20120112final_order_no_32434.pdf

Office of the Secretar
Service Date
Januar 12,2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPROPRIATE )
DISPOSITION OF PROCEEDS FROM THE ) CASE NO. IPC-E-11-17
SALE OF IDAHO POWER COMPANY'S S02 )
EMISSION ALLOWANCES IN CALENDAR )YEAR 2011 ) ORDER NO. 32434
)
On September 19, 2011, Idaho Power Company fied its report ("Report") on the
Company's sale of sulfur dioxide (S02) emission allowances in 2011. The Company says it
expects to receive $21,756 in net proceeds from the sale (after deducting brokerage fees of
$1,554), and that it will account for the proceeds using the interim accounting method that the
Commission approved in Order 29852.
On October 26,2011, the Commission issued a Notice of Reportotice of Modified
Procedure setting a November 16, 2011 comment deadline. See Order No. 32385. The
Commission's Staff submitted the only comments in the case.
BACKGROUND
A. The S02 Program
Title IV of the Clean Air Act Amendments of 1990 establishes a national plan to
reduce acid rain. 42 U.S.C. §§ 7651, et seq. The plan's centerpiece is the incentive- or market-
based "cap and trade" S02 emission program. Under this program, the Environmental
Protection Agency (EPA) caps the total amount of S02 emissions allowed nationwide. The EPA
then allocates S02 emission allowances to thermal power plant owners based on the cap. Each
allowance authorizes a plant owner to emit one ton of S02. Order No. 29852 at 1.
Each year a plant owner must hold sufficient allowances to cover actual S02
emissions. If a plant owner has insufficient allowances to cover its anual emissions, it must buy
additional allowances or be fined and forced to surender future year allowances to cover the
shortfall. A plant owner with surlus S02 allowances in a given year either may save or sell
them. S02 emission allowances are fully marketable commodities and can be traded on the open
market or in special EPA-sponsored auctions. Idaho Power has an ownership interest in thee
thermal power plants in the western United States that receive S02 allowances from EPA. Id
ORDER NO. 32434 1
B. Prior Commission Orders
The Commission has previously issued Orders related to the sale of Idaho Power's
surlus 802 emission allowances. These include, without limitation, the following Orders.
In 2005, the Commission authorized Idaho Power to sell the Company's surlus 802
emission allowances. See Order No. 29852. The Commission required Idaho Power to report
the 802 sale proceeds within 60 days of receipt. Id.
In 2006, the Commission ordered the Company to include 802 allowance sales
proceeds in the Company's anual Power Cost Adjustment ("PCA") as an offset to reduce the
level of PCA rates. See Order No. 30041. The Commission decided that, like the then-approved
PCA sharing arangement, "90% of the net proceeds (were) to be passed onto customers, and
10% (were) . . . to be retained as a shareholder benefit." Id.
In 2009, the Commission modified Idaho Power's PCA ftechanism by changing the
customer/shareholder power purchase cost-benefit allocation to 95%/5%. See Order No. 30715.
In 2011, the Commission applied this change to allocating net proceeds from the Company's sale
of 802 emissions allowances during the 2010 calendar year. Thus, 95% ofIdaho'sjurisdictional
share of the net sale proceeds, including ta effects, was allocated to customers, and the
remaining 5% was allocated to shareholders. See Order No. 32162.
THE REPORT
The Company reported that it sold or contracted to sell 6,216 surlus 802 emission
allowances in 2011. The Company expects to receive $21,756 in net proceeds from the sale
(after deducting brokerage fees of $1,554). Report at 2. The Company wil account for the
proceeds using the same interim accounting method that the Commission approved in Order No.
29852. Id. at 3.
The Company said the Commission previously authorized it to record proceeds net of
income taes and transaction fees from futue 802 allowances sales in the PCA for puroses of
calculating interest. However, for tax reasons the Company believes it is more appropriate to
record the gross benefits (less transaction costs) of the sale of excess 802 allowances. The
Company said that if 802 allowance sales exist and the PCA's sharing mechanisms are
triggered, customers will benefit by earing interest on the gross amount of the income from
sales. Id. at 2-3.
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The Company said it will fie a subsequent report that includes contracts for the sale
of surlus S02 emission allowances entered into after the instant report was fied. Id. at 3.
STAFF COMMENTS AND RECOMMENDATIONS
Staff commented that, in Order No. 29852, the Commission authorized Idaho Power
to sell the Company's surplus S02 emission allowances and required the Company to report the
S02 sale proceeds within 60 days of receipt. Staff Comments at 2. In 2006, the Commission
directed the Company to include S02 allowance sales proceeds in the Company's anual PCA as
an offset to reduce the level of PCA rates, subject to the sharing mechanism already in place for
the PCA. Id (citing Order No. 30041).
Staff reviewed the present Report and verified that the Company had accurately
booked the S02 sales transactions. See Staff Comments at 2. Staff agreed with the Company
that if S02 allowance sales exist and the PCA' s sharng mechanisms are triggered, customers
will benefit by earning interest on the gross amount of the income from the S02 allowances
instead of the net amount. Staff also agreed with the Company that tax and interest impacts are
appropriately established within the PCA calculation, and Staff recommended that the Company
continue to book S02 revenues as booked in 2011. Id at 2-3.
Staff said the market for S02 allowances, the number of allowances sold, and
revenues from the sale of allowances have declined. Id. Staff said the Company had only one
S02 allowance sale this year, and that the Company sold less than one-third of its available
allowances. Id. at 3.
Staff said that the S02 reporting process is now fairly routine. Staff also noted that
the Commission has never specifically required the Company to file an S02 report as a docket
apar from the monthly PCA filing. Staff said it believes a separate S02 reporting case is
unecessary and recommended that, going forward, Idaho Power should submit any such report
concurent with its monthly PCA fiing. Id.
Staff commented that $500,000 in fuds reserved for an Idaho Energy Education
Program in 2008 continue to be utilzed. See Case No. IPC-E-08-11. As of August 31, 2011,
fuds of just under $100,000 continue to be available. Staff said the remaining balance will be
used to purchase additional Energy Wise classroom kits for the 2011-2012 school year, and two
additional SEE-related kits for iSTEM lending libraries in Meridian and Twin Falls.
ORDER NO. 32434 3
In sum, Staff recommended that the customers' share of S02 proceeds be passed
through the PCA in its entirety for the curent year. Staff said this will modestly decrease net
power costs subject to recovery through the PCA. Staff fuher recommended that the Company
submit subsequent reports on the proceeds from excess S02 allowances concurent with the
monthly PCA report that conforms to the 60-day notification window.
FINDINGS AND DISCUSSION
After reviewing our prior Orders and the comments in this case, we find that the
appropriate disposition of the CY 2011 S02 proceeds is to pass the customers' share of the Idaho
jurisdictional allocation of those proceeds, plus any applicable interest, through the PCA to offset
the Company's deferred PCA balance. Applying the S02 proceeds in the PCA mechansm
appropriately benefits all Idaho Power customers.
In addition, we believe the S02 reporting process has become fairly routine, and that
reports need not be filed as a separate case outside the monthly PCA fiing. We find it
reasonable for the Company to submit any futue S02 reports concurent with its monthly PCA
filings.
ORDER
IT IS HEREBY ORDERED that the Company shall pass the customers' share of the
Idaho jurisdictional allocation of the CY 2011 S02 proceeds, plus any applicable interest,
through the PCA to offset the Company's PCA deferral balance this year.
IT IS FURTHER ORDERED that the Company shall submit subsequent reports on
the proceeds from excess S02 allowances concurent with the monthly PCA report that
conforms to the 60-day notification window.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this case may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order or in interlocutory Orders previously issued in this case. Within
seven (7) days afer any person has petitioned for reconsideration, any other person may cross-
petition for reconsideration. See Idaho Code § 61-626.
ORDER NO. 32434 4
DONE by Order of the Idaho Public Utilties Commission at Boise, Idaho this ¡:;-r
day of Januar 2012.
~
, PRESIDENT
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MACK A. REDFORD,
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M. ŠÌ H. SMITH, COMMISSIONER
ATTEST:~D~
j D. Jewel~
ommission Secretar
O:IPC-E-II-17_kk
ORDER NO. 32434 5