20130919final_order_no_32893.pdf

Office of the Secretary
Service Date
September 19,2013
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF )
GLANBIA FOODS,INC. FOR APPROVAL )
oF A LINE EXTENSION ALLOWANCE )
PURSUANT TO IDAHO POWER )
COMPANY'S RULE H. )
CASE NO. IPC.E.13.O9
ORDER NO. 32893
On April 5,2013, Glanbia Foods, Inc. (Glanbia) filed a Petition requesting that Idaho
Power be directed to provide it an allowance under its Rule H tariff. Idaho Power's Rule H tariff
sets forth terms for the Company to accommodate line extension requests that require
improvements to electric service facilities. Glanbia also contended that it should be compensated
for the value of capacity that would be freed-up at the substation that would no longer be used to
provide service to Glanbia. In addition, Glanbia requested that it be granted a vested interest in
any facilities it funds that are made available for use by other future customers. Id., pp. 3-4.
Finally, Glanbia asked the Commission to require Idaho Power to (a) competitively bid the
material and work on the upgrade, (b) provide audited records of the transaction, and (c) allow
Glanbia to be included in the design, engineering, and selection of contractors. Id., p. 4.
Idaho Power filed an answer on April 26, 2013, and the Commission later issued
Order No. 32803 establishing a comment period agreed to by the parties. On July 11, 2013, the
Commission issued Order No. 32848 extending the comment period for an additional 2l days
and directed the parties to "file written comments discussing an appropriate calculation of an
allowance for Glanbia's proposed electric facilities upgrade." Order No. 32848, p. 7. The
Commission further directed the parties to consider how to structure an allowance so that it does
not create a cost risk to Idaho Power's other customers.
On July 26,2013, Staff filed a Motion to extend the comment period to August 22,
2013, stating "an opportunity for the parties to discuss an appropriate allowance for Glanbia's
project could be beneficial, but it is not possible for the parties to develop a possible allowance
and meet to discuss it before the comment period expires on August 1,2073." On July 31,2013,
the Commission issued Order No. 32862 extending the period for parties to file supplemental
comments to August 22,2013.
ORDERNO. 32893
Idaho Power, Commission Staff and Glanbia met on August 5, 3013, but were not
able to develop a proposal for calculating an allowance that was acceptable to all parties. On
August 22,2013, all three parties filed additional comments as requested by the Commission.
Glanbia's Additional Comments
Glanbia in its comments assumed the Commission, by referencing the allowance for
residential customers based on the cost of standard terminal facilities, intended that Glanbia
should also be provided an allowance equal to its "terminal facilities." Glanbia asserts that the
terminal facilities required to serve only Glanbia are the transformer and related equipment.
Glanbia Comments, pp.2-3. Idaho Power estimated the cost for what Glanbia now calls
"terminal facilities" to be approximately $3,784,127. Glanbia contends this is the amount,
o'according to the Commission's curent policy on allowances, of the allowance due Glanbia."
Glanbia Additional Comments, p. 3.
To address the Commission's concem that any allowance provided Glanbia not place
undue risk on other customers, Glanbia stated it would be willing to execute a note or other
guarantee, in a form satisfactory to the Commission, that would be due in the event the Glanbia
facility closes or significantly reduces its power consumption.
Glanbia reiterated its request that it be provided a right to claim excess capacity on
the line for which it is paying for a time certain. Glanbia recommended that its reserve capacity
on the new line be preserved for at least a 2}-year period. Glanbia Additional Comments, p. 4.
Finally, although Glanbia now disclaims any right to a vested interest in the additional capacity,
Glanbia asserts it is important for the Commission to recognize, "as it considers Glanbia's
request herein, that its expansion will have beneficial effects on the Company and its ratepayers
over and above the additional revenue the Company will realize as a result of Glanbia's
expansion." Glanbia Additional Comments, pp. 4-5.
Staff s S upp lemental Comments
Staff in its comments arrived at a proposed allowance for Glanbia in the amount of
$1,248,946. Staff used an approach similar to that used to determine allowances for other
customers, staning with determining the "standard terminal facilities" for those customers. Staff
acknowledged it is diffrcult to def,rne a comparable set of standard terminal facilities for
Schedule 19 customers because, unlike the residential, commercial and irrigation customer
classes, the industrial class is much more diverse in the size and type of facilities required by
ORDER NO. 32893
each customer. Staff noted that a 30 megavolt-ampere (MVA) transformer is the smallest size
transformer normally added at substations to serve growing loads. The current estimated cost for
a standard set of 30 MVA transformer facilities, including labor and vehicles, is $1,688,942,
according to information provided by Idaho Power. Staff Comments, p. 5. With general
overhead costs added, the amount becomes $1,972,009, which when divided by 30 MVA, results
in a cost per MVA of $65,734. Staff believes this amount can reasonably be considered
"standard terminal facilities unit cost" comparable to the standard terminal facilities used as a
basis for allowances for other customer classes. Id. To determine a proposed allowance for
Glanbia, Staff recommended the $65,734 per MVA allowance be applied to the capacity being
added by the customer. If Glanbia proceeds with the project, it will be adding a new substation
with a 30 MVA capacity, at a cost of approximately $3.7 million, and additionally will require
the construction of approximately 10 miles of 138 kV transmission line at a cost of
approximately $4.5 million. The load to be served by the new facilities is expected to be 19
MW. Staff proposed that its allowance be based on the 19 MW being constructed for Glanbia's
use, entitling Glanbia to an allowance of $1,248,946 ($65,734 per MW x 19 MW). Staff
Supplemental Comments, p. 6.
In response to the Commission's concern that an allowance be structured to minimize
risks to Idaho Power's other customers, Staff proposed its recommended allowance be credited
in five equal annual installments of $249,789. If Glanbia does not maintain its operations for the
five-year term, it will not receive its full allowance. Staff also suggested that at the end of the
fifth year, if consumption is not what was anticipated when the allowance was calculated, Idaho
Power should be permitted to adjust the fifth year allowance credit based on the actual load
served in the fifth year. Staff Supplemental Comments, p. 7 .
Idaho Power's Additional Comments
Although ldaho Power believes its current practice of requiring each Schedule 19
customer to pay for transmission and substation facilities that only benefit the requesting
customer is still the best policy, the Company formulated a methodology to determine an
allowance for Schedule 19 customers that requires substation alterations or upgrades. The
Company determined a new fixed substation allowance for Schedule l9 customers based upon a
similar approach as taken in Rule H allowances for distribution terminal facilities. The
Company first determined the average annual demand for a typical Schedule 19 customer to be 3
ORDERNO. 32893
MW. Idaho Power Additional Comments, p. 6. The Company next considered what "terminal"
facilities would be installed to serve that customer, and concluded that the majority of Schedule
19 customers are fed off a 30 MVA or higher transformer. The Company thus determined that
its standard installation request for a Schedule 19 customer would involve a 30 MVA
transformer and related grounding and safety equipment required for installation. Idaho Power
stated that "if the Commission chooses to change the existing policy, then a f,rxed substation
allowance that provides an offset for the facilities required to provide service to the 'typical'
Schedule 19 customer would provide a fair and equitable method that could be applied to all
customers within the class." Idaho Power Additional Comments, p. 7. With this rationale, the
Company calculated a prorated share of the 30 MVA transformer installation cost to arrive at a
fixed substation allowance amount of $197,202. Idaho Power Additional Comments, pp. 7-8.
The Company asserts this approach is consistent with its distribution line extension policy, Rule
H, in which standard terminal facilities are provided for all residential and commercial
customers. Those customers who require facilities above the standard facilities would be
required to pay for them.
If the Commission implements a Schedule 19 substation allowance, Idaho Power
recommended its tariff be modified to recognize that Schedule 19 customers could be entitled to
a substation allowance. The Company also recommended updating the fixed substation
allowance annually coincident with updating distribution allowances in Rule H. Idaho Power
also argues that any Schedule 19 customer who requests a substation upgrade should be entitled
to only one allowance. In this case, Idaho Power contends Glanbia would not be entitled to a
substation allowance because it already received a benefit of free capacity when it originally
requested service from the Company. Idaho Power Additional Comments, p. 9.
Other Issues
A few issues remain that the Commission did not address in Order No. 32848.
Glanbia's Petition asserts that it has been unable to obtain a commitment from Idaho Power that
Glanbia will be allowed to veriff that the facilities upgrade will be competitively and
transparently bid. Glanbia Petition, p. 4. Nor has Glanbia been assured it will be permiued to
audit the transactions related for the project. /d. Accordingly, Glanbia asked the Commission to
require Idaho Power to (a) competitively bid the material and work on the upgrade, (b) provide
ORDER NO. 32893
audited records of the transaction, and (3) allow Glanbia to be included in the design,
engineering and selection of contractors. Id.
Idaho Power requested that the Commission deny Glanbia's request to allow it to
participate in the Company's design, engineering, and selection of contractors for the project.
Idaho Power solicited non-binding proposals from four contractors for Glanbia's project, and
received responses from all four in March 2013. If Glanbia proceeds with the project, the
Company will perform a true-up of actual costs and will refund amounts to Glanbia or collect
amounts from Glanbia where estimated costs are more or less than actual costs. Idaho Power
will also provide a detailed cost report showing all charges to the work involved in completing
the installation of the necessary facilities for Glanbia. Idaho Power Answer, p. 12. Staff
believes Idaho Power has made a good faith effort to ensure that the facilities will be constructed
at the lowest cost to Glanbia. Staff Comments, p. 9.
Glanbia initially requested compensation for a Company Betterment benefit. If the
improvements are made, capacity in the Toponis substation will be freed-up, allowing
approximately l0 MW of capacity in that substation to be used to serve other customers. Idaho
Power concluded after reviewing its load forecast for the area that there is no indication for
additional capacity needs in that substation in the near-term. Idaho Power also asserts it will not
benefit from operation or maintenance efficiencies if Glanbia's project is completed. Idaho
Power Answer, p. 10. Accordingly, the Company does not believe Glanbia is entitled to a credit
for Company Betterment under Rule H. Staff also does not believe Glanbia is entitled to a
Company Betterment credit. Although the existing substation that currently serves Glanbia will
no longer be used for that purpose, thus freeing up capacity to serve other customers, Staff does
not believe the freed-up substation capacity will likely lead to any customer benefit in the near
future. Staff Comments, p. 8.
Glanbia requested that it receive a Vested Interest in the event the improved facilities
become available for use by other customers. Under Rule H, Vested Interest is defined as the
right to a refund that an applicant holds in a specific section of distribution facilities when
additional customers attach to the section of distribution facilities improved by the applicant.
Idaho Power Answer, pp. l0-11. In addition, Glanbia requested the Company guarantee that
Glanbia will have access to the full nameplate capacity of the expansion it pays for at no
additional cost should Glanbia's future expansions call for additional capacity. In response, the
ORDERNO. 32893
Company stated it does not anticipate any additional load in the area in the near future and thus
more than adequate capacity should be available when needed. As a general rule, the
Company's practice is to maintain capacity for projects that have been funded by a customer for
a five-year period, and Idaho Power believes this assurance should alleviate Glanbia's concerns.
Idaho Power Reply Comments,p.12.
COMMISSION DECISION
The Commission began its discussion in Order No. 32848 with a brief review of
allowances to clarify the Commission's intent regarding allowances for Schedule l9 customers.
The Commission noted it approved new allowances against distribution plant costs for residential
customers based on the cost to provide standard terminal facilities for each of those customers.
The important factor in establishing the allowance is that it is based on the costs of those
standard terminal facilities that will be used to serve only the customer who is paying for the
facility improvements. Order No. 32848, pp. 5-6. Idaho Power had incorrectly concluded from
the Commission's Orders in Case No. IPC-E-08-22 that the Commission intended to eliminate
allowances for Schedule 19 customers "simply because those customers norrnally are not served
by the same 'standard terminal facilities' required to serve residential customers." Order No.
32848, p. 6. The Commission also noted that allowances for Schedule 19 customers are not
precluded by Idaho Power's Rule H tariff. The tariff provides that arrangements for installation
of Schedule 19 customers' facilities will be made on a case-by-case basis and, although it is
appropriate that a customer requesting specific facilities be asked to pay for them, it also may be
appropriate to provide an allowance against the construction costs "to recognize the customer
and all other Schedule 19 customers will continue to pay for a portion of those facilities in
electric rates." Id.
In this case, Glanbia requests construction of facilities that will cost at minimum $8.3
million. Once the upgrade is complete and Glanbia has increased its consumption, it estimates
its annual electric bill will be in excess of $7 million. Glanbia Additional Comments p. 3. The
Commission finds it reasonable and appropriate on the record in this case that a Schedule 19
customer who requests the construction of facilities that will be used and can be identified to
serve only that customer be given an allowance consistent with existing policy and Schedule 19.
The Company in its comments proposes a substation allowance for Schedule 19
customers using a similar approach as that taken in Rule H allowances for distribution terminal
6ORDERNO. 32893
facilities. Idaho Power determined that a standard installation request for a Schedule 19
customer involves a 30 MVA transformer and related grounding and safety equipment required
for installation, at a cost in excess of $ 1.9 million. Idaho Power Additional Comments, pp. 7-8.
The Company used the load size typical for a Schedule 19 customer (3 MW) to prorate a share of
the 30 MVA transformer installation cost to arrive at a fixed substation allowance amount of
$197,202 ($l.q * 30 x 3 : $197,202). Idaho Power Additional Comments, pp. 7-8. The
Company stated its concept "is consistent with the Company's distribution line extension policy,
Rule H, in which standard terminal facilities are provided for all residential and commercial
customers, but those who require facilities above those that are standard must pay for those
facilities." .Id
In determining its allowance proposal, Staff began with Idaho Power's definition of
standard terminal facilities for a Schedule l9 customer. Staff concluded that installation of a 30
MVA transformer as a standard minimum o'could reasonably be considered a 'standard terminal
facilities unit cost,' comparable to the standard terminal facilities used as a basis for determining
allowances for other customer classes." Staff Supplemental Comments, p. 5. Staff divided the
$1.9 million cost for the 30 MVA by 30 to arrive at a cost per MVA of $65,734. Id, Staff
proposed that this amount be adopted as a standard terminal facilities unit allowance for
Schedule 19 customers and that it be applied to the additional load constructed for the customer.
In this case, Glanbia plans to use a 19 MW share of the new transmission and substation
facilities, and thus Staff proposed that Glanbia be entitled to an allowance of $65,734 per MW
times l9 MW, or $1,248,946. StaffSupplemental Comments, p. 6.
The Commission finds the determination of standard terminal facilities equivalent for
Schedule 19 customers as proposed by Idaho Power, but applied on a per MW basis to the
customer load expected to be provided through the improved facilities as proposed by Staff, is a
just, reasonable and equitable determination of allowances for Schedule 19 customers. That
methodology results in a maximum possible allowance of 91,248,946 for Glanbia against its
construction costs. As both Staff and Idaho Power point out, by establishing a standard terminal
facilities equivalent, this derivation of allowances for Schedule 19 customers is consistent with
the way allowances are derived for other Idaho Power customers. It is consistent with existing
policy behind allowances in Rule H that customers who need and request facilities improvements
should pay their costs. At the same time, Idaho Power and all its customers benefit by a policy
ORDERNO. 32893
that encourages improvements to company facilities that are not included in rate base when paid
for by individual customers. On the record in this case, the Commission finds an allowance of
$1,248,946 against Glanbia's construction costs is fair, just and reasonable.
The Commission asked the parties to consider how a Schedule 19 allowance can be
structured to minimize risk that Idaho Power's body of customers could end up paying for the
allowance in their rates. Order No. 32848 p. 6. Staff recommended the allowance be credited
against the customer's electric bill in five equal annual installments, with an adjustment in the
fifth year if the customer fails to take energy as projected when the allowance amount is
determined. The Commission finds crediting the allowance against the customer's energy bill
during a five-year period is a reasonable way to provide the allowance to the customer while
ensuring the credit amount does not increase other customer rates. Rather than equal credit
amounts, however, the allowance amount and the timing of credit payments will be determined
by the customer's increase in electric load over the five-year period. The allowance amount
initially determined by the projected increase in load is the maximum allowance available. The
customer will receive a portion of the allowance each year that load increases during the five-
year period. If customer load reaches the projected maximum load at any time during the five-
year period, the customer will receive the full remaining allowance over the remaining five-year
period as long as maximum load is maintained. Conversely, if there is no increase in load during
the five-year period, the customer will receive no allowance credit. Increases in load less than
the amount projected will result in smaller credits.l Thus, the customer's anticipated use is a
large component of the allowance calculation, and making an adjustment if the consumption falls
short will discourage speculative projections of energy consumption.
To ensure uniformity in determining allowances for Schedule 19 customers, the
Commission adopts a "standard terminal facilities unit allowance" method for determining
Schedule 19 allowances. The current amount of the allowance should be equal to $65,734 per
MW times the number of megawatt capacity being added by the customer. The amount of the
' If the actual load increases from one year to the next during this five-year period, the allowance for that year will
be adjusted upward with the following calculation:
((Increase in load from the previous year as measured in MW) x (Allowance per MW))/Years
remaining in five-year period.
The adjustment will be added to the allowance received in the previous year. If there is no increase in load from the
previous year, the allowance for that year is equal to the allowance from the previous year.
ORDERNO. 32893
allowance will be recalculated annually following the same schedule Idaho Power uses to update
line extension allowances for other customer classes. Schedule 19 allowances will be credited to
customers based on the customer's increase in load over the five-year period, and the total credit
amount can be adjusted if the customer's load is not what was anticipated when the construction
costs and allowance amounts were determined.
A few issues remain that the Commission did not address in Order No. 32848.
Glanbia asked the Commission to require Idaho Power to (a) competitively bid the material and
work on the upgrade, (b) provide audited records of the transaction, and (c) allow Glanbia to be
included in the design, engineering and selection of contractors. .Id Idaho Power solicited non-
binding proposals from four contractors for Glanbia's project, and received responses from all
four in March 2013. If Glanbia proceeds with the project, the Company stated it will perform a
true-up of actual costs and will refund amounts to Glanbia or collect amounts from Glanbia
where estimated costs are more or less than actual costs. Idaho Power will also provide a
detailed cost report showing all charges to the work involved in completing the installation of the
necessary facilities for Glanbia. Idaho Power Answer, p. 12. Staff believes ldaho Power has
made a good faith effort to ensure that the facilities will be constructed at the lowest cost to
Glanbia. Staff Comments, pp. 8-9. The Commission finds that Idaho Power has obtained
competitive bids for the improvements Glanbia requests, and that its bid process will ensure a
competitive cost for Glanbia's improvements. Nonetheless, Glanbia is committing to a
significant improvement to Idaho Power's system, and is entitled to reasonable assurances
throughout the process that the total costs are in-line with projections obtained through the bid
process. Idaho Power has committed to providing a detailed cost report, but cost information
should be provided to Glanbia throughout the construction. The Commission does not find on
the record evidence to support a specific direction to Idaho Power regarding the bid and
construction process, but strongly encourages the Company to provide as complete information
to Glanbia as possible during and after construction.
Glanbia initially requested compensation for a Company Betterment benefit. If the
improvements are made, capacity in the Toponis substation currently serving Glanbia will be
freed-up, allowing approximately 10 MW of capacity in that substation to be used to serve other
customers. Idaho Power concluded after reviewing its load forecast for the area that there is no
indication for additional capacity needs in that substation in the near-term. Idaho Power also
ORDER NO. 32893
asserts it will not benefit from operation or maintenance efficiencies if Glanbia's project is
completed. Idaho Power Answer, p. 10. Staff also does not believe Glanbia is entitled to a
Company Betterment credit because the freed-up substation capacity is unlikely to lead to any
customer benefit in the near future. Staff Comments, p. 8. On this record the Commission finds
Glanbia is not entitled to a Company Betterment credit.
Glanbia requested that it receive a Vested Interest in the event the improved facilities
become available for use by other customers. Under Rule H, Vested Interest is defined as the
right to a refund that an applicant holds in a specific section of distribution facilities when
additional customers attach to the section of distribution facilities improved by the applicant.
Idaho Power Answer, pp. l0-11. Idaho Power initially opposed a Vested Interest for Glanbia
consistent with the Company's argument that Glanbia was not entitled to an allowance. With no
allowance, there could be no Vested Interest. Idaho Power Answer, pp. 7-l 1. Idaho Power later
argued that granting Glanbia a Vested Interest would violate its Open Access Transmission
Tariff approved by the Federal Energy Regulatory Commission. Idaho Power Reply Comments,
pp. 10-11. Staff asserted Glanbia should receive a Vested Interest for five years, while
acknowledging "it seems unlikely that any new customers large enough to take service at
transmission-level voltage would emerge in the five year vested interest refund period." Staff
Comments, pp. 7-8.
Glanbia also requested that the Company guarantee that Glanbia will have access to
the full nameplate capacity of the expansion it pays for at no additional cost should Glanbia's
future expansions call for additional capacity. In response, the Company stated it does not
anticipate any additional load in the area in the near future and thus more than adequate capacity
should be available to Glanbia when needed. As a general rule, the Company's practice is to
maintain capacity for projects that have been funded by a customer for a five-year period, and
Idaho Power believes this assurance should alleviate Glanbia's concerns. Idaho Power Reply
Comments,p.12.
Granting a Vested Interest to a customer who pays for facility improvements has long
been part of the allowance methodology, and the Commission finds it must be available to
Glanbia in this case. The Commission finds it fair, just and reasonable that Glanbia be given a
Vested Interest in the transmission facilities it is having constructed for five years. In addition,
Idaho Power stated it will guarantee that Glanbia will have access to excess capacity in the
l0ORDER NO. 32893
facilities it is funding for no less than five years. Both of these provisions can be accommodated
in this case to assure that Glanbia has facilities it paid for available when needed and is
reimbursed if these facilities are used by another customer.
ORDER
IT IS HEREBY ORDERED that a "standard terminal facilities unit allowance"
method will be used for determining Schedule 19 allowances. The current amount of the
allowance is $65,734 per MW times the number of megawatt capacity being added by the
customer, resulting in an allowance to Glanbia in the amount of $1,248,946.
IT IS FURTHER ORDERED that the amount of the Schedule l9 unit allowance will
be recalculated annually by Idaho Power on the same schedule it uses to update line extension
allowances for other customer classes. Schedule 19 allowances will be credited to customers in
annual installments, and the credit amount will be adjusted each year if the customer's load is not
what was anticipated when the construction costs and allowance amounts were determined.
IT IS FURTHER ORDERED that Idaho Power grant to Glanbia a Vested Interest in
the transmission facilities it is constructing for five years following completion of construction.
In addition, Idaho Power must ensure that Glanbia has access to excess capacity in the facilities
for no less than five years.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsiderationwithintwenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See ldaho Code $ 6l-626.
l1ORDER NO, 32893
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this l?A
day of September 2013.
\trx"*t^Dlq
MACK A. REDFORD, COMMISSIONER
n*Mb l. &*.L
MARSHA H. SMITH, COMMISSIONER
ATTEST:
A At ro
lf{n o. Jewe{/
Cbmmission Secretary
bls/O:IPC-E-13-09 ws5
PAUL KJELLANDER]
ORDER NO. 32893 12