20120113Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
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ZOI? 13 PI'Î 3: 51
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 IDAHO POWER )
COMPANY'S REQUEST FOR ACCEPTANCE )
OF ITS REGULATORY PLAN REGARDING )
THE EARLY SHUTDOWN OF THE )
BOARDMAN POWER PLANT. )
)
)
CASE NO. IPC-E-1l-18
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company's September 26,2011 Request for Acceptance of its Regulatory Plan regarding the
early shutdown of the Boardman Power Plant.
BACKGROUND
On September 26, 2011, Idaho Power Company ("Idaho Power; Company") requested that
the Commission issue an Order: (1) accepting the Company's accounting and cost recovery plan
for the early shutdown of the Boardman Power Plant; and (2) allowing the Company to establish a
balancing account to track shutdown-related costs and benefits. The Company does not ask the
Commission to approve rate recovery for future expenses associated with the Boardman
shutdown at this time. Application at 1.
The Company describes Boardman as a single-generating unit, coal-fired power plant in
north-central Oregon. The Company owns 10%, or 58.5 MW (net dependable capacity) of
STAFF COMMENTS 1 JANUARY 13,2012
Boardman, which entitles the Company to about 50 aMW. Application at 1. Portland General
Electric ("PGE") owns 65% of Boardman and operates the plant. ¡d. i
The Company maintains Boardman is subject to the federal Clean Air Act, Oregon's
Regional Haze Plan, and Oregon's Utilty Mercury Rule. The Company says these laws and
regulations require Boardman to be fitted with various emissions controls. ¡d. at 2-4. According
to the Company, after analyzing each of the Boardman-related control technologies and
associated deadlines required by the legal requirements (and a consent decree in a federal court
case), PGE determined that closing Boardman in 2020 would strike "a good balance between the
key risk drivers of natural gas and C02 prices, while maintaining system reliabilty at a relatively
low cost." ¡d. at 4-6 (quoting PGE 2009 IRP Addendum, p. 103). Under the 2020 closure plan,
the owners of the plant would install new burners to reduce nitrogen oxide emissions by nearly
50% and use lower sulfur coal to reduce S02 emissions by 50%.
The Company says PGE's decision to close Boardman in 2020 impacts the Company as
par owner of the Boardman plant. ¡d. at 10. According to the Company, PGE's plan to close
Boardman increases the Company's revenue requirements related to accelerated depreciation
expense, additional plant investments related to pollution controls, and decommissioning costs.
¡d. at 16. The Company notes that PGE has initiated a proceeding at the Oregon Public Utilty
Commission (OPUC) that addresses similar concerns.
The Company proposes a three-step plan to respond to the proposed 2020 closure. ¡d. at
10. In sum, the Company wil: (1) perform, in early 2012, a depreciation study and ask for new
depreciation rates for all plant investment, including Boardman, to become effective June 1,2012;
(2) establish a balancing account to track closure-related incremental costs and benefits; and
(3) ask the Commission, in early 2012, to authorize the Company to increase customer rates to
recover Boardman decommissioning costs, with rates to take effect June 1, 2012 (coincident with
the depreciation rate change). ¡d.
The Company states it can easily calculate the incremental depreciation expense for
curent investment based upon the current shutdown timeline. However, the Company does not
yet know the specific level of investment in capital additions, actual decommissioning costs, and
i Bank of America Leasing and Power Resources Cooperative own the remaining i 5% and i 0%, respectively.
STAFF COMMENTS 2 JANUARY 13,2012
potential salvage proceeds. With the OPUC and EPA approving PGE's shutdown plan, the
Company says it knows incremental cost impact wil occur, but not precisely what the cost impact
wil be. The Company thus proposes creating a balancing account to allow the Company
flexibilty for the timing and recovery of the incremental revenue requirement. The Company
asserts the balancing account wil help the Company track, on a cumulative basis, the difference
between revenues and expenses associated with the Boardman shutdown, and that this tracking
wil ensure that customers only pay for actual expenditures. ¡d.
The Company maintains under Accounting Standards Codification (ASC) 980-360-35,
that when it abandons an operating asset, the Company must remove the asset's cost from plant in
service, establish that cost as a regulatory asset, and recognize any disallowed amount as a loss.
¡d. The Company believes that PGE's decision to shutdown Boardman by December 31, 2020, is
not an abandonment of Boardman; rather, it is a downward adjustment to Boardman's useful life.
Adjustments to Boardman's useful life previously occurred in 2001 from an original end-of-life
date of2015 to 2020, and most recently in 2008 to an end-of-life date of2030. If, however, the
Company is not allowed to collect the Boardman plant-related balances by the end-of-life date of
December 31, 2020, the Company could be required to account for the Boardman plant as an
abandonment, which would also trigger impairment treatment under ASC 360. ¡d.
The Company states it has estimated its revenue requirement using a 2012 test year
that includes impacts from: (a) the accelerated depreciation of Boardman accounts; and (b)
increased decommissioning costs. ¡d. The Company based incremental depreciation expense on
expected December 31, 2011 plant balances. It calculated decommissioning costs using the
Company's 10% share of the costs that PGE found to be reasonable in the Black & Veatch (B&V)
study. ¡d. at 14-15.
STAFF ANALYSIS
Overview
The 585 MW coal-fired Boardman electricity generation plant, located in north-central
Oregon is owned by four parties with PGE being the majority owner and operator with a 65
percent ownership stake and Idaho Power, being one of the smallest, having a 10 percent stake.
Idaho Power currently depreciates Boardman using an end-of-life date of2030.
STAFF COMMENTS 3 JANUARY 13,2012
To maintain future operation, the facilty must comply with air quality requirements set by
the State of Oregon and the federal governent. Idaho Power wishes to receive future rate relief
(using the proposed balancing account methodology) for the costs of complying with the:
(1) mercury emission standards contained in Oregon's Utilty Mercury Rule; and (2) EPA's utility
Regional Haze (RH) and Best Available Retrofit Technology (BART) rules contained in the
Federal Clean Air Act.
Oregon's Utilty Mercury Rule required installation of controls by July 1,2012. PGE
decided to meet the requirements using activated carbon injection (ACI) instead of more
expensive fabric fiter equipment. PGE received approval from the Oregon Deparment of
Environmental Quality (ODEQ) and installed the approved controls during the spring of201 1.
In 1999, the EPA adopted a Regional Haze rule for utilties as part of the Clean Air Act.
The rule is intended to improve visibility over the next 60 years within certain national parks and
wilderness areas labeled as "Class 1" areas. The EPA left it up to the states to develop strategies
and make reasonable progress to reduce visibilty impairment in these areas. As an older facilty
that fits the profie as a major contributor of emissions in Class I areas, Boardman was subject to a
BART analysis and was evaluated to see if retrofitting with controls was feasible and cost
effective. Besides cost and meeting federal emission requirements, part of the feasibilty criteria
considered the need to meet electricity demand in PGE and other Boardman owners' service areas.
The plan that was ultimately approved by ODEQ and included in the State Implementation Plan
(SIP) for RH BART and approved by the EPA is outlined below.
1. Plant wil cease operation by December 31, 2020. This eliminates all "reasonable
progress" requirements that would have been needed to satisfy RH BART,
specifically investments in Nitrogen Oxide (NOx) controls to obtain 0.07
Ib/mmBtu levels by 2018.
2. Low NOx Burners and Over-fire Air (LNBIMOF A) to control NOx to 0.23
Ib/mmBtu levels. These controls have already been installed.
3. Dry Sorbent Injection (DSI) to control Sulfur Dioxide (S02) to 0.40 Ib/mmBtu
levels by 2014 and 0.30 Ib/mmBtu levels by 2018.
STAFF COMMENTS 4 JANUARY 13,2012
4. Activated Carbon Injection to control Mercury (Hg) to 0.6 Ib/TBtu levels by July
2012 (already installed spring 2011). This control is for compliance with Oregon's
Utility Mercury rule, although it was included in the SIP submitted and approved
by the EPA.
Because Boardman wil close early, Idaho Power expects to incur costs associated with
the (1) accelerated depreciation of the plant, (2) new investments in pollution controls, and (3)
costs required to decommission the plant. To ilustrate the Company's methodology and to
provide a rough estimate, Idaho Power provided an incremental revenue requirement impact
estimate based on its share of costs as summarized in the table below.
Revenue Accelerated Depreciation New Investment Net Decommissioning Total
Requirement Impact Existing Plant Pollution Controls Costs (minus salvage)
Total $36,167,344 $11,716,126 $5,917,900 $53,801,370
Levelízed (annual)$4,147,050 $1,252,340 $499,363 $5,898,752
When the levelized total revenue requirement impact is netted against the estimated $4.3
milion in Boardman-related revenue requirements currently in rate base, annual net revenue
system impact to Idaho Power customers is estimated to be $1.6 milion or a $1.5 milion impact
to Idaho customers using 95% Idaho jurisdictional allocation. This is approximately a 0.172%
overall increase based on a current overall revenue requirement of $870.0 milion.
Idaho Power requests that the Commission approve the use of a balancing account
methodology that amortizes the incremental cost related to the Boardman shutdown evenly across
the remaining life of the plant (2012-2020). The Company believes that handling the Boardman
shutdown in this way wil ensure that customers only pay for actual expenditures.
Regulatory Accounting and Cost Recovery Plan
Staffs analysis ofIdaho Power's proposal addresses three primary questions. First, is
there adequate evidence surrounding the Boardman closure to justify initiating proceedings for
rate recovery? Second, if suffcient grounds exist to begin tracking costs, is the Company's
proposed balancing account and levelized revenue requirement methodology for rate recovery
STAFF COMMENTS 5 JANUARY 13,2012
reasonable? Third, are there any conditions or requirements that Staff recommends be included in
the Company's proposed plan for rate recovery?
Relative to the first question, Staff reviewed contracts between Idaho Power and PGE
regarding construction, ownership, and operation of Boardman. Staff believes that Idaho Power
must bear certain expenses that result from the operation of Boardman in compliance with local,
state, and federal law. Specific to this case, this would include expenses needed to end Boardman
operation and decommission the plant based on the Company's 10 percent ownership in the
facility. In addition, Staff reviewed: (1) records in administrative proceedings between PGE and
the ODEQ to determine compliance requirements to meet federal Regional Haze rules and
Oregon's Utility Mercury rule; (2) documents from litigation that resulted in a consent decree
between PGE, the Sierra Club, and other interested parties regarding the Boardman closure (U.S.
District Court for the District of Oregon; Civil Case No.: 3:08-cv-01136-HA); and (3) testimony
and information requests supplied by the Company in this case. Given legal rulings relevant to
this case and due to Idaho Power's ownership stake in Boardman, Staff believes Idaho Power
must comply with ODEQ's SIP and the consent decree made in the U.S. District Cour of Oregon.
Staff thus believes there is adequate evidence to justify a tracking mechanism for costs tied to
closing Boardman, although details on the extent and nature of these costs wil be further
reviewed in future proceedings.
Regarding the rate recovery method, Staff agrees with the Company's proposal to levelize
incremental revenue requirements across the remaining life of the plant for rate recovery
puroses, and to use a balancing account to track expenditures. According to Company-estimated
incremental revenue requirements, shutdown and compliance costs throughout the remaining life
of the plant are predicted to be highly variable. There are heavily front-loaded depreciation costs
from emission control investments and from accelerated depreciation of the existing plant, in
addition to sizable decommissioning costs associated with plant closure in 2020. Staff believes
the 2020 decommissioning date should be used to accelerate depreciation over Boardman's
remaining plant life. Levelizing all of these costs across the plant's remaining eight-year life wil
provide customers with greater rate stabilty. In addition, Staff believes that the Company's
method ensures a higher probabilty of matching the number of customers that benefit from
operating Boardman to its remaining cost.
STAFF COMMENTS 6 JANUARY 13,2012
Staff analyzed payment stream options to collect the full cost of Boardman investment,
and estimated net decommissioning costs by the decommission date of year-end 2020. The total
dollar amount to be paid by customers is less using the fully levelized recovery method proposed.
Staff notes that using a balancing account with regularly occurring true-up in rates provides the
Company with a guaranteed recovery on both Boardman's costs, and the overall rate of return on
the plant-in-service associated with Boardman. In general, rates are set so the Company has the
opportunity to ear the overall rate of return on its investment; in this case, the Company wil be
guaranteed to ear its overall rate of return on the Boardman investment. However, given that
Idaho Power lacks direct control over expenses due to their minority stake, Staff believes the
benefits of using the proposed method including rate stabilty and cost!enefit matching,
outweighs the explicit guarantee on investment.
Staff realizes that rates wil not be set as a result of this case. However, Idaho Power says
that if the Commission accepts its proposal, this spring it wil request inclusion of accelerated
Boardman recovery using the approved methodology. The proposed balancing account and
proposed levelized recovery, if approved, wil reduce Idaho Power's risk of recovery. To reflect
the lower risk, Staff proposes a lower retu on equity (ROE) be used to calculate the levelized
payments for Boardman recovery. When the Company updates the information in Exhibit Nos. 1
and 2 for the request seeking rate recovery, Staff proposes the reduced risk be reflected in its
fiing. Staff believes an appropriate return to utilize is the 9.5% ROE adopted as the Accumulated
Deferred Investment Tax Credit (ADITC) trigger in Order No. 32424, Case No. IPC-E-II-22.
Staff also believes that the ROE to calculate the levelized Boardman recovery amount should be
adjusted in each rate case using the same methodology adopted to calculate the ADITC trigger
where the new "threshold would be 95% of the newly established ROE". ¡d. at 4.
The Company proposes to set up a balancing account to eventually capture costs and
benefits associated with Boardman. Initially, the Company plans to book costs and benefits that
occur beginning January 1,2012. Staff understands that when the Company fies for recovery of
Boardman expenditures associated with plant closure, the Company wil move additional costs
associated with Boardman into the balancing account, including costs and benefits currently
captured in base rates.
STAFF COMMENTS 7 JANUARY 13,2012
Staff agrees with the Company's proposal to use a balancing account to track the costs and
benefits associated with the early shutdown of Boardman. Staff also agrees with the Company's
proposal to levelize incremental costs to calculate the revenue requirement for Boardman with the
ROE limitation. Staff believes a yearly review of the amounts booked into the Balancing
Account wil be sufficient and recommends the Company fie an annual report of the review with
the Commission. This report wil assist Staff in following changes and help ensure that costs are
appropriate and prudent. Staff recommends that the Company provide a sample of this report in
its fiing for Boardman accelerated rate recovery. Staff also recommends that the revenue
requirement associated with Boardman be adjusted as needed for major changes after regular
reviews.
STAFF RECOMMENDATIONS
Staff recommends that the Commission approve the Company's regulatory accounting and
cost recovery plan for the early shutdown of Boardman and the establishment of a balancing
aècount to track incremental cost and benefits associated with the Boardman shutdown.
Staffalso recommends that a 9.5% ROE be used to calculate the initial levelized
Boardman recovery amount.
Staff further recommends that the Company file annual reports detailng costs booked to
the Boardman account. Finally, Staff recommends that as par of the request to include
accelerated Boardman costs in rates, the Company fie a sample report and describe the type of
information the Company wil submit to the Commission.
Respectfully submitted this 13 ~ day of January 2012.
~ie~ l-
Deputy Attorney General
Technical Staff: Kathy Stockton
Mike Louis
i:umisc/commentslipce I i. i 8kklsml.comments
STAFF COMMENTS 8 JANUARY 13,2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 13TH DAY OF JANUARY 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-II-18, 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: jwillamscæidahopower.com
lnordstromcæidahopower .com
COURTNEY WAITES
GREGORY W. SAID
TIM TATUM
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: cwaitescæidahopower.com
gsaidcæidahopower.com
tttumcæidahopower .com
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SEC TARY
CERTIFICATE OF SERVICE