20100518Protest.pdf

LAW OFFICES OF
W. MARCUS W. NVE
RANDALL C. BUDGE
JOHN A. BAILEV, JR.
JOHN R. GOODELL
JOHN B. INGELSTROM
DANIEL C. GREEN
BRENT O. ROCHE
KIRK B. HADLEY
FRED J. LEWIS
ERIC L. OLSEN
CONRAD J. AIKEN
RICHARD A. HEARN, M.D.
LANE V. ERICKSON
FREDERICK J. HAHN, III
DAVID E. ALEXANDER
PATRICK N. GEORGE
SCOTT J. SMITH
JOSHUA D. JOHNSON
STEPHEN J. MUHONEN
CANDICE M. MCHUGH
CAROL TIPPI VOL'YN
BRENT L. WHITING
JONATHON S. BVINGTON
DAVE BAGLEY
THOMAS J. BUDGE
JONATHAN M. VOLYN
MARK A. SHAFFER
JASON E. FLAIG
RACINE OLSON NYE BUDGE Be BAILEY
CHARTERED
BOISE OFFICE
101 SOUTH CAPITOL
BOULEVARD, SUITE 208
BOISE, IDAHO 83702
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LOUIS F. RACINE (1917-2005)
WILLIAM D. OLSON, OF COUNSEL
May 18, 2010
Re: Case No. IPC-E-IO-12
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Jean D. Jewell, Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, Idaho 83720-0074
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Dear Ms. Jewell:
Enclosed for filing in the captioned matter, please find the original and seven (7) copies of
Idaho Irrigation Pumpers Association, Inc. 's Protest in the above matter.
Sincerely,
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Enclosures
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Eric L. Olsen ISB# 4811
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
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Attorneys for Idaho Irrgation Pumpers Association, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE APPLICA nON )
OF IDAHO POWER COMPANY FOR )
AUTHORITY TO IMPLEMENT POWER COST )
ADJUSTMENTS ("PCA") RATES FOR )
ELECTRIC SERVICE FROM JUNE 1,2010 )
THROUGH MAY 31, 2011 )
)
CASE NO. IPC-E-I0-12
IDAHO IRRGATION PUMPERS ASSOCIATION, INC.'S PROTEST
IDAHO IRIGATION PUMPERS ASSOCIATION, INC. ("IIPA"), by and through its
attorneys, hereby respectfully submits, pursuant to Commission Rule 203, the following protest
with regard to Idaho Power Company's ("IPC") proposed establishment of a new Schedule 55
implementing the 2010-2011 Power Cost Adjustment ("PCA").
INTRODUCTION
The IIPA hereby protests as inappropriate IPC's inclusion of the Expense Adjustment of
$23,680,328.05 found on line 13 of its Exhibit NO.1 in ths case. This adjustment is not for costs
that were actually incurred by Idaho Power. Rather, because of the peculiarities of Idaho's and
the Nation's present economic situation, this adjustment represents a recovery of costs that IPC
did not incur. The recovery by IPC of this phantom Expense Adjustment is unquestionably
unjust and unreasonable and should be disallowed by the Commission.
Idaho Irrgation Pumpers Association, Inc.' s Protest - 1
The LIP A also joins in the continued protest of the Industral Customers of Idaho Power
("ICIP") with respect to IPC's inclusion of the increased costs of surface coal mined from IPC's
affiliated coal mine and used at the Jim Bridger coal fired Power Plant ("Bridger"). The $24.8
milion increase in the Bridger coal costs are not prudently incurred for the reasons stated by the
ICIP. Thus, the 2010 Net Power Supply Expenses ("NPSE") should be reduced from $63.7
milion to approximately $38.9 milion, with its corresponding effect on the calculation of the
2010-2011 PCA in this case.
ARGUMENT FOR DIS SALLOW ANCE OF EARGILGAR
The purose of the PCA is to recover variations in actual power supply expenses that
differ from the previous test year calculations. The emphasis here should be on actual power
supply expenses and not phantom power supply expenses. The PCA itself was meant to be
"symetrcal" in that it was designed to give the Company more money/revenue when its power
supply expenses went up (as compared to the particular test year) and less money/revenue when
its power supply expenses went down (as compared to the paricular test year). However, this
symetr was only in relationship to the actual power supply expenses themselves, not to the
proxy Expense Adjustment Rate for Growth ("EARG"), sometimes called the Load Growth
Adjustment Rate ("LGAR").
Under the PCA, it is appropriate for IPC's customers to pay more when expenses go up,
but it is ilogical under the PCA to raise rates when usage and associated costs go down. It is
also appropriate that the EARG/LGAR offsets to some extent the amount of money that IPC gets
in its PCA to reflect the increase in base revenue that IPC experiences in periods ofload growth.
However, it again makes no sense to increase the revenue that IPC gets in the PCA in periods of
Idaho Irgation Pumpers Association, Inc.' s Protest - 2
declining load, especially when the sales revenue is only decreased at the average cost, but all of
the expenses are saved in period of declining load at the margi.
The sole purposes of the EARG/LGAR it is to prevent the double recover of a single
cost. When load growth occurs over the sales in the "base case," costs go up at the margin to
serve the new load, and these costs become part of the PCA calculation. The PCA captures these
additional expenses as actual costs to compare with the costs already included in the "base case."
These additional costs wil be recovered from all ratepayers. However, the growth related sales
also brought additional growth related revenues that were not included in the "base case" as well.
A part of those additional revenues is associated with power supply costs. If the Company was
allowed to collect the additional base revenues from load growt, plus all of its marginal supply
costs associated with that growth in the PCA, then it would be collecting twice for the same cost.
Thus, the EARG/LGAR comes into play in order to credit to the PCA that portion of the
additional base revenues deemed to be related to power supply costs. It prevents IPC from
collecting growth related power supply expenses through a PCA surcharge and then also
collecting base revenue from that new load to cover the same power supply expenses included in
the PCA.
In this case, load growth has not occurred, the associated cost of growth has not occurred,
and there has been no new base revenue to collect these new, phantom power supply expenses.
Why should the EARG/LGAR in this case increase the PCA revenue by $23.7 milion for
growth, and costs of growth, that never occured? The collection of an expense that has not been
incured by IPC is against all principles of fairness, let alone the Commission's regulatory
mandate.
Idaho Irrgation Pumpers Association, Inc.' s Protest - 3
Although the PCA was designed to be symetrcal, the EARG/LGAR was not. It is
appropriate that the PCA increase or decrease as IPC's power supply expenses increase or
decrease. However, when the power supply expenses decrease because the load has dropped, the
EARG/LGAR should never be increased to make up for expenses that were never incurred. The
EARG/LGAR was never meant to be symetrical and it does not make sense that it should be
symetrcal. Because of the sustained growt that Idaho Power has experenced over the last
20-30 years, the idea of a load decrease was far from everone's mind when it was developed.
Even the name of the EARG (Expense Adjustment Rate for Growth) or LGAR (Load Growth
Adjustment Rate) demonstrates that this is a one-way adjustment related to growt. Ifit had
been conceived of as a symetrcal adjustment, it would have been more properly called an
Expense Adjustment Rate for Load.
The EARG/LGAR was designed to insure that there was no double recovery of the
additional power supply expenses due to load growth. There are no "additional" power supply
expenses associated with a reduction in load-simply, less coal is burned, there is less power
purchased, or there are more sales for resale that brings in additional revenue.
There are numerous places in Commission Orders, as well as in testimony presented
before the Commission, that demonstrate that the intent of the EARG/LGAR was to address the
issue of increased power supply expenses due to load growth and the offsetting of additional
revenue that comes with this new load. There has never been mentioned in a Commission Order
the intent of the EARG/LGAR to reflect any type of adjustment for a reduction in system load,
let alone to be an adjustment to increase IPC's revenues when loads decreased. This fact is
evident in Staff witness Hessing's testimony in Case No. IPC-E-06-81:
i See Hessing's Direct testimony in Case No. IPC-E-06-8 page 4, begining on line 9.
Idao Irgation Pumpers Association, Inc.' s Protest - 4
Q. Please discuss Idaho Power Company's initial PCA filing.
A. Idaho Power Company filed for a PCA in 1992 and it was approved and
implemented in 1993 with some modifications. Idaho Power's 1992 filing was
made to address the problem of fluctuating water conditions that caused widely
varyng power supply costs. When water conditions were poor, power supply
costs were higher than what was authorized for recover in rates. A general rate
case provided no relief from high power supply costs associated with below
normal water conditions since water conditions and power supply costs are
normalized in a general rate case.
Staff obsered that in the Company's origial PCA proposal, varations
from the normalized costs of power supply were due to water conditions and
power supply cost increases caused by load growth. Staff believed that load
growth costs could be significant and that load growth costs were not the kind of
costs that the PCA should recover. Staff proposed a load growth adjustment
mechanism in the PCA that removed actual power supply costs associated with
load growt by multiplying the amount ofload growth by the marginal cost of
power supply and subtracting the result from actual power supply costs. Staff
approximated the marginal cost of power supply as 16.84 $/M which was the
average of the varable costs of Valmy and Boardman, the company's two highest
operating costs at that time. In that case Staff also argued that without the
adjustment the Company would double recover the normalized cost of power
supply because it was included in base rates and in actual booked power supply
costs that accumulated in the PCA tre up mechanism. (Emphasis Added)
Hessing's testimony in Case No. IPC-E-06-8 that the EARG/LGAR was designed to
prevent double recover of power supply expenses did not stand on its own, but was fully
supported by the Company testimony in that same case. IPC witness Said made numerous
references to the fact that EARG/LGAR was designed to prevent the double recovery of growth
related power supply expenses in his Rebuttal testimony in that same case. For example2:
. .. . Adoption of an adjustment mechanism based on expense levels created the
potential for double collection of power supply expenses from customers. Idaho
Power believes that the intent of the load growt adjustment rate was to eliminate
the possibilty of double collection of power supply expenses.
2 See Said's Rebuttl testimony in Case No. IPC-E-06-8 page 3, begining on line 6.
Idaho Irrgation Pumpers Association, Inc.' s Protest - 5
Q. Do the other witnesses in this case agree that eliminating the possibility of
double collection of power supply expenses from customers has been a historical
intent of the load growth adjustment rate?
A. yes....
Later in his testimony in that same case, IPC witness Said sumarizes his testimony and makes
an even stronger case for the IPC's position/eliefthat the EARG/LGAR is only for purposes of
preventing the IPC from double recoverng growth related power supply expenses3:
Q. Please summarize your rebuttal testimony.
A. All paries agree that a principal purpose of the PCA load growth
adjustment rate is to eliminate the potential for double recovery of power supply
expenses. Idaho Power believes this should be the sole purpose of the load
growt adjustment. (Emphasis added)
Mr. Said made it very clear what IPC felt was the "sole purose" of the EARG/LGAR.
Given the steady growth that has taken place over the last 20-30 years, there has been virtally
no consideration of what happens when growt is negative. Like Mr. Said testified, the sole
purose of the growth adjustment was to insure that there was no double recover of power
supply expenses when there was positive growt (as occurred every year in the past). However,
because of a quirk in the calculation that became evident as a result of the curent economic
crisis, IPC is now proposing to use the EARG/LGAR to collect revenue for expenses it never
incured. Idaho Power is proposing that the result of the EARG/LGAR calculation be negative
because the load growth (compared to the base load used in the last test year) was negative.
3 See Said's Rebuttl testimony in Case No. IPC-E-06-8 page 27, begining on line 11.
Idaho Irrgation Pumpers Association, Inc.' s Protest - 6
In LIP A's Data Request No.1, IPC was asked whether it was stil its position that the sole
purose of the EARG/LGAR in the PCA was to eliminate potential double recovery of power
supply expenses~ IPC's response was:
Yes and no. Mr. Said's referenced statement was made in the context of growing
loads, not declining loads. Furher, Mr. Said's statement was focused on the
appropriate rate components to be included in the dervation of the load growth
adjustment rate ("LGAR") and not the application ofthe LGAR in the calculation
of the PCA.
The current LGAR was derived under the stipulated methodology approved by
the Commission in its Order No. 30715 in Case No. IPC-E-08-19. The LGAR
represents the amount of base level power supply expense and specific generation
related cost recovery that is included in the Company's base rates. In perods of
load growth, the LGAR eliminates the double recover of power supply expenses
and the potential for double recovery of other specific generation related costs that
mayor may not be increasing. In periods of load decline, the LGAR is
consistently applied to ensure that the Commission-allowed base level power
supply costs are appropriately accounted for in the calculation of the PCA. That
is, the LGAR recognzes that the amount of power supply expenses and other
specific generation related costs recovered through the Company's base rates
changes as loads increase or decline. Therefore, a "load growth adjustment" must
be made in order to properly estimate power supply expenses at a normalized load
leveL, eliminating factors such as weather or stream flow conditions. (Emphasis
added)
There are several important issues raised by IPC's response. First, it demonstrates that
IPC's position and Said's "statement was made in the context of growing loads, not declining
load." Basically, ths response is saying that no one, including the IPC, had considered the
EARG/LGAR also applied in periods of declining loads. If Mr. Said (or IPC) had felt that there
was more than one purose of the LGAR at the time, he would not have stated that IPC believes
that the elimination of the potential for double recover "should be the sole puose of the load
growt adjustment."
The second par ofIPC's response is even more erroneous than the first with respect to
now coming up with a new purpose forwhat was once believed to be the "sole purose of the
Idaho Irrgation Pumpers Association, InC.' s Protest - 7
load growth adjustment." IPC claims that durng periods of load decline that the EARG/LGAR
somehow appropriately accounts for base level power supply cost in the calculation of the PCA
and that somehow it is needed "in order to properly estimate power supply expenses at a
normalized load leveL." An example is the best way to demonstrate how off base this position is.
Assume:100 kWh of additional Residential load
7.5 cents per kWh the additional Residential revenue
7.2 cents per kWh the cost of Benett Mountain to produce the extra energy
2.663 cent per kWh the LGAR
If the load goes up 100 kWh because of Residential usage, then the revenue ofIPC goes
up $7.50. The 7.5 cents per kWh rate that is paid includes an amount for power supply costs as
well as other IPC costs of providing service. IPC's power supply costs go up $7.20 in order to
produce the additional energy. The entire amount of the $7.20 of additional power supply costs
is included in the actual costs of the PCA because they were incurred. However, the LGAR
lowers these PCA costs by $2.663 in order to reflect that a portion of the additional revenue
collected by IPC was meant to cover power supply costs. Thus, the PCA is increased for all
customers by $4.537 ($7.20 - $2.663) to reflect the increase in actual costs and the offset to
prevent the double recover. Under this scenario, IPC's revenues would have increased $12.037
($7.50 base + $4.537 PCA recovery) and its expenses would have increased $7.20 for a positive
net impact of$4.837 ($12.037 - $7.20).
Now assume that the load goes down 100 kWh under the same conditions. The revenue
to IPC wil go down $7.5ü-nce again, this revenue is not only designed to cover power supply
costs, but a host of other costs as well. Additionally, Idaho Power's expenses wil decrease
$7.20, because Idaho Power simply did not incur these costs. If all ends here, IPC wil be short
$0.30 compared to if there was no loss ofload. From this it can be said that the loss to IPC of
reduced load is far less signficant than the gains that are realized with respect to increases in
Idaho Irrgation Pumpers Association, Inc.' s Protest - 8
load. However, IPC does not want to end the application of the EARG/LGAR here. IPC wishes
to employ it in this loss ofload situation in order to erroneously increase its revenues. At the
EARG/LGAR rate of 2.663 cents per kWh, the Company wants to be reimbursed $2.663 cents
for this loss ofload. The net effect would be that IPC does not lose $0.30 because of the loss of
100 kWh, but the Company would gain $2.363 ($2.663 less $0.30). What this is also saying is
that in the PCA the actual costs went down $7.50, but IPC only wants to give the ratepayers
credit for $4.837 ($7.50 - $2.663) of the reduced cost. IPC would have the customers paying for
$2.663 of phantom costs that it ~ incured.
Furhermore, even though there was little or no consideration ofthe possibility of what
the EARG/LGAR calculation would produce in times of declining load, the thought that the
EARG/LGAR could ever produce a negative result was rejected by the Commission Staff. In
Case IPC-E-07-8, Staff witness Hessing made such a declaration that was never challenged by
any pary, including the Company. Staff witness Hessing stated on page 18, line 14 of his direct
testimony that: "It is not reasonable to apply a negative EARG in the PCA." (Emphasis added.)
The PCA, and thus the EARG/LGAR, was designed to collect only actual power supply
related expenses. There is no component of it that is designed to collect fixed cost or any form
of "lost revenue". There should be no confusion on this issue based upon the Stipulation fied in
Case No. IPC-E-08-19. That Stipulation only addressed the derivation of cerain components of
the EARG/LGAR. First of all, like any stipulation, it was designed to represent a reasonable
compromise of the multiple issues raised-it was not meant as a universal statement of fact
regarding each issue in isolation. In par, that stipulation settled a long standing dispute
regarding the magntude of the EARG/LGAR. A methodology/calculation was agreed upon
which produced a rate of such a magntude that, in combination with the rest of the Stipulation,
Idao Irrgation Pumpers Association, Inc.' s Protest - 9
produced a rate that all paries found acceptable. Although that methodology/calculation
contains a rate base component, it should not be assumed that the EARG/LGAR is designed to
recover lost revenue associated with lost load-the calculation is simply a means to an end of a
long standing arguent regarding the magntude of the rate to be charged in order to avoid the
double recovery by IPC. Never in testimony by any pary (including the IPC) prior to ths
Stipulation was there any suggestion that the calculation of this rate should include a rate base
component. The methodology/calculation the Stipulation is simply an arificial means to an end
that was acceptable to all paries.
CONCLUSION
Based on the foregoing, the Commission must reject the $23.7 millon of phantom
expenses IPC has included in this PCA due to the inappropriate and unanticipated application of
the EARG/LGAR in this case. On its face, this adjustment is contrar to the regulatory policy of
this State. If this amount were to be passed though to the ratepayers, it would be unjust and
uneasonable as IPC would be collecting revenue through the PCA for an expense that it never
incured. The PCA is designed to only recover actual power supply expenses incurred for
supplying load, not to collect phantom revenue for load that was not served.
In the alternative, IIPA requests that the Commission resere the collection of the $23.7
milion until after the workshops are held that were ordered in Order No. 31033 in Case No.
P AC- E-l 0-01, regarding a similar issue. Although LIP A agrees that a workshop that addresses
this issue simultaneously for all Idaho electrc utilties would be beneficial, the historical record
and evidence associated with Idaho Power's PCA and EARG/LGAR are clear and should stand
on their own. However, as long as the removal of the $23.7 milion adjustment takes place in
Idaho Irrgation Pumpers Association, Inc.' s Protest - 10
.
ths case, and its final disposition is reserved for the workshops and subsequent proceedings, the
ratepayers should not be hared.
Finally, the Commission should reject IPC's request for $24.7 milion in additional
Bridger coal costs as not being prudently incurred and remove the same from the 2010 NPSE
number.
DATED this 18th day of May, 2010.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
By
ERIC L. S , Attorney fo
Idaho Irrga ion Pumpers
Association, Inc.
Idao Irrgation Pumpers Association, Inc.' s Protest - 11
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this _ day of May, 2010, I served a tre, correct and
complete copy of the foregoing document to each of the following, via U.S. Mail or private
courier, e-mail or hand deliver, as indicated below:
Jean D. Jewell, Secretar
Idaho Public Utilities Commission
P.O. Box 83720
472 W. Washington Street
Boise, Idaho 83720-0074
i jewellêpuc.state.id. us
U.S. Mail/Postage Prepaid
E-mail
Facsimile
Overnight Mail
X Hand Delivered
Lisa D. Nordstrom
Donavan E. Walker
Idaho Power Company
P.O. Box 70
Boise, ID 83707-0070
lnordstromêidahopower.com
dwalkerêidahopower.com
X U.S. Mail/Postage Prepaid
X E-mail
Facsimile
Overight Mail
Hand Delivered
Scott Wright
GregW. Said
Director State Regulation
Idaho Power Company
P.O. Box 70
Boise, ID 83707-0071
swrightêidahopower.com
gsaid(Ðidahopower.com
X U.S. Mail/Postage Prepaid
X E-mail
Facsimile
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Hand Delivered
Dr. Don Reading
6070 Hil Road
Boise, ID 83703
dreadingêmindspring.com
X U.S. Mail/Postage Prepaid
X E-mail
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Idaho Irrgation Pumpers Association, Inc. ' s Protest - 12
Peter J. Richards
Gregory Adams
Richardson & O'Lear
515 N. 17th Street
P.O. Box 7218
Boise, ID 83702
peterØ)richardsonandolear.com
gregØ)richardsonandolear.com
Idaho Irgation Pumpers Association, Inc.' s Protest - 13
x U.S. Mail/Postage Prepaid
X E-mail
Facsimile
Overnight Mail
Hand Delivered
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