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Home My WebLink About20111116Comments.pdfKARL T. KLEIN DEPUTY ATTORNEY GENERAL IDAHO PUBLIC UTILITIES COMMISSION PO BOX 83720 BOISE, IDAHO 83720-0074 (208) 334-0312 IDAHO BAR NO. 5156 P"-i:rE"/::nl '\ V .1 ~ ,_~..._..,F 20ll NOV 16 PM I: 00 ..~J Street Address for Express Mail: 472 W. WASHINGTON BOISE, IDAHO 83702-5983 Attorney for the Commission Staff BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPROPRIATE DISPOSITION OF PROCEEDS FROM THE SALE OF IDAHO POWER COMPANY'S S02 EMISSION ALLOWANCES IN CALENDAR YEAR 2011. ) ) CASE NO. IPC-E-11-17 ) ) COMMENTS OF THE ) COMMISSION STAFF ) The Staff of the Idaho Public Utilties Commission comments as follows on Idaho Power Company's ("Idaho Power"; "Company") September 19, 2011 report ("Report") regarding the Company's sale of sulfu dioxide (S02) emission allowances in 2011. BACKGROUND On September 19,2011, Idaho Power reported on its sale ofS02 emission allowances in 2011. The Company reported sellng or contracting to sell 6,216 surplus S02 emission allowances in 2011. Idaho Power stated it expects to receive $21,756 in net proceeds from the sale (after deducting brokerage fees of$I,554). The Company says it wil account for the proceeds using the same interim accounting method that the Commission approved in Order No. 29852. See Report at 3. 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 acid rain plan's centerpiece is the incentive- or market-based "cap and trade" S02 emission program. Under the cap and trade program, the Environmental STAFF COMMENTS 1 NOVEMBER 16,2011 Protection Agency (EPA) caps the total amount of S02 emissions allowed nationwide. Based on this cap, EPA allocates a certain number of S02 emission allowances to thermal power plant owners. Each allowance provides a plant owner with authority to emit one ton of S02. See 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 purchase additional allowances or it is automatically fined and must surrender future year allowances to cover the shortfall. A plant owner with surlus S02 allowances in a given year either may save the surplus allowances 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 three thermal power plants in the western United States that receive S02 allowances from EPA. Id In 2005, the Commission first authorized Idaho Power to sell the Company's surlus S02 emission allowances. Id. The Commission required Idaho Power to report the S02 sale proceeds within 60 days of receipt. Id In 2006, the Commission approved a stipulation which, among other things, directed the Company to include S02 allowance sales proceeds in the Company's anual Power Cost Adjustment ("PC A") as an off-set to reduce the level of PC A rates, subject to the sharng mechanism already in place for the PCA. See Order No. 30041. On October 26,2011, the Commission issued Order No. 32385 initiating the curent proceeding. In this Order, the Commission requested public comments regarding the appropriate disposition and ratemaking treatment of revenues derived from the sale of Idaho Power's S02 allowances. The Commission directed that written comments be filed no later than November 16, 2011. STAFF ANALYSIS Staff verified that the S02 sales transactions were booked accurately. The review included inspection of all contracts, sales terms for allowances sold, vintage of allowances, price per allowance, brokerage fees and receipt of funds. The Company asserts the Commission previously authorized it to record proceeds net of income taes and transaction fees from future S02 allowance sales in the PCA for puroses of calculating interest. However, Idaho Power's review of ta law and policy has led the Company to determine that it is more appropriate to record the gross benefits STAFF COMMENTS 2 NOVEMBER 16,2011 (less transaction costs) of the sale of excess S02 allowances. Revenues and brokerage fees ariving at net revenues are reflected in the PCA report in the month revenues are received. If S02 allowances sales exist and the PCA's sharng mechanisms are triggered, customers will benefit by earing interest on the gross amount of the income from the S02 allowances instead of the net amount. Tax and interest impacts are appropriately established within the PCA calculation. Staff recommends Idaho Power continue to book S02 revenues in this maner. The market for S02 allowances has declined dramatically. As such, the number of allowances sold and revenues from the sale of allowances have also declined. The chart below demonstrates the extreme reduction in average revenues per allowance generated by Idaho Power's sales of excess S02 allowances. i Only one transaction materialized this year for Idaho Power to sell available S02 allowances. Less than one-third of the available allowances for sale were sold. Average Revenue per Allowa $1,200 $800 $1,000 $600 $400 $ZOO $- Z005 2007 2008 Z009 2010 2011 *Data from Cases listed in Footnote 2 i This does not represent the price received per allowance, which historically has demonstrated high variabilty, but rather the simple arithmetic average of overall revenues per S02 allowance. STAFF COMMENTS 3 NOVEMBER 16,2011 The curent filing represents the sixth S02 case formally submitted by the Company since 2005.2 Consistent with paragraph 8 of the Stipulation in Case No. IPC-E-05-26, Idaho Power has recorded and included the sales proceeds as par of the annual PCA fiing.3 The Commission noted in its findings in Order No. 30041 that "the PCA... is the logical mechanism to track and distribute proceeds from the sale of excess S02 allowances." Staff believes that the PCA should continue to be the instrument for S02 tracking and revenue disbursement. In reviewing the Stipulation, Staff found nothing requiring Idaho Power to submit its S02 sales report as a standalone docket. Beyond including proceeds in the PCA, the Company was directed to fie its Report within sixty days of receipt. The reporting process is now a fairly routine process. Therefore, Staff believes a separate case is unecessar and going forward Idaho Power should submit any such report concurrent with its monthly PCA filing. Staff wil continue to review sales, revenues and benefits from surplus S02 allowances as par of the anual PCA fiings. Funds reserved in the amount of $500,000 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 is aware that the remaining balance wil 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. STAFF RECOMMENDATION Staff recommends that the customers' share ofS02 proceeds be passed through the PCA in its entirety for the current year. Doing so would result in a modest decrease in net power cost subject to recovery through the PCA. Staff fuher recommends that the Company submit subsequent reports on the proceeds from excess S02 allowances concurent with the monthly PCA report that conforms to the sixty-day notification window. 2 See Case Nos. IPC-E-05-26, IPC-E-07-18, IPC-E-08-l4, IPC-E-09-08, and IPC-E-1O-20. 3 Paragraph 8 states, in pertinent par: "Idaho Power wil record any proceed of future sales of surplus S02 allowances, net of taxes and fees, received after June 1,2006 in the PCA. Within future PCA tre-ups the recorded amount wil be jurisdictionalized and shared," See 04/07/06 Sipulation, Case No. IPC-E-05-26. STAFF COMMENTS 4 NOVEMBER 16,2011 Respectfully submitted this Technical Staff: Bryan Lanspery Terri Carlock i:umisc/commentsipcel I. I 7kkbltc comments STAFF COMMENTS 1(, -t day of November, 2011. XI fØt Karl T. Klein Deputy Attorney General 5 NOVEMBER 16,2011 CERTIFICATE OF SERVICE I HEREBY CERTIFY THAT I HAVE THIS 16TH DAY OF NOVEMBER 2011, SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO. IPC-E-11-17, BY E-MAILING AND MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE FOLLOWING: JASON B. WILLIAMS LISA D NORDSTROM IDAHO POWER COMPANY P.O. BOX 70 BOISE IDAHO 83707 E-MAIL: jwillams(fidahopower.com Inordstrom(fidahopower .com I ~~~ SECRETARY CERTIFICATE OF SERVICE