20180323Compliance Filing 2017.pdf

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An IDACORP Company
LISA D. NORDSTROM
Lead Counsel
[e-mail]
March 23,2018
VIA HAND DELIVERY
Diane Hanian, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re:Case No. IPC-E-12-09
Compliance Filing - Boardman Power Plant Annual Review (2017)
Dear Ms. Hanian
Pursuant to ldaho Public Utilities Commission Order No. 32549 in Case No.
IPC-E-12-09,ldaho Power Company hereby submits an original and four (4) copies of
its Boardman Power Plant Annual Review for the year ending 2017 . ln addition, five (5)
copies of a disk containing electronic files of the attachments and workpapers are also
enclosed.
lf you have any questions regarding this filing, please contact Courtney Waites
at [phone] or [e-mail].
Sincerely,
Lisa D. Nordstrom
LDN:kkt
Enclosures
cc: Service List
BOARDMAN POWER PLANT ANNUAL REVIEW
FOR THE YEAR ENDING 2017
March 23,2018
I. INTRODUCTION
Pursuant to ldaho Public Utilities Commission ("Commission") Order Nos. 32457
(Case No. IPC-E-11-18) and 32549 (Case No. !PC-E-12-09), ldaho Power Company
("ldaho Power" or "Company") has completed its annual update to the Boardman power
plant ("Boardman") levelized revenue requirement and review of the Boardman Balancing
Account lor 2017 . The purpose of this report is to provide the Commission with (1) an
updated levelized revenue requirement calculation along with a description of actual
investments made during the prior calendar year and rationale for any change in the
forecast of investments to be made in the future and (2) a revenue collection worksheet
that tracks the over or under collection of the previous year's revenue. While the results
of this annual review demonstrate that there is a difference between associated revenue
from current rates and the updated Boardman levelized revenue requirement, because
any such differences are tracked within the Boardman Balancing Account, the Company
is not recommending a rate change as part of this report.
II. BACKGROUND
On September 26, 2011, ldaho Power filed an application with the Commission
requesting an order (1) accepting the Company's accounting and cost recovery plan for
the early shutdown of Boardman and (2) allowing the Company to establish a balancing
account to track shutdown-related costs and benefits (Case No. IPC-E-11-18). ln
February 2012, the Commission issued Order No. 32457 authorizing the Company to
establish a balancing account to track the incremental costs and benefits associated with
the early shutdown of Boardman. ldaho Power will incur costs associated with (1) a return
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on undepreciated capita! investments at Boardman until its shutdown, (2) the accelerated
depreciation associated with Boardman investments, and (3) decommissioning costs
related to the Boardman shutdown. Under this approach, the Company would replace
the then current non-levelized base rate revenue recovery associated with the Company's
existing investment in Boardman with a levelized revenue requirement that is tracked in
the Boardman Balancing Account. The Boardman Balancing Account smoothes revenue
requirement impacts of the early Boardman retirement over the remaining years of the
plant's life and provides an opportunity for full recovery of Boardman-related costs by
Boardman life end.
On February 15, 2012,ldaho Power requested authority to increase rates to begin
recovery of the levelized revenue requirement associated with Boardman (Case No. IPC-
E-12-09). The Commission issued Order No. 32549 on May 17,2012, authorizing
implementation of the cost recovery approach approved in Order No. 32457 and
increasing the Company's annua! revenue requirement by $1,525,501 effective June 1,
2012, to reflect the new levelized Boardman revenue requirement. On March 12,2013,
ldaho Power filed its Boardman Power Plant Annual Review for the year ending 2012.
The Company did not request to adjust rates at that time and committed to continue to
review the Boardman Balancing Account annually and update the Boardman levelized
revenue requirement. ldaho Power has filed its Boardman Power Plant Annual Review
each year since then and has not requested to adjust rates.
III. THE LEVELIZED REVENUE REQUIREMENT CALCULATION
The revenue requirement calculation approved by Order No. 32457 includes the
return associated with the Boardman capital investments net of accumulated depreciation
forecasted through the remaining life of Boardman, the costs of accelerating the
depreciation of the Boardman plant items, and a forecast of the decommissioning costs
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associated with the shutdown of Boardman. Each of these revenue requirement
components are subsequently "levelized" by calculating the present value of each of the
individual items and converting the values into an annuity or level payment stream from
customers over the remaining life of Boardman using a return on equity ("ROE') of 9.5
percent, as approved in Order No. 32457. The 9.5 percent ROE corresponds with the
ROE threshold for accelerated amortization of accumulated deferred investment tax
credits approved by Order Nos. 32424 and 33149 (Case Nos. IPC-E-11-22 and IPC-E-
14-14). The levelized revenue requirement calculation can be separated into three
components: (1) the revenue requirement on existing investments as of May 31,2012,
prior to when the Boardman Balancing Account was established; (2) the revenue
requirement on incremental investments after May 31 , 2012, after the Boardman
Balancing Account was established; and (3) the revenue requirement associated with
future decommissioning and offsetting salvage costs.
Revenue Existinq lnvestments The revenue requirement
component related to existing investments is based on the Boardman-related plant
balances in effect prior to the establishment of the Boardman Balancing Account or
existing investments at May 31 , 2012. ln Case No. IPC-E-12-09, the approved
accelerated depreciation expense was based on a net plant balance that included actual
plant values as of December 31,2011, and forecasted reserve balances through May 31,
2012. During the review of the Boardman Balancing Account for 2012, ldaho Power
updated the revenue requirement on existing investment components to include actual
plant balances as of May 31 ,2012.
Upon review of the computation of the levelized revenue requirement on existing
investments in preparation of this year's annual update, Idaho Power found an error in
the calculation of the present value. The Company discovered that the formula
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embedded in the models used in prior years' updates was incorrectly discounting the
revenue requirement for 2012, or the first year of the levelized revenue requirement
determination. The effect of this error was an inappropriate discounting of investments
to the year prior to the base year of the analysis. The Company has corrected the error
in the computation in this year's update; therefore, the levelized revenue requirement on
existing investments has changed. For actual Boardman investments as of May 31 ,2012,
the total levelized revenue requirement, including incremental depreciation expense
associated with the 2020 shutdown, is approximately $3.9 million on an ldaho
jurisdictional basis.
Revenue Requirement on lncremental lnvestments The revenue requirement
component related to incremental investments captures all plant investments made at
Boardman after May 31, 2012, or when the Boardman Balancing Account was
established. The Environmental Protection Agency has approved Portland General
Electric's ('PGE") Boardman shutdown plan with coal-fired operations ceasing on
December 31, 2020, and required investments were made in emission controls at the
plant as a result of compliance with the Best Available Retrofit Technology ll standards in
addition to normal maintenance repairs required to keep the plant operational. ldaho
Power has completed all anticipated emission controls upgrades and expects routine
capital expenditures for repairs throughout the plant's remaining life.
The levelized revenue requirement associated with incremental investments at
Boardman is approximately $768,000 on an ldaho jurisdictional basis. Similar to the
computational error identified in the present value calculation for existing investments, the
same error occurred in the present value calculation included in the levelized revenue
requirement on incremental investments, where ldaho Power inadvertently discounted
the revenue requirement calculation for 2012, the first year. The Company has corrected
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this computational error as well. This year's update includes actual capital investments
made from January 1,2017, through December 31,2017, and includes an update to the
Boardman capital expenditures forecast for 2018 through 2020. Total capital additions
for 2017 were approximately $26,500, which was lower than the foreca6ted 2017 amount
of $132,426. The majority of the capital investments made in 2017 were associated with
upgrades or replacements of items required for the continued operation of the plant,
including boiler plant equipment control modifications, sewage lagoon liner, pulverizer
gearbox, cyber security, and miscellaneous pumps, valves, motors, and minor tools. The
capital additions forecast for 2018 through 2020 decreased by approximately $15,000
primarily due to the removal of capital costs associated with the reheat valve, intercepts
and stop valve replacement, roofs, and the well and storm water structure. lt was
determined the projects were either an operation and maintenance expense or cancelled
due to the plant's 2020 shutdown.
Revenue Requirement on Decommissioninq and Salvaqe Costs. ldaho Power's
initial estimate of the decommissioning and salvage costs was determined by applying
the Company's 10 percent ownership percentage to the decommissioning study
performed by Black & Veatch for PGE and completed in 2011. ln 2015, PGE contracted
with CH2M Hill to prepare a decommissioning, demolition, and final closure plan for
Boardman The focus of the new plan was to provide planning guidance, rather than
detailed cost estimates. Although the plan did not provide updated cost estimates,
through the work with CH2M Hill, PGE identified three decommissioning cost elements
that could be updated: (1) the elimination of Carty reservoir removal costs as the site will
remain, (2) transmission assets that will not need to be removed, and (3) the Tower Road
extension costs will no longer be incurred. The update to the decommissioning costs and
expected salvage resulted in a decrease of approximately $714,000 in ldaho Power's
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share of the costs, which equates to a levelized revenue requirement of approximately
$446,000 on an ldaho jurisdictional basis.
Attachment 1 details the derivation of the updated levelized revenue requirement
and the ldaho jurisdictionalshare of the revenue requirement. Thefollowing is a summary
of the ldaho jurisdictional levelized revenue requirement computation based on the sum
of the updated components:
Existing investments $3,936,546
lncremental investments $ 767,610
Decommissioninq and salvaqe costs $ 445,875
Updated levelized revenue requirement $5,150,031
With the approval of an incremental revenue requirement of $1 ,525,501, Order No.
32549 increased the Boardman-related revenue requirement in base rates to $5,174,794
on an ldaho jurisdictional basis. The difference between the updated levelized revenue
requirement and the current levelized revenue requirement amount for Boardman is
negative $24,764 ($5,150,031 - $5,174,794 = ($24,764)). Based on updated plant
investment data, the Company's quantification of the levelized revenue requirement
associated with the early shutdown of Boardman is less than previously calculated.
ln 2014, ldaho Power and PGE entered into an Asset Purchase Agreement
("APA") for the conveyance and sale of a partial interest in certain Boardman components
and common facilities necessary or convenient to the operation of PGE's Carty
Generation Station, collectively referred to as "Shared Facilities." The purchase price
associated with the APA for the purchase of Shared Facilities at Boardman was $620,205,
resulting in a gain of $264,060 on a total system basis. ldaho Power computed the annual
credit to customers by converting the gain into an annuity or level payment stream over
the remaining life of the plant at the time the APA was executed, or six years. The ldaho
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jurisdictional portion of this levelized annual payment is $50,712 and is an offset to the
annual revenue requirement impact to customers, as shown on Attachment 1.
Revenue Requirement rm. ldaho Power's income tax
expenses and deferred tax liabilities included in the Boardman levelized revenue
requirement amounts and included in customer rates, were calculated in accordance with
the lnternal Revenue Code of 1986. The U.S. Tax Cuts and Jobs Act ("Tax Act"), signed
into law on December 22, 2017 , amends sections of the 1986 code, most notably the
reduction in the federal corporate income tax rate from 35 percent to 21 percent. All
changes to the Boardman levelized revenue requirement resulting from provisions of the
Tax Act will be calculated and discussed in the Company's filing in compliance with Order
No. 33965 in Case No. GNR-U-18-01, the Commission's Investigation into the lmpact of
Federal Tax Code Revisions on Utility Costs and Ratemaking, and any potential rate
reduction will be provided to customers through the Commission's proceeding in that
case.
IV. THE TRACKING OF REVENUE COLLECTIONS
AND REVENUE REQUIREMENTS
In Case No. IPC-E-12-09, the Company proactively committed to tracking (1) the
monthly deviations between forecast revenue collection and actual revenue collection and
(2) deviations between existing levelized revenue requirement calculations and updated
levelized revenue requirement calculations. Order No. 32549 approved an incremental
annual revenue requirement of $1,525,501 effective June 1,2012, and ldaho Power
adjusted base rates accordingly using forecasted annual sales of 13,172,433 megawatt-
hours. Attachment 2 details the tracking of the monthly deviations between the forecasted
revenue collections and actual revenue collections. From January 1, 2017, through
December 31, 2017, actual revenue collections were slightly higher than forecasted
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revenue collections, resulting in a2017 true-up of approximately negative $90,000. !n an
attempt to smooth adjustments to customers' rates, the Company will spread the true-up
of the deviation of the revenue collections over the remaining life of Boardman (i.e., the
remaining three years), resulting in a single-year true-up of approximately negative
$30,000 for 2017. Applying this amount to the single-year true-ups for each year since
2012, the total deviation of revenue collections is approximately negative $107,000.
As stated previously, the deviation between the updated levelized revenue
requirement and the existing levelized revenue requirement is negative $24,764, creating
a true-up of negative $138,263 since establishment of the Boardman Balancing Account
on June 1, 2012. Smoothing the adjustment to the annual revenue requirements by
spreading the deviation over the remaining three years of Boardman's life results in a
true-up of approximately negative $46,000. Attachment 3 details these quantifications.
Attachment 1 presents a summary of the updated levelized revenue requirement
calculation as compared to the original Boardman levelized revenue requirement used to
establish current base rates along with other tracking adjustments. As can be seen on
Attachment 1, the net change in the annual revenue requirement associated with the
updated levelized revenue requirement calculation is negative $24,764. The levelized
revenue requirement impact of the gain associated with the sale of the Shared Facilities
to PGE is negative $50,712. The true-up of prior years' revenue collections is negative
$106,737. And, finally, the true-up of the prior years' levelized revenue requirements is
negative $46,088. The sum of each of these categories suggests the updated annual
revenue requirement for Boardman is $228,300 below the level currently reflected in base
rates.
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V. RECOMMENDATION
The results of this annual review demonstrate that there is a difference in the
annual revenue requirement of negative $228,300, or a benefit to customers. Because
any such differences are tracked through the Boardman Balancing Account, the Company
is not requesting to adjust base rates at this time. lnstead, the Company recommends
that the difference in the annual revenue requirement associated with Boardman and any
true-up recorded in the Boardman Balancing Account remain in the balancing account to
offset future positive differences or for future refund to customers. ldaho Power will
continue to annually review the Boardman Balancing Account and update the Boardman
levelized revenue requirement until the plant has ceased operations and through
completion of decommissioning activities.
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