20130521Reply Comments.pdf

fi{:fiE11'1!:'i-'
?fl13 HAY ? I PH tr: 38
-..,l,ti{,i.'-', i, ,, rU:.,i(.1,1;-l'ti iI1':i-' r'':r' rrru
^tlmloNPO'1;ER=
An loAcoRP company
LISA D. NORDSTROM
Lead Counsel
I [e-mail]
May 21,2013
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-13-10
2013-2014 Power Cost Adjustment ("PCA") - ldaho Power Company's Reply
Comments
Dear Ms. Jewell:
Enclosed forfiling in the above matterare an originaland seven (7) copies of ldaho
Power Company's Reply Comments.
Very truly yours,
X",-erL"u,..,"*
Lisa D. Nordstrom
LDN:csb
Enclosures
1221 W. ldaho St. (83702)
P.O. Box 70
Boise. lD 83707
LISA D. NORDSTROM (lSB No. 5733)
JULIA A. HILTON (lSB No. 7740)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
I no rd strom @ ida hopowe r. co m
i h i lton @ idahopower. com
Attorneys for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT POWER
cosT ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1,2013
THROUGH MAY 31,2014
':',al 1i
'i*1: tllY ? I ^re t.OOHii H' ''t'i
BEFORE THE IDAHO PUBLIC UTlLlTlES COMMISSION
CASE NO. |PC-E-13-10
IDAHO POWER COMPANY'S
REPLY COMMENTS
ldaho Power Company ("!daho Powe/' or "Company") respectfully submits the
following Reply Comments in response to the Comments filed by the ldaho Public
Utilities Commission Staff ("Staff'), the lndustrial Customers of ldaho Power ("lClP") and
the U.S. Department of Energy ("DOE") on May 17, 2013, as well as the ldaho Public
Utilities Commission's ("Commission") invitation to comment on the continued inclusion
of third-party transmission expenses in the Power Cost Adjustment ("PCA").
I. PCA MITIGATION
On April 15,2013, the Company filed its annual PCA application requesting an
increase of $140.4 million for the 201312014 PCA year. Due to the large PCA for
2o1gt2014, the Company proposed a mitigation alternative to collect $87.9 million in
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
201312014 and defer $52.5 million to the next PCA year. Staff proposes a mitigation
option to limit this yea/s PCA increase to $71.7 million, an average increase of 7.84
percent. Under Staffs proposal, the unrecovered balance ($04.2 million) would be
carried fonryard for recovery in the 201412015 PCA year. The Staff estimates that with
carrying charges this would result in comparable revenue collection in each year. The
Staffs PCA rate mitigation proposal effectively defers $16.2 million more than the
Company's PCA rate mitigation option to defer $52.5 million for collection next year.
lClP and DOE propose a mitigation option to spread the recovery of this yea/s
PCA over a three-year period with the stated objective of keeping the percentage
increase experienced by any customer class below 10 percent. lClP states that its PCA
rate mitigation proposal allows for current PCA recovery of $51.9 million and would
defer approximately $88.5 million of this yea/s PCA increase for collection over the
following two PCA years. The lClP proposal would defer recovery of $36.0 million
above the Company's PCA rate mitigation proposal. DOE does not recommend specific
dollar amounts for recovery or deferral. Table 1 below presents each party's mitigation
recommendation as described above.
TABLE 1
201312014 PCA
($ mi!!ions)
Standard PCA Treatment
Company's Rate Mitigation Alternative
Staff Mitigation Proposal
tclP
DOE
201312014
Collection
$140.4
$az.g
$71.7
$51.9
un
Deferred
Collection
$0.0
$52.5
$68.7
$88.5
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
A. The PCA Rate Mitiqation Proposals Presented bv the Staff. ICIP. and DOE
All lncrease the Risk of Compounding or "Pancaking" of Rate lncreases in
the Future.
The Company acknowledges that each PCA rate mitigation proposal presented
in this case, including its own, suggests deviation from the PCA standard of single year
recovery based upon discretion guided by each respective party's overall objectives.
However, each rate mitigation proposal carries with it an associated level of risk that
deferred amounts will compound with a subsequent year's increase to create rate
pancaking. ldaho Power's PCA rate mitigation option would result in the lowest amount
of deferred cost recovery of any of the mitigation options presented to the Commission
and therefore has lower rate pancaking risk relative to the other options.
As described in the Direct Testimony of Timothy E. Tatum, the Company was
well aware of the Commission's long-standing risk aversion to pancaking as it
developed its rate mitigation alternative. While the Company's rate mitigation
alternative included some level of discretion, its development began with a logical basis.
As described by Mr. Tatum, the Company first sought to limit mitigation adjustments to
only the forecast component of the PCA. This goal was premised on the Company's
belief that the risk of rate pancaking is reduced when PCA amounts related to past
events and/or previously incurred costs are passed on to customers through a single
rate adjustment and not deferred to a subsequent period. Ultimately, the Company's
final mitigation option included deferred recovery of $42.5 million related to the PCA
forecast and $10 million related to previously incurred, known costs.
Alternatively, the Staffs and lClP's proposals would defer an additional $16.2
million and $36.0 million, respectively, of known, previously incurred costs. When one
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
considers that the expiration of last year's revenue sharing credit and last year's true-up
credit amount to a year-over-year change of approximately $43.4 million, lClP's rate
mitigation would have the Company collect only $8.5 million ($St.g million - $43.4
million = $8.5 million) this year associated with the 201312014 PCA. Table 2 below
presents the mitigation proposals removing the increase associated with the expiration
of the credits.
TABLE 2
201312014 PCA Removing the lncrease Related to Gredit Expiration
($ millions)
Standard PCA Treatment
Company's Rate Mitigation Alternative
Staff Mitigation Proposal
ICIP
DOE
201312014
Collection
$97.0
$44.5
$28.3
$a.s
nla
Deferred
Collection
$0.0
$52.5
$68.7
$88.5
nla
In effect, these proposals would postpone the recovery of significantly more of
the known historical costs associated with last yeafs PCA year to the 201412015 PCA
year and possibly beyond. ln other words, between $16.2 million and $36.0 million of
known deviations from last year's forecast would be combined with the power supply
costs as they deviate from this yea/s forecast, amplifying the potential rate pancaking
effect the Commission has historically sought to avoid.
B. Streamflow Conditions Have Further Deteriorated Since the Companv's
March 2013 Operatinq Plan.
The Company's March Operating Plan included an estimate of 3.6 million acre-
feet of water flows into Brownlee Reservoir in Hells Canyon during the run-off season
(April-July). Continued dryer than normal weather this spring has driven current
IDAHO POWER COMPANY'S REPLY COMMENTS.4
projections downward to 2.7 million acre-feet for the same period-ranking in the
bottom 10 percent of April through July volumes since 1960. ldaho experienced the
fifth-lowest precipitation in 119 years during the key January-March period according to
the National Climate Data Center. Based on records from 1960-201 2, the average flow
into Brownlee Reservoir during the month of April is 28,457 cubic feet per second
("cfs"). During April of 2013, the average flow into Brownlee Reservoir was just 1 1,092
cfs, or 39 percent of average.
As the Commission considers mitigation options for this yea/s PCA, the
Company believes that it is important for the Commission to factor in the continuing
deterioration of the Lower Snake River flows. ln light of the current streamflow
expectations, the Company believes that any mitigation option that defers more costs
than the Company's PCA rate mitigation altemative brings with it too much risk. While it
is becoming increasingly less likely that next yeads April through July streamflow
conditions will be worse than the 2013 condition, it is likely that the Company will
experience higher than forecast power costs in the 201312014 PCA year associated
with lower than forecasted hydro production. This represents a foreshadowing of the
rate pancaking risk that already exists today as the Commission considers these
mitigation options.
C. The PCA Rate Mitisation Proposals Presented bv the Staff. lClP. and DOE
Will Have a Nesative Financial lmpact on the Companv.
As described by Mr. Tatum in his testimony, the Company believes that it would
be able to withstand the cash flow impact of the Company-proposed PCA mitigation
option without suffering material financial harm. lClP argues that based on ldaho
Powefs recent earnings performance, the Company can withstand additiona! cost
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
deferrals beyond that offered in its mitigation alternative. However, lClP fails to
recognize that the Company's ability to defer costs for future recovery is not enabled by
its earnings performance, but rather is access to cash to cover the costs during the
deferral period. The $52.5 million in deferred recovery offered by ldaho Power
represents the upper limit of what the Company can comfortably withstand from a cash
flow perspective. The Company is also concerned that the PCA rate mitigation
proposals presented by the Staff, !ClP, and DOE could be viewed by the investment
community as creating recovery lag in an otherwise highly mechanistic and reliable cost
recovery mechanism. Therefore, the Company's mitigation alternative should be
viewed as the maximum leve! of cost deferral for consideration and not the minimum
upon which more aggressive cost deferral strategies can be built.
II. TRANSMISSION EXPENSES
On page 5 of its Notice of Application, Modified Procedure, and Public
Workshops issued in Order No. 32796, the Commission invited the parties to comment
"on the issue of whether ldaho Power's PCA calculation should continue to include
transmission expenses only or whether both transmission revenues and transmission
expenses should be included."
A. lGlP lncorrectlv Claims There ls a Mismatch bv lncludins Third-Partv
Transmission Expense and Excluding Third-Partv Transmission Revenues
from the PCA.
When ldaho Power purchases transmission wheeling from other companies, the
purpose of the transaction is to either bring purchased power into its system for service
to its customers or to allow for surplus sales to be made to other utilities. Third-party
transmission expenses (Federal Energy Regulatory Commission ("FERC") Account
565) have been included in the PCA since 2009 (Case No. IPC-E-09-11). The amount
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
of transmission wheeling expense varies directly with the number of purchased power
transactions (FERC Account 555) the Company makes in order to serve its load or
surpfus sales transactions (FERC Account 447), which becomes a customer credit in
the PCA. !n a contrasting manner, third-party transmission wheeling revenues (FERC
Account 456) result when other utilities pay ldaho Power for the use of its transmission
system to facilitate their power supply transactions. The amount of third-party
transmission wheeling revenues received by the Company is independent of the power
supply expenses incurred by the Company to provide service to its customers. Rather,
expenses associated with these third-party transmission revenues are captured in other
accounts such as operations and maintenance expense, depreciation expense, etc.
Because there is no direct relationship between third-party transmission wheeling
revenues and ldaho Powe/s power supply expenses, the Company does not believe
there is a "mismatch" of the PCA components.
Third-party transmission wheeling revenues (FERC Account 456) are incidental
revenues billed according to the Company's Open Access Transmission Tariff ("OATT")
rates when a third-party wishes to move power across the Company's transmission
system and capacity is available to do so. OATT rates are intended to recover the cost
of owning, operating, and maintaining ldaho Powe/s transmission system. OATT rates
are not intended to recover third-party transmission costs. ln fact, the transmission
costs recovered under the Company's OATT rates explicitly exclude third-party
transmission expenses because they are not related to ldaho Power's transmission
system. ldaho Power OATT, Attachment H Section 2.2.24. Because the costs that
transmission wheeling revenues are intended to recover are not power supply costs
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
and are not tracked through the PCA, tracking transmission wheeling revenues in the
PCA would actually introduce a "mismatching" of costs and revenue that does not exist
today.
B. Onlv Avista Corporation's ("Avista") PCA lncludes Transmission Revenue
Differences.
After discussions with Commission Staff, it was confirmed that Rocky Mountain
Power's Energy Cost Adjustment Mechanism (ECAM) does not currently include
tracking of transmission revenue differences. Only Avista includes transmission
revenue differences in its PCA. The inclusion of transmission revenues in Avista's PCA
came as part of a settlement stipulation filed in its 2009 general rate case. The
Company does not find this argument to be the appropriate rationale for including
transmission revenues in ldaho Power's PCA.
C. lncluding Transmission Revenues in the PCA Would be Problematic.
Although the Company strongly disagrees with the inclusion of third-party
wheeling revenue in Idaho Powe/s PCA as it creates a mismatching of costs and
revenues, it should be noted that if the Commission were to direct the Company to
include transmission wheeling revenues in its PCA, such tracking would be problematic
because the Company's currently approved revenue requirement does not include an
explicit component related to transmission wheeling revenue. That is, the Company
settled its last general rate case with an agreed-upon revenue increase that did not
specify a base level amount of transmission wheeling revenue or costs related to those
revenues from which deviations could be tracked.
Therefore, if the Commission were to order the Company to include third-party
transmission wheeling in the PCA, not only would that introduce a mismatch that does
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
not currently exist but a base level of third-party transmission revenues would need to
be established in order to track the deviations.
ilt. coNcLustoN
The Company believes that the Commission should reject the PCA rate
mitigation proposals presented by the Staff, lClP, and DOE because all of these
alternative rate mitigation options would further increase the risk of compounding or
"pancaking" of rate increases in the future, and if implemented, could have a negative
financial impact on the Company. Furthermore, the Company strongly disagrees with
the inclusion of third-party wheeling revenue in the PCA as it creates a mismatching of
costs and revenues.
ldaho Power respectfully requests that the Commission issue an Order: (1)
approving an update to the Schedule 55 quantification of the 2013 PCA containing an
increase to the Company's PCA rate currently in effect; (2) approving the Company's
determination and proposed return of 2012 revenue sharing amounts to customers; and
(3) implementing the Schedule 55 PCA rates as shown in Attachment 1 or in the
alternative Attachment 2 to ldaho Power's Application effective June 1, 2013, through
May 31 ,2014.
DATED at Boise, tdaho, this 21't day of May 2013.
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 21't day of May 2013 I served a true and correct
copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Karl T. Klein
Deputy Attomey General
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-007 4
lndustrial Customers of Idaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, ldaho 83707
Dr. Don Reading
6070 Hi!! Road
Boise, ldaho 83703
X Hand Delivered
U.S. Mail
Overnight Mail
FAX
Emai! [e-mail]
Hand DeliveredX U.S. Mai!
_Overnight Mail
_FAXX Emai! [e-mail]
o req @ richa rd so na ndo lea rv. co m
_Hand DeliveredX U.S. Mail
_Ovemight Mail
_FAXX Email [e-mail]
IDAHO POWER COMPANY'S REPLY COMMENTS - 1O