20120530Comments.pdf

Peter J Richardson (ISB # 3195) RECEIVED
Gregory M. Adams (ISB # 7454) 2012 MAY Richardson & O'Leary, PLLC 30 PM E: 5
515N.27tl Street lU uL.
P 0 Box 7218 UTILW3 0MMSON
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Attorneys for the Industrial Customers of Idaho Power
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF)
IDAHO POWER COMPANY FOR ) Case No. IPC-E-12-14
AUTHORITY TO INCREASE ITS RATES )
AND ITS RATE BASE TO RECOVER ITS ) COMMENTS OF THE INDUSTRIAL
INVESTMENT IN THE LANGLEY GULCH ) CUSTOMERS OF IDAHO POWER
POWER PLANT
)
COMES NOW, the Industrial Customers of Idaho Power ("ICIP") pursuant to that
Notice of Modified Procedure and Order No 32523 issued by the Idaho Public Utilities
Commission ("IPUC" or "Commission") and hereby lodges its comments on Idaho Power
Company's ("IPC0" or the "Company") application to increase its rates and its rate base to
recover its investment in the Langley Gulch Power Plant
RECOMMENDATIONS
The ICIP recommends that Idaho Power be held to recover no more than the
$396,618,473 that was pre-approved by the Commission in Order No 30892 In addition, the
Company should be put on notice that all capital expenditures on the Langley Gulch plant that
are beyond routine maintenance and operations costs will be disallowed going forward Use of
the new statute allowing for regulatory pre-approval of capital investment has proven to be a
Page 1 - Comments of the ICIP
failure -- as predicted by the ICIP in the certificate of public convenience and necessity
("CPCN") docket.' As a result of its failed experiment in regulatory pre-approval in this case,
the Commission should make clear to the utilities it regulates that future applications for
regulatory pre-approval will be viewed with disfavor.
The addition of Langley Gulch in rates will have a dramatic impact on Idaho Power's use
of its resource stack. The Commission should consider whether it is prudent, given the new
landscape of Langley, lost loads, anemic growth projections and stricter air emission/pollution
control requirements, to continue ratepayer support for the Company's aging coal fleet.
Finally, the ICIP is concerned that, although constrained by the regulatory pre-approval
statute to include this new plant in rates, the Commission should not turn a blind eye to recent
events that have dramatically changed the utility landscape.
REGULATORY PREAPPROVAL FAILURE
Idaho Power is the first, and only, utility the ICIP is aware of to ask the Commission to
grant it a CPCN under the recently enacted regulatory approval statute.2 In March of 2009,
Idaho Power filed for a CPCN for the Langley Gulch Plant.3 At the conclusion of the hearing
process, the Commission approved the CPCN along with pre-approval of the Company's
investment in the plant for rate base treatment in the amount of $3.97 million. In September of
2009, the Commission issued its Order approving Idaho Power's investment in Langley stating:
1 IPC-E-09-03
2 Idaho Code § 61-541, as added by 2009, Id. Leg. Sess. Laws Ch. 145.
IPC-E-09-03
Page 2— Comments of the ICIP
IT IS FURTHER ORDERED that the Commission, pursuant to Idaho Code 61-541
provides Idaho Power with authorization and binding commitment to provide rate base
treatment for the Company's capital investment in the Langley Gulch Power Plant and
related facilities in the amount of $396,618, 473 at such time as the plant is placed in
commercial operation.4
The ICIP presented extensive testimony in the Langley Gulch docket documenting the dramatic
impact the greatest economic downturn since the Great Depression was having on Idaho Power's
loads and it questioned need for this plant at that time. The ICIP did not recommend that the
CPCN be denied, only that it be delayed until the impacts of the severe economic downturn
could be analyzed with more current data:
Because IPC has provided no compelling reason for the Commission to expedite its
review of IPC's Langley Gulch Application in order to meet future loads in the 2012
timeframe, the Commission should consider Langley Gulch based on its forthcoming
August 2009 load forecast as part of an integrated loads and resources analysis via IPC's
2009 IRP. The August 2009 load forecast should more reasonably reflect current, near,
and possibly longer term economic conditions and resultant impacts of electricity
demand.'
The ICIP urged the Commission to proceed with all deliberate caution:
My analysis indicates that even once the economic recovery is underway, it will take
some years for personal income and employment to return to 2006-2007 levels. These
levels will not be reached by the end of 2011 and, at the rates of increase forecast for that
period (Q3 to Q4 of 2011) are unlikely. Early indications are that IPC's 2009 energy
usage is off by about 5% from early 2008 levels.
There are other indications that components of IPC's projected loads will be delayed or
may fail to materialize. For instance, the "Special Contract" load Hoku Scientific,
Inc.(forecasted at 38 aMW /43 MW peak in the June 2008 IRP Update), recently
announced that [it] may not have enough money to complete its polysilicon plant in
Idaho.'
Order No. 30892 at p. 46, Docket No. IPCE-09-03.
Mitchell Direct Testimony IPC-E-09-03, p 6.
6 1d., p.5.
Page 3 - Comments of the ICIP
No one is prescient; however, it simply was not prudent to move forward with this plant at the
depth of the economic downturn with no reason to believe it would be short lived. All of the risk
of that imprudent decision was placed on the shoulders of the ratepayers when the 2009
Commission utilized its new authority to reach into the future to bind this 2012 Commission to
placing into rate base almost $400 million with no opportunity to apportion risk between the
shareholder and the ratepayer.
Since the Langley Gulch order was issued, Idaho Power's total general business loads
have declined by 810,000 MWh or by 5.6 percent.7 Langley Gulch was approved on the
assumption of robust load growth over these last three years. Idaho Power had no incentive to
actively and continuously assess the prudence and timing of this plant because it was virtually
guaranteed rate base treatment of the pre-approved investment.
The story is compelling. This 2012 Commission should make it clear that it will look
with great disfavor on triggering subsequent CPCN pre-approval. In its annual report to the
Governor, the Commission should provide a full report on the flaws with the new Idaho Code
Section and make appropriate "recommendations, as it may deem of value to the people of the
state."8
LIMIT RECOVERY OF FUTURE LANGLEY CAPITAL EXPENDITURES
Idaho Power has taken full advantage of its ability to secure regulatory pre-approval of its
investment in Langley Gulch. The public interest calls for the shareholders to assume the risk of
future capital investments in this plant. The grant of a pre-approved rate base amount should be
7Compare IDACORP, Inc., 10-K 2011, p. 8 with IDACORP, Inc. 10-K 2009, p. 7.
8 Idaho Code § 61-214, providing for annual reports to the Governor.
Page 4— Comments of the ICIP
a two way Street; with the ratepayers on the hook for the pre-approved amount and the
shareholders on the hook for excess expenditure. The Commission should rate base no more
than the $396,618,473 that it authorized in Order No. 30892.
Should the Commission not hold Idaho Power to its pre-approved amount, then at a
minimum it should deny any amounts above the pre-approved amount until the next general rate
case or appropriate proceeding to determine the prudence and reason for the Company's
expenditures above the pre-approved level.
SINGLE ISSUE RATE CASE
or
YOU CAN'T JUST VIEW THE RATE IMPACT IN ISOLATION"9
The Commission is well aware that rates are not set in a vacuum. Authorizing Idaho
Power to rate base this large investment without exploring how it fits into the radically different
world we find today from what it looked like back in 2009 is not prudent. For example, Dr.
Reading prepared the attached table (Ex. 1) showing the operation of the Company resource
stack with and without Langley Gulch. The data in the table held all variables constant but for
an update to natural gas prices. As can be seen, the addition of Langley Gulch has dramatically
changed Idaho Power resource stack.
Langley Gulch's addition to the resource stack, updated only for natural gas prices,
causes a dramatic decrease in the output of Idaho Power's coal plants. In total, the output from
the Company's three coal plants (Bridger, Boardman and Valmy) is expected to decrease by over
seventy percent! The Valmy plant's output will drop by ninety seven percent, making it virtually
uselss in providing service to Idaho Power's ratepayers. Clearly, whether or not Valmy should
remain in rates going forward is a question that needs to be addressed. However; the
Order No. 30892 at p. 31, quoting Ric Gale, Idaho Power Policy Witness
Page 5 - Comments of the ICIP
implications of adding Langley Gulch go well beyond just the ongoing prudence of that one
plant.
Remarkably, given the current expected natural gas prices, Langley will be Idaho
Power's least expensive unit, on a variable cost basis. For now, it appears that gas prices have
stabilized at almost record low prices. The savings to the ratepayers of displacing, once cheap
but now, by comparison, higher cost coal plantsneeds to be recognized and quantified.
Idaho Power's seven percent rate increase request is contrary to what the Commission
clearly expected when it granted pre-approval for Langley Gulch's costs into rate base.
Although the Commission never specifically addressed the question of the retail rate impact of
approval of Langley Gulch, it apparently believed it did not need to. The Commission's
understanding of the retail rate impact of approval of Langley Gulch was obviously informed by
Mr. Gale's testimony that such impact could possibly be "nothing at all." At page 31 of the
Order, the Commission stated:
When questioned at hearing as to the rate impact if Langley Gulch was approved, Mr.
Gale, the Company's policy witness responded as follows:
• . .ifyoujust simply lay that rate base and depreciation and such onto our current
rates, you get a number close to.. .six or seven percent. If you play it forward into
2012 and escalate the revenue and evaluate it against other alternatives, its
diminished, I think, close to three or four percent, and then in comparison to
alternatives, maybe nothing at all, because you can't just view the rate impact in
isolation. There's going to be a set of costs under which you're operating at that
point in time.
Gale, Tr. p. 220.'°
Idaho Power's policy witness' testimony that the rate impact of putting Langley Gulch into rate
base would be close to "three or four percent" or even "nothing at all" was compelling enough
10 Order No. 30892 at p. 31, emphasis provided.
Page 6— Comments of the ICIP
for the Commission to quote it at length in the order. Surely it means something that the
Commission believed the rate impact would be as low as "nothing" when it granted Idaho Power
its CPCN. Surely it means something today, as the Commission is asked to approve putting this
plant in rate base. The Commission should do as Ric Gale's quoted testimony recommended -
and that is "play it forward into 2012 and escalate the revenue and evaluate it against other
alternatives." Ric Gale further testified that the Commission would have to recognize that,
"There's going to be a set of costs under which you're operating at that point in time." Clearly
the Commission did not anticipate, nor did it approve Langley Gulch, on the assumption that it
would be faced with a single issue rate case and a retail rate increase of seven percent.
CONCLUSION
While the ICIP is resigned to the inevitable fact of inclusion of the full $396,618473 in
Idaho Power's rate base, the lessons learned should be noted:
Pre-approval of risky investments is a bad idea for the ratepayer as it destroys all
incentive for the utility to maintain constant vigilance as to the prudency of the pre-approved
project. The Commission should take advantage of its obligation to file an annual report with the
Governor to so inform that office of this significant defect in Idaho Code 61-541.
The single issue nature of Idaho Power's application flies in the face of the fact that the
Commission clearly contemplated a complete review of the impact on rates of this new plant,
because as the Commission quoted from Idaho Power's policy witness, "you can't just view the
rate impact in isolation."
The quid pro quo for what is essentially a guaranteed rate base treatment of Langley
Gulch is for the company to absorb any additional capital costs associated with this plant.
Page 7— Comments of the ICIP
The monumental change in the way Idaho Power's resource stack will now operate
presents serious challenges to the Company if it wants to continue throwing good money at coal
plants that don't run and are more expensive than Idaho Power's new base load plant. The
Commission should immediately open an investigation into the myriad of issues associated with
this new reality.
Dated this 30th of May, 2012
RICHARDSON AND O'LEARY, PLLC
/-• /Z
Peter J. Richardson (ISB No: 3195)
Gregory M. Adams (ISB No. 7454)
Attorneys for the Industrial Customers
of Idaho Power
Page 8— Comments of the ICIP
Table I
IPCO POWER SUPPLY COSTS NORMALIZED LOADS OVER WATER YEAR CONDITIONS
A B
Percent
Change
in Plant
For 2010- 81 Water Output
For 2OlO-8l Water Years For 2011- 83 Water Years Years [C-A]
Wright Ex. 1 IPC-E 10- Wright Ex 17 IPC-E IIPA 2nd Production
01 11-08 Request, Response #8
Source Annual $/KWh Annual $IKWh Annual $/KWh
Hydro 8,662,424 8,647,019 8 662,424 0 0%
Bndger
Energy (MWh) 5,020,433 4,717994 1,707,209 -66.0%
Cost ($ x 1000) 106,909 $21.29 104, 548, $2216 37713 $22.09
Boardman
Energy (MWh) 3708631 3424851 276,793 -254%
Cost ($x 1000) 6,703 $18.08 6,186, $18.06 5,072 $18.32
Valmy
Energy (MWh) 1,775,681 1,046,901 56,796 -96.8%
Cost.($ x 1000) 54,047 $30.44 35,430 $33.84 1,876 $33.03
Langley Gulch
Energy (MWh) 1,924,778
Cost ($x 1000) 34,718 $18.04
Dansktn -
Energy (MWh) 30,396 6,718 94,994 212.5%
Total Cost 5,392 $177.38 5,398 $803.44 6,006 $63.22
Bennett Mountain
Energy (MWh) 11,912 480 40194 2374906
Total Cost 661 $55.45 24. $50.57 999 $24.85
Purchase (exdCSPP) 4
Energy (MWh) 1,123,705 1,333,072 2,293,842 104.1%
Total Cost 66,444 61,916 72,935
-r
Surplus Sales
Energy (MWh) 2,750,581 1,968,845 967,458
Re.enue Inc. Trans 94,803 63,661 18,404
Exhibit 1 —Comments of the ICIP
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 30th day of May, 2012, a true and correct copy
of the within and foregoing COMMENTS OF THE INDUSTRIAL CUSTOMERS OF
IDAHO POWER TO IDAHO POWER COMPANY IN CASE NO.IPC-E-12-14 was
served in the manner shown to
Jean D Jewell, Secretary ... Hand Delivery
Idaho Public Utilities Commission U.S. Mail, postage pre-paid
472 West Washington - Facsimile
Boise, Idaho 83702 .. Electronic Mail
[e-mail]
Lisa D Nordstrom - Hand Delivery
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Idaho Power Company - Facsimile
P0 Box 70 X Electronic Mail
Boise, Idaho 83707-0070
lnordstrom@idahovower corn
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Idaho Power Company X. Electronic Mail
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Signed LU'
Nina Curtis