-_;?~:ll'---i---
TÐm lis ~ rep tey fi in Oregon PUC Ooet Mo. US 214,
wh is No. 3 in ld Pows re cont in l
co ar in ll:idett
anwhio
de_1l
(a) ~ wa th cost pe ton of BeC col use in th;~ co
an?
(b) Wh is th cot per ton of sec col includ in th Co's
~ Qf~;~fllD;i$ ap in Cas No. lPC-1~?
(c) if ttl an to (a) an (b) are, dit co pe to fa se cot,pl ~ lf.
(d) ltrtß ~ to (a) an (b) are'dler, pl at ex bo th
~;;Ga;~ oo pre a usel co whn it ba inut of
CQ;__iø'~ ~ isØU ffor th file co in th NPSE case.
(e) lfth cot pe ton in (a) is tor than th cot per ton in (b), pl al
~ ho th MP th th Co pr to recver in ba ra stng
Jim 1, " jus an reaJe when th most currentl avaÌ'1a miné plan
(f) Pl prov th prodct of th dilenc fr th co per too in (a)
and (è) (whis avla at pa 8, li 12 of Harveys rety temoy) mulli by
Idah's ~ of th tol tons of BeC col,the Compny plans to mine during the
2010 NPSE te year.
ntEFJRTOf IDAH PO - 2
nn0f'1
nnon2
.. .
REDACTED
This exhibit allegedly contains trade secrets or
confidential material and is separately filed.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 18th day of May, 2010, a tre and correct copy of the
withn and foregoing COMMENTS AND PROTEST OF THE INDUSTRIAL CUSTOMERS OF
IDAHO POWER, was served in the maner shown to:
Ms. Jean Jewell
Commssion Secreta
Idao Public Utilties Commission
POBox 83720
Boise, il 83720-0074
X Hand Delivery
~ U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Lisa D Nordstrom
Donovan E Walker
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
lnordstrom(iidahopower .com
dwalker(iidahopower .com
_ Hand.Delivery
lLU.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey Chtd.
PO Box 1391
Pocatello, ID 83204-1391
elo(iracinelaw.net
_ Hand Delivery
lLU.S. Mail, postage pre-paid
Facsimle
Electronic Mail
Anthony Yanel
29814 Lake Road
Bay'Vilage, OH 44104
tony(iyanel.net
_ Hand Delivery
lLU.S. Mail, postage pre-paid
Facsimile
Electronic Mail
~CUl1~
Nina Curis
Administrative Assistant