20130605Comments.pdf

WELDON B.STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION -)Ff L:14
P0 BOX $3720
BOISE,IDAHO 83 720-0074 J L
[phone]
IDAHO BAR NO.3283
Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF )
GLANBIA FOODS,INC.FOR APPROVAL )CASE NO.IPC-E-13-09
OF A LINE EXTENSION ALLOWANCE )
PURSUANT TO IDAHO POWER COMPANY’S )
RULE H.)COMMENTS OF THE
)COMMISSION STAFF
)
_____________________________________________________________________________________)
COMES NOW the Staff of the Idaho Public Utilities Commission,by and through
its Attorney of record,Weldon B.Stutzman,Deputy Attorney General,and in response to
Procedural Order No.32803 on May 7,2013,submits the following comments.
BACKGROUND
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’s Petition asks the Commission to “issue its
Order requiring Idaho Power to provide it with an allowance for its proposed line extension in the
amount of $2,3 18,000 or other such amount it determines is appropriately calculated pursuant to
the Commission’s methodology underlying Rule H.”Glanbia Petition,p.6.Glanbia also
STAFF COMMENTS 1 JUNE 5,2013
contends that it should be compensated for the value of capacity that would be freed up at the
substation currently used to provide service to Glanbia,which would no longer be necessary if a
new substation is built to provide service.Glanbia also contends that it should be granted a vested
interest in any facilities it funds that are made available for use by potential future customers.Id.
at p.3-4.Finally,Glanbia asks 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.at p.4.
Idaho Power filed an answer on April 26,2013.In its answer,Idaho Power maintains that
it evaluated Glanbia’s request in a fair manner,consistent with previous evaluations of customers
with growing loads.The Company states that it properly followed its tariff,rules and regulations
in assessing Glanbia’s proposals.Idaho Power Answer at p.6.
STAFF REVIEW
Applicability of Rule H
Glanbia is currently a Schedule 19 customer and intends to remain a Schedule 19 customer
after the proposed new load is added.Under the terms of Schedule 19,
If additional distribution facilities are required to supply the desired
service,those facilities provided for under Rule H will be provided under
the terms and conditions of that rule.To the extent that additional facilities
not provided for under Rule H,including transmission and/or substation
facilities,are required to provide the requested service,special
arrangements will be made in a separate agreement between the Customer
and the Company.See Schedule 19,Availability.(emphasis added).
As stated above,Rule H clearly applies to Schedule 19 customers.However,the language in
Schedule 19 restricts application of Rule H specifically to distribution facilities and directs that the
addition of transmission and substation facilities will be made under special arrangements.
The language in Rule H appears consistent with the language in Schedule 19.Schedule 19
states,
This rule applies to requests for electric service under schedules 1,3,4,5,7,9,
19,24,45,and 46 that require the installation,alteration,relocation,removal or
attachment of Company-owned distribution facilities....This rule does not
apply to transmission or substation facilities,or to requests for electric
service that are of a speculative nature.(emphasis added).
STAFF COMMENTS 2 JUNE 5,2013
In large part,this complaint centers on interpretation of Idaho Power’s Rule H,and whether
the principles underlying it apply in this circumstance.Idaho Power argues that Glanbia’s request
requires that the Company install only a new transmission line and a substation,both of which are
expressly excluded from application of Rule H.Idaho Power refers to its Rule B wherein it states
“Transmission Service is service taken at 44 kV or higher.”Because Glanbia will be a Schedule
19 Primary Service (19P)customer,Idaho Power will provide service at between 12.5 kilovolts
(kV)to 34.5 kV,but the new line constructed to serve Glanbia will be 13$kV —clearly
transmission level voltage.Idaho Power concludes,therefore,that Glanbia’s request does not
properly belong under the provisions of Rule H because it does not apply to transmission or
substation facilities.Idaho Power further concludes that because Rule H does not apply,Glanbia
is not entitled to any allowance.Idaho Power Answer at p.7.
Glanbia,on the other hand,notes that Rule H does not define the terms “transmission”and
“substation,’therefore there is no test for how a line extension must be configured in order to be
deemed a transmission or distribution line extension.Glanbia Petition at p.3.Glanbia points to
the following FERC/NERC definition of a “Distribution Provider”that defines the distinction
between transmission systems and distribution systems by function,not by size:
Provides and operates the “wires”between the transmission system and the end-use
customer.For those end-use customers who are served at transmission voltages,
the Transmission Owner also serves as the Distribution Provider.Thus,the
Distribution Provider is not defined by a specific voltage,but rather as
performing the Distribution function at any voltage.
Glossary of Terms Used in NERC Reliability Standards,February 11,2013 at p.23 (emphasis
provided by Glanbia).
Glanbia also notes that the line that would be built to serve the plant would be a dead end
line serving a single customer.Id.at p.5.Glanbia’s position apparently is that because the line
serves a distribution function,the principles of Rule H should apply,even though Rule H may
technically exclude transmission and substations.
Staff Position on the Applicability of Rule H
First,Staff believes it is clear that Rule H applies to Schedule 19 customers.Second,Staff
believes it is clear that Rule H does not apply to transmission or substation facilities.Staff
believes that while Idaho Power is correct that the line needed to serve Glanbia does not meet its
STAFF COMMENTS 3 JUI’JE 5,2013
voltage-based definition of transmission,Glanbia is nevertheless correct that the line does serve a
distribution function.
However,Staff disagrees with Idaho Power’s conclusion that because Rule H does not
apply to transmission or substation facilities,no allowance must be provided.Nowhere is it stated
in either Rule H or Schedule 19 that no allowance must be provided for transmission or substation
facilities.1 In fact,to the contrary,the language in Schedule 19 clearly states that if these facilities
are required to provide service,special arrangements will be made in a separate agreement
between the customer and the Company.Exactly what those special arrangements shall be,
however,is not specified.
Staff believes that appropriate special arrangements should be based on the same principles
underlying Rule H.One of those principles is that all new customers should be provided an
allowance to offset the cost of new facilities required to serve them because a portion of each
customer’s retail rate is already intended to cover the embedded cost of certain facilities.In other
words,no customer should pay twice for the facilities needed to serve them —once through rates
and once through upfront charges paid at the time a line extension is made.If Glanbia were not
provided an allowance,it would not only be paying through rates for distribution and terminal
facilities it does not require or use,it would also be paying the full upfront costs for the
transmission line and substation that it does need.
As background,cost recovery for distribution plant differs somewhat from generation and transmission plant.The
capital cost of installing new generation and transmission plant has always generally been recovered through rates
paid by all customers.Hook-up fees,impact fees,or other charges at the time a new customer begins taking service
have never been charged for the purpose of recovering the costs of building new generation and transmission
facilities.In fact,in accordance with prior decisions of the Idaho Supreme Court,such fees cannot be charged for new
plant that cannot be attributed specifically to serving new customers.
In the case of distribution plant,however,it is possible to associate specific facilities with specific customers
who use them.For example,meters are physically attached to customers’buildings,service lines run directly to each
customers premises,and transformers serve a specific customer or group of customers.Even most distribution lines
can be associated with serving specific subdivisions,businesses along a street or specific neighborhoods.Because of
this,the costs of new distribution plant have,throughout most of Idaho Power’s history,been recovered in two ways
—partially through upftont capital contributions from new customers,and partially through electric rates charged to
all customers.Upftont charges are either based on estimates prepared by Idaho Power for each line extension job
(work order costs),or are specified in the Rule H tariff for standard tasks or materials.The portion collected through
electric rates represents the investment in new facilities made by Idaho Power.It is often referred to as an
“allowance.”Staff Comments in Case No.IPC-E-O$-22,pp.2-3.
STAFF COMMENTS 4 JUNE 5,2013
Allowance
In Idaho Power’s most recent line extension case,Case No.IPC-E-O$-22,embedded net
plant for distribution plant and ten-nina!facilities were computed by Staff for each customer class.
These values were also referred to as the “allowable investment”by customer class because they
represented the amount of investment Idaho Power could expect to recover over time through the
rates paid by customers.Proposed allowances,in turn,were based on the embedded net plant and
terminal facilities (allowable investment).2 Because the total embedded net plant was
coincidentally reasonably close to the value of terminal facilities,Staff proposed allowances equal
to the cost of standard overhead terminal facilities for Schedules 1,9,and 24.Allowances for
Schedule 7 were proposed as a percentage of the cost of standard terminal facilities.Allowances
for Schedule 1 9 were proposed to be made on a case-by-case basis primarily because each
Schedule 19 customer is unique in terms of the terminal and other facilities needed to provide
service,in part due to the different voltage levels at which they take service.
Idaho Power proposed allowances as specific dollar amounts.Those dollar amounts,
however,were equal to the cost of standard overhead terminal facilities.Idaho Power’s proposed
allowances were not based on an analysis of embedded costs,but seemed instead to be based
simply on policy.Therefore,although Staffs and Idaho Power’s rationale differed greatly,their
proposed allowances were effectively very similar.
The Commission accepted Idaho Power’s proposed allowances stating,
By updating line installation charges and increasing the allowances,the
appropriate amount of contribution will be provided by new customers
requesting these services.These changes relieve one area of upward
pressure on rates.Moreover,the Company’s proposal is impartial to
customer class,minimizes subsidization of terminal facilities costs,and
carries the added benefit of administrative simplicity.Idaho Power shall
make an annual filing,no later than January 1 of each year,updating
allowance amounts for single-and three-phase service to reflect current
costs for “standard”terminal facilities.
Order No.30853 p.11.
Because the Commission’s Order adopts Idaho Power’s proposed allowances and
specifically refers to annual updates of the costs of standard terminal facilities,Staffs believes its
own rationale is also supported —that what is important is that the value of terminal facilities be
provided as an allowance,not that the actual terminal facilities required by each customer
2 Terminal facilities consist ofa transformer,meter,and a service drop.
STAFF COMMENTS 5 JUI’.JE 5,2013
specifically be provided as an allowance or that an allowance,if granted,only be applied toward
the cost of distribution and terminal facilities.It makes sense that allowances be based on the
value of facilities,rather than the assets themselves,because the allowance is based on the
embedded investment for customers in a class.
In its Answer to Glanbia’s Petition,Idaho Power states “Glanbia’s proposed allowance as
calculated in Exhibit B to the Petition represents a re-packaging of a computation Staff presented
in initial comments in Case No.IPC-E-08-22,which was not adopted by the Commission in either
its initial Order No.30853 or its Reconsideration Order No.30955.”Idaho Power’s statement
implies that the Commission accepted Idaho Power’s proposed allowances and rejected Staffs,and
more specifically.that the Commission rejected Staffs computations based on embedded costs.
Despite the lack of specific language in either Order,Staff believes that the Commission’s decision
on allowances was supported by both Idaho Power’s and Staffs positions.Idaho Power’s and
Staffs proposed allowances were similar and both supported the Commission’s decision.Staff
believes the Commission ftilly supported its embedded cost approach,but chose to adopt the
allowances in the form proposed by Idaho Power.The Commission clearly did not reject Staffs
computations of allowable investment.
The allowable investment computed by Staff for Schedule 19 was $122 per kW.See Staff
Comments in Case No.IPC-E-08-22,Attachment 2.Of this amount,$109 per kW was calculated
to represent the embedded cost of distribution plant and $12 per kW was calculated to represent
the embedded cost of terminal facilities.Again,these amounts represent the level of investment
for these facilities that is built into rates.Put differently,all Schedule 19 customers,including
Glanbia,are paying these amounts through rates whether these facilities are actually required to
provide service or not.In cases where the customer has no distribution facilities,such as Glanbia’s
case,Staff believes it is fair and reasonable that the allowable investment be applied to whatever
facilities are needed to provide service whether they are terminal facilities,distribution facilities or
transmission facilities.Consequently,Staff believes that Glanbia should be entitled to an
allowance of $122 per kW that can be applied to the cost of terminal facilities and transmission
facilities.
STAFF COMMENTS 6 JUNE 5,2013
Application of the Proposed Allowance to Incremental Load
Glanbia argues that an allowance,if ordered by the Commission,be applied to the full load
planned by Glanbia.Glanbia therefore requests a total allowance amount of$122 per kW times
19,000 kW,or $2,318,000.
Staff disagrees.Staff believes that Glanbia should only be entitled to an allowance for its
incremental load,or in this case,seven MW.Staff does not believe an allowance should be
applied to Glanbias full load because 10 of Glanbia’s 19 MW could theoretically continue to be
served by existing facilities,and the requirement for new facilities is triggered by only seven MW
of new load.Allowances under Rule H are restricted to new service attachments and distribution
line installations,and Staff believes that the same restriction should apply here.Moreover,a
portion of the rates Glanbia will be paying with its new,higher load is intended to cover the cost
of new facilities.That portion of the new,increased revenue from Glanbia is intended to match
the allowance only for new,incremental facilities.Applying the incremental load of seven MW to
the allowance amount of $122 per kW results in a total proposed allowance amount of $854,000.
Vested Interest and Company Betterment
Glanbia contends that many of the facilities that will be added to serve its expanded load
will be available for use by potential future Idaho Power customers;consequently,it believes it
should be entitled to hold a vested interest in those facilities.A vested interest entitles a customer
to receive refunds in the future from subsequent new customers who utilize the same facilities so
that the costs of the facilities are equitably shared by all customers receiving benefits.
Under Rule H,‘Vested Interest”is defined as the right to a refund that an Applicant or
Additional Applicant holds in a specific section of distribution facilities when Additional
Applicants attach to that section of distribution facilities.’Idaho Power maintains that because
Glanbia’s request would not require the construction of any distribution facilities,it would not
qualify for any Vested Interest under the provisions of Rule H.
Staff believes it would be fair and reasonable in this instance to grant Glanbia a fiveyear
vested interest in the new transmission line that would be constructed.Glanbia’s load is such that
it requires a new line be built at transmission,rather than distribution,voltage.Nevertheless,the
new transmission line would serve the same function as if it were a distribution line.Staff does
not believe Glanbia should forfeit its right to a vested interest simply because it happens to be a
customer with a large load.Realistically however,it seems unlikely that any new customers large
STAFF COMMENTS 7 JUNE 5,2013
enough to take service at transmission-level voltage would emerge in the five year vested interest
refund period,especially in such a rural area.
Glanbia also contends that it should be given credit for Company Betterment because the
existing substation that serves Glanbia will no longer be used for that purpose and capacity would
thus be freed-up to be used to serve other customers.Idaho Power maintains that no Company
Betterment should be granted because there is no indication for additional capacity needs in that
substation in the near term and because the Company would not benefit from any operation and
maintenance efficiencies.Idaho Power believes it would not be in the best interests of its
customers to pay for capacity it does not need.
Staff acknowledges that additional substation capacity may be freed up,but does not
believe any Company Betterment should be granted to Glanbia.Staff believes the intent of
Company Betterment is primarily to permit the utility to oversize new facilities in reasonable
anticipation of near term use by future customers,and to achieve efficiencies by constructing new
facilities in more reasonable capacity increments.Staff does not believe that the freeing up of
substation capacity in this instance will likely lead to any customer benefits in the near future.
Competitive Bidding
Glanbia’s Petition asks the Commission to require Idaho Power to competitively bid the
material and work,provide audited records to Glanbia.and allow Glanbia to be included in the
selection of a contractor.Idaho Power proposes that the Commission deny Glanbia’s requests,and
argues that because it is responsible for owning,operating,and maintaining the facilities,it is
appropriate that Idaho Power design,engineer,and select contractors for the facilities.
In its Answer,Idaho Power states that it solicited non-binding proposals from four
contractors for the engineering,procurement and construction of the project.Idaho Power reports
that it received responses from all four contractors,with bids ranging from 34 percent to 75
percent higher than Idaho Power’s own estimate of $8.3 million.The Company included a
summary of those non-binding estimates with its Answer.Idaho Power offers to perform a true
up of actual costs and commits to refund amounts to Glanbia or collect amounts from Glanbia
where the estimated payment is over or under actual costs.Idaho Power also offers to provide a
detailed cost report showing all charges to the work order(s)involved in completing the work to
install the necessary facilities for Glanbia.Finally,Idaho Power presents Glanbia with the option
of hiring its own contractor to build the necessary facilities and subsequently owning and
STAFF COMMENTS 8 JUNE 5,2013
maintaining them,and pledges to work with Glanbia to interconnect those facilities to Idaho
Power’s system.
Staff believes Idaho Power has made a good faith effort to ensure that the facilities,if
constructed,will be at the lowest cost to Glanbia.Idaho Power has solicited bids,shared the
results,and committed to reconcile actual costs with bid estimates.Staff agrees with Idaho Power,
that because the Company is responsible for owning,operating,and maintaining the facilities,it
should be permitted to design,engineer,and select contractors for the facilities.If Glanbia
chooses,it can build,own,and maintain the facilities itself.
STAFF RECOMMENDATIONS
Staff recommends the Commission grant Glanbia an allowance of $122 per kW and that
this amount be applied only to Glanbia’s incremental load of seven MW,resulting in an allowance
of $854,000.
Staff further recommends that Glanbia be entitled to receive vested interest refunds if
future new customers directly connect within five years to the new line that would be constructed
to serve Glanbia.
Staff also recommends that Glanbia not be entitled to receive credit for Company
Betterment as a consequence of freeing up previously used capacity of the substation currently
used to serve Glanbia.
finally,Staff recommends that Idaho Power be permitted to design,engineer,and select
contractors for construction of the facilities.In the alternative,Glanbia can choose to build,own,
and maintain the facilities itself.
Respectfully submitted this day of June 2013.
Weldon B.Stutzman
Deputy Attorney General
Technical Staff:Rick Sterling
urnisc:cornments/ipce 13 .9wsrps comments
STAFF COMMENTS 9 JUNE 5,2013
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 51H DAY OF JUNE 2013,SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF,IN CASE NO.
IPC-E-13-09,BY MAILING A COPY THEREOF,POSTAGE PREPAID,TO THE
FOLLOWING:
PETER J RICHARDSON LISA D NORDSTROM
GREG ADAMS DONOVAN WALKER
RICHARDSON &O’LEARY PLLC IDAHO POWER COMPANY
515 N 27’’ST P0 BOX 70
BOISE ID $3702 BOISE ID 83707-0070
EMAIL:[e-mail] EMAIL:1nordstrornidahopower.corn
[e-mail]
pp
SECRETARY
CERTIFICATE OF SERVICE