20120503Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY'S APPLICATION TO INCREASE ) CASE NO. IPC-E-12-09
ITS ELECTRIC RATES TO RECOVER THE )
BOARDMAN BALANCING ACCOUNT ) COMMENTS OF THE
) COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company's February 15, 2012 Application for an Order authorizing the Company to increase its
rates to begin recovery of the Boardman balancing account.
BACKGROUND
On February 15, 2012, Idaho Power applied to the Commission for an Order authorizing
the Company to increase its rates to begin recovery of the Boardman balancing account.' The
Company seeks to recover $1,583,373 in annual revenue, which the Company states results in an
average increase of 0.19% to customers. The Company asks that the rate change take effect on
June 1, 2012.
'The Company concurrently filed three other applications. See Case Nos. IPC-E-12-06, IPC-E-12-07, and
IPC-E- 12-08, The Company claims the four filings will cumulatively decrease rates for most customers. The
Company describes the cumulative rate impact for the major customer classes as: Residential Schedule 1, (0.80%);
Small General Schedule 7, (0,55%); Large General Schedule 9, (1.07%); Large Power Schedule 19, 0.65%; and
Agricultural Irrigation Schedule 24, (1.09%). The Company says the rates for its Special Contract customers will
cumulatively change as follows: Micron, 0.66%; Simplot and Department of Energy (JNL), 0.68%; and Hoku Block
2, 0.67%. See Application, Atch.4.
STAFF COMMENTS 1 MAY 3, 2012
The Company requests authorization to adjust customer rates to recover incremental
annual costs related to the early retirement of the Boardman power plant. The Company's
request implements the cost recovery approach for Boardman the Commission approved in Order
No. 32457.
The Company includes the following costs in the balancing account: (1) the return
associated with Boardman capital investments net of accumulated depreciation forecasted
through the remaining life of the asset; (2) the accelerated depreciation associated with
Boardman investments; (3) and the decommissioning costs related to the Boardman shutdown.
STAFF ANALYSIS
In accordance with Order No. 32457, the Boardman balancing account will smooth
revenue requirement impacts of early plant retirement over the plant's remaining nine years of
life. Using this balancing account method provides full recovery and guarantees the Company's
return on equity for Boardman, which the Commission previously set at the Accumulated
Deferred Investment Tax Credit trigger of 9.5%. This return is less than the authorized return on
equity included in base rates, recognizing the lower risk associated with the Boardman balancing
account and recovery mechanism.
The Company proposes using the jurisdictional separation study accepted in Idaho
Power's last general rate case, Case No. IPC-E-l1-08, to determine Idaho's share of the increase
related to the Boardman balancing account. Staff has reviewed the calculation of the revenue
requirement of $1,583,373 and agrees with the Company's calculation with one exception - the
10 percent contingency estimate included in the decommissioning costs. Staff believes that
because the Company will update the estimates to actuals (see below), there is no need for the
contingency. Therefore, Staff has removed $59,872 from the revenue requirement calculation on
an Idaho basis. Pursuant to a Staff audit request, the Company calculated that the revenue
requirement without the 10 percent contingency is $1,525,501.
The Company proposes to annually recalculate the levelized revenue requirement for
Boardman by updating estimates to actuals as information is available, and tracking the forecast
revenue collection against the actual revenue collection. The Company then would use this
information to determine if it needs a rate adjustment. Staff agrees that an annual review of the
calculation of the levelized revenue requirement, along with a review of all the components of
the Boardman balancing account, is acceptable.
STAFF COMMENTS 2 MAY 3, 2012
The Commission previously ordered the Company to file annual reports detailing all
amounts booked to the Boardman balancing account. See Order No. 32457. The Company's
report includes two exhibits/schedules and a narrative description of the actual investments at
Boardman during the prior year and the reason for any changes in forecast investments. The
Company's proposed Exhibit 3 would track the monthly differences between forecast revenue
collection and actual revenue collection. The two exhibits and the narrative would comprise the
Company's annual report for Boardman.
Staff views these Boardman annual reports as the initial review of prudency for the
investments. Staff's comments in this case should not be construed as prudency approval for any
investment or future expenses proposed by the Company. Prudency and audit reviews will be
conducted during annual reviews at the time of the actual expense.
Staff also views the Boardman annual reports, along with the supporting documentation,
as the starting point for the annual review of the Boardman balancing account. For that reason,
Staff recommends that, when the Company files an annual report, the Company include as
workpapers the exhibits in Excel format with all formulas intact. Besides the narrative document
supplied by the Company, Staff expects that the Boardman annual report workpapers will
include any and all source documents supporting the actual investments as well as any new cost
estimates. Staff believes that a report will be incomplete if it lacks the workpapers to support the
Company's calculations and conclusions.
Incremental Investments
The Company has capitalized planned future investments not currently in plant-in-service
and included in the levelized cost calculation in the balancing account. Staff reviewed the
Company's budget and grouped it into three categories: (1) emission and regulatory compliance;
(2) maintenance; and (3) obsolescence and upgrades. A breakdown of the budget in nominal
dollars is provided in the table below.
STAFF COMMENTS 3 MAY 3, 2012
Cost Category Investment Percent
Emission Controls & Regulatory Compliance $3,453,184 41%
Maintenance $505,000 6%
Obsolescence & Upgrades $4,495364 53%
Total $8,453,184 100%
The Company targets 53 percent of its total investment for obsolescence and upgrades.
Staff recognizes that some investments will be necessary due to lack of both spare parts and
vendor support for current equipment and software; however, Staff believes the Company should
actively engage its partners in determining need for upgrades and explore potential alternatives
for minimizing cost, especially given the plant's short remaining life.
The Company targets forty-one percent of its budget for investments in emission
controls. Most of these controls are necessary to meet federal Regional Haze Best Available
Retrofit Technology (BART) rules, Oregon Utility Mercury rules, and federal Utility Maximum
Achievable Control Technology (MACT) rules. Test results provided by the Company in
response to information requests indicate proposed controls should meet emission limits for all
three rules without additional investment. However, federal Coal Combustion Residual rules due
later this year may require additional operational costs and investments not included in the
Company's estimates. Staff believes these types of investments will be necessary to continue to
operate the facility; however, Staff encourages the Company to engage its operating partners in
scrutinizing the planned shut down date, especially if additional significant investment is needed.
This is especially true since Idaho Power has indicated that "an earlier than 2020 closure date
may have proven to be slightly more favorable to Idaho Power,"2
Notably, $440,392 of the investment that was planned to be expended between January
and May 2012, were not made. Consequently, that amount was excluded from the Company's
levelized revenue requirement included in its proposed rates. If these expenses are realized as
actual expenses, they will be trued-up during next year's annual review.
2 See response to Production Request No. 2, IPC-E-11-18.
STAFF COMMENTS 4 MAY 3, 2012
Decommissioning Cost
As mentioned above, Staff believes the 10 percent contingency should be removed from
the Company's decommissioning cost estimate. Assuming this adjustment, Idaho Power's share
of the decommissioning cost is estimated to be $6,095,800 (2020 dollars). Staff notes there
potentially is a 59 percent increase in Idaho's share of decommissioning costs above current
Company estimates related to the Company's assumptions for coal and coal ash disposal.
Specifically, the Company assumes the Boardman ash field can be capped; however, the
Company may have to haul ash to an approved landfill. This represents a $2.1 million (Idaho
share - 2010 dollars) increase in ash field renovation cost above proposed estimates. More
importantly, the Company believes there is a potential for an $800,000, (Idaho share - 2010
dollars) increase in the Company's estimate for disposing of remaining coal if the coal must be
landfihled. Staff notes that any inclusion of cost to landfill remaining coal should be avoided
through proper purchasing and end-of-life inventory control practices.
Revenue Allocation and Rate Design
Idaho Power allocates revenue and design rates using updated forecasted billing
determinants for the period June 1, 2012 through May 31, 2013. These billing determinants are
the most current information available for revenue allocation/rate design; however, they have not
been thoroughly reviewed in a general rate case and approved by the Commission. Staff
nevertheless accepts and recommends the use of the Company's proposed billing determinants
here, just as it has previously done in comments filed in Case Nos. IPC-E-12-06 and
IPC-E- 12-07.
The Company requests that the incremental revenue requirement be spread to all
customer classes as a uniform percent increase to all base rate components except customer
service charges. Doing so will increase all non-service charge rates by 0.1986% and increase
rates by an average 0.19%. As can be seen from Company Attachment 1, this revenue
spread/rate design produces a near uniform percentage rate spread to all customer classes.
Staff accepts the Company's proposed methodology for revenue allocation/rate design.
The application of this methodology to the incremental increase of $1,525,501, proposed by
Staff, results in a 0.1914% increase to all non-service charge rates and an average rate increase of
0.181%. The results of this rate spread are shown on Attachment A.
STAFF COMMENTS 5 MAY 3, 2012
Accounting Standards
The Company currently accounts for the estimated Boardman decommissioning costs as
an Asset Retirement Obligation (ARO) under Accounting Standards Codification (ASC) 410. In
accordance with Order No. 29414, Idaho Power records: (1) a regulatory asset for the
cumulative financial statement impact resulting from the Company's implementation of ASC
410 (previously Statement of Financial Accounting Standards (SFAS) 143); and (2) the ongoing
annual differences between the ASC 410 depreciation and accretion expenses and the annual
depreciation expenses that are currently authorized by the Commission in depreciation rates and
reclamation accruals.
Under the proposed ratemaking treatment for the Boardman decommissioning, the
Company would begin collecting revenues to cover these ARO-related liabilities. In conjunction
with the implementation of the proposed ratemaking treatment of the Boardman
decommissioning, Idaho Power requests that the Boardman-related ARO balances be exempted
from the deferral treatment under Order No. 29414. The Company proposes to cease deferring
ongoing annual differences between the ASC 410 depreciation and accretion expenses and the
annual depreciation expenses that are currently authorized by the Commission in depreciation
rates and reclamation accruals. In addition, the Company proposes to begin amortizing the
previously recorded regulatory asset balance related to the Boardman ARO. This will ensure
that revenues collected to satisfy Boardman ARO liabilities are properly matched to the
Boardman related ARO depreciation and accretion expense.
Staff agrees with the Company's proposal to exempt Boardman-related ARO balances
from the ARO deferral treatment in Order No. 29414.
STAFF RECOMMENDATION
• Staff recommends that rates be implemented to recover the Boardman balancing account.
• Staff recommends that the incremental revenue requirement be increased by $1,525,501.
• Staff recommends the annual reports filed with the Commission include updated
Company Exhibits I and 2 in Excel format with all formulas intact.
• Staff further recommends that the annual report workpapers include all the source
documentation necessary to verify any and all calculations and conclusions in the
narrative report and verify the calculations of and the amounts in the balancing account.
STAFF COMMENTS 6 MAY 3, 2012
• Staff recommends that the prudency of any investment or future expenses be determined
during the annual reviews at the time of the actual expense.
• Staff recommends approval of the revenue allocation/rate design methodology proposed
by the Company. Applying that methodology to the Staff proposed increase of
$1,525,501 produces an average increase over current rates of 0.1 8 ,1%.
• Staff recommends that the Boardman-related ARO balances be exempted from the
deferral treatment under IPUC Order No. 29414.
Respectfully submitted this 3 IJP day of May 2012.
Karl T. Klein
Deputy Attorney General
Technical Staff: Keith Hessing
Kathy Stockton
Terri Carlock
Mike Louis
i:umise/comments/ipee I 2.9kkkhklstcml comments
STAFF COMMENTS 7 MAY 3, 2012
Idaho Power Company
Calculation of Revenue Impact
State of Idaho
Boardman
Proposed to be Effective June 1, 2012
Summary of Revenue Impact
Current Billed Revenue to Proposed Billed Revenue
Total Percent
Rate Average Normalized Current Adjustments Proposed Change
Line Sch. Number of Energy Billed Cents to Billed Total Billed Cents Billed to Billed
No Tariff Description No. Customers (1) (kWh) (1) Revenue Per kWh Revenue Revenue Per kWh Revenue
Uniform Tariff Rates:
1 Residential Service 1 399,329 4,896,272,827 $397,700,569 8.123 $695,520 $398,396,089 8.137 0.17%
2 Master Metered Mobile Home Park 3 23 4,942,681 $381,220 7.713 $707 $381,927 7.727 0.19%
3 Residential Service Energy Watch 4 0 0 $0 0.000 $0 $0 0.000 0.00%
4 Residential Service Time-of-Day 5 0 0 $0 0.000 $0 $0 0.000 0.00%
5 Small General Service 7 28,165 144,888,296 $14,990,300 10.346 $24,670 $15,014,970 10.363 0.16%
6 Large General Service 9 31,614 3,480,101,459 $196,754,244 5.654 $363,590 $197,117,833 5.664 0.18%
7 Dusk to Dawn Lighting 15 0 6,481,376 $1,173,934 18.112 $2,228 $1,176,162 18.147 0.19%
8 Large Power Service 19 116 1,978,623,647 $83,660,290 4.228 $159,833 $83,820,122 4.236 0.19%
9 Agricultural Irrigation Service 24 16,642 1,720,204,410 $109,785,557 6.382 $206,019 $109,991,576 6.394 0.19%
10 Unmetered General Service 40 2,030 15,807,753 $1,096,245 6.935 $2,090 $1,098,334 6.948 0.19%
11 Street Lighting 41 361 23,165,568 $2,959,897 12.777 $5,610 $2,965,507 12.801 0.19%
12 Traffic Control Lighting 42 397 2,981.282 $142,887 4.793 $274 $143,161 4.802 0.19%
13 Total Uniform Tariffs 478,677 12,273,469,299 $808,645,142 6.589 $1,460,541 $810,105,682 6.600 0.18%
14 Special Contracts
15 Micron 26 1 451,138,622 $17,176,418 3.807 $33,051 $17,209,469 3.815 0.19%
16 J R Simplot 29 1 203,558,197 $6,727,934 3.305 $12,967 $6,740,900 3.312 0.19%
17 DOE 30 1 244,266,665 $8,393,976 3.436 $16,175 $8,410,151 3.443 0.19%
18 Hoku - Retail 32 1 0 $2,835,760 0.000 $2,767 $2,838,527 0.000 0.10%
19 Total Special Contracts 4 898,963,484 $35,134,087 3.908 $64,960 $35,199,048 3.916 0.18%
20 Total Idaho Retail Sales 478,681 13,172,432,783 $843,779,229 6.406 $1,525,501 $845,304,730 6.417 0.181%
21 Hoku - Block I Energy 32 109,702,243 $6,764,240 6.166 $0 $6,764,240 6.166 0.00%
(1) June 1, 2012 - May 31, 2013 Forecasted PCA Test Year (Hoku Adj)
Attachment A
Case No. IPC-E-j2-O9
Staff Comments
05/03/12
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 2N0 DAY OF MAY 2012, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-12-09, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
JASON B WILLIAMS
LISA D NORDSTROM
IDAHO POWER COMPANY
P0 BOX 70
BOISE ID 83707-0070
EMAIL: [e-mail]
jwi11iams(idahopower.com
COURTNEY WAITES
GREG SAID
TIM TATUM
IDAHO POWER COMPANY
P0 BOX 70
BOISE ID 83707-0070
EMAIL: [e-mail]
gsai&2)idahopower.com
[e-mail]
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SECRETAPf{
CERTIFICATE OF SERVICE