20130531final_order_no_32821.pdf

Office ofthe Secretary
Service Date
May 31,2013
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF IDAHO POWER COMPANY FOR )CASE NO.IPC-E-.13-10
AUTHORITY TO IMPLEMENT POWER )COST ADJUSTMENT (PCA)RATES FOR )ELECTRIC SERVICE FROM JUNE 1,2013 )ORDER NO.32821
THROUGH MAY 31,2014 )
On April 15,2013,Idaho Power Company filed its annual Power Cost Adjustment
(PCA)Application.The Company asks for an Order:(1)approving an update to Schedule 55
reflecting a $140.4 million increase in the PCA rates now in effect;(2)approving the Company’s
determination of the 2012 revenue sharing amounts to be shared with customers;and (3)
implementing one of two proposed Schedule 55 PCA rates,effective June 1,2013 through May
31,2014,which would allow the Company to collect the $140.4 million over one or two years.
Recovery in one year would increase Idaho customer rates by 15.3%on average.Recovery over
two years would increase rates on average by 9.6%in the first year,and would leave about $52.5
million for recovery in the second year along with any amounts that may be surcharged or
rebated to customers as part of that year’s normal PCA process.
On April 23,2013,the Commission issued an Order scheduling public informational
workshops and soliciting public input on the Application.See Order No.32796.The
Commission noted that it would be appropriate to comment on any aspect of the Company’s
filing.The Commission also invited parties to comment on whether Idaho Power’s PCA
calculation should continue to include transmission expenses only,or whether both transmission
revenues and expenses should be included.Id.The Commission set a May 17,2013 comment
deadline for Staff and intervenors,a May 21,2013 reply comment deadline for the Company,
and a May 28,2013 comment deadline for the general public.Id.Commission Staff conducted
public workshops on April 30,2013,and May 1 and 8 in Pocatello,Twin Falls,and Boise,Idaho.
Staff and the sole intervenor,the Industrial Customers of Idaho Power,then filed timely written
comments,and the Company filed a timely reply.In addition,a number of public comments
were received.
Having thoroughly reviewed the Application and comments,the Commission grants
Idaho Power’s PCA Application as discussed below,with new PCA rates allowing full recovery
ORDERNO.32821 1
over one year to take effect June 1,2013.And as further explained below,the Commission also
directs the Company to begin using actual energy sales in the true-up component of the PCA,
and to include both transmission expenses and revenues in its future PCA calculations.
THE PCA MECHANISM
Since 1993,the PCA mechanism has permitted Idaho Power to adjust its PCA rates
upward or downward to reflect the Company’s annual “power supply costs.”Because about half
of the Company’s generation is from hydropower facilities,Idaho Power’s actual cost of
providing electricity (its power supply cost)varies from year to year depending on changes in
Snake River streamfiows,the amount of purchased power,fuel costs,the market price of power,
and other factors.The annual PCA surcharge or credit is combined with the Company’s “base
rates”to produce a customer’s overall energy rate.
The annual PCA mechanism consists of three standard components.
First,projected power costs for the coming PCA year (June 1,2013 to May 31,2014)
are calculated using the Company’s most recent “Operating Plan.”Order No.30715.The
projected power costs include:fuel costs;transmission costs for purchased power;Public Utilty
Regulatory Policies Act of 1978 (PURPA)contract expenses;surplus sales revenues;Hoku first
block take-or-pay revenues;and revenues from the sale of renewable energy credits (RECs)and
sulfur dioxide allowances.The Company may recover 95%of the difference between the non
PURPA projected power costs and the approved base power cost,100%of the costs of its
PURPA contracts,and 100%of its demand-side management (DSM)incentive and conservation
costs.See Order No.30715,and Order No.32426 at 3.
Second,the prior year’s projected power costs are “trued-up”based upon the actual
costs incurred during the prior year.
Third,the prior year’s “true-up”component is reconciled so any over-recovered or
under-recovered balance from the prior year’s “true-up”component is credited to or collected
from this year’s PCA rate.This third,“reconciliation”component ensures that the Company
recovers its actual approved costs while ratepayers pay only for the actual amount of power that
the Company sold to meet native load requirements.Order No.29334 at 4,2 Thus,ratepayers
For example,the revenue from the sale of sulfur dioxide (S02)allowances.
2 This reconciliation component has been referred to as the “true-up of the true-up.”
ORDER NO.32821 2
receive a rate credit when power costs are low,but are assessed a rate surcharge when power
costs are high.
Besides the three standard components described above,a fourth,“revenue sharing”
component applies to this year’s PCA.In 2010 and 2011,Commission Order Nos.30978 and
32424 established a mechanism by which the Company must share certain revenues with
customers.The first Order requires the Company to provide customers with 50%of any
earnings above a 10.5%year-end return on equity (ROE).This customer “revenue sharing”
benefit serves as a customer credit against the standard PCA components to yield a combined
rate to be set forth in Schedule 55.The second Order requires the Company to provide an
additional customer benefit;specifically:(1)for actual year-end earnings greater than 10%ROE
up to and including 10.5%in any year from 2012 through 2014,the earnings will be shared
equally between Idaho customers and the Company,with the customer revenue-sharing benefit
to appear as a reduction to rates when the PCA takes effect;and (2)the Company must book
75%of its share of its Idaho jurisdictional 2011 year-end ROE above 10.5%as an offset against
amounts in the Company’s Pension Balancing Account that the Company otherwise would
collect from customers through rates.See Order Nos.30978 and 32424.
THE APPLICATION
A.The PCA Components
This year,Idaho Power’s PCA Application requests a total revenue increase of about
$140.4 million for the 2013-2014 PCA year.The Company primarily attributes the proposed
rate increase to:(1)the expiration of nearly $50 million in rate credits;(2)1.8 million megawatt-
hours lower actual hydro-generation as compared to the 2012-2013 forecasted amount;and (3)
lower actual market energy prices as compared to 2012-20 13 forecasted prices.The Company
says the latter two factors reduced forecasted surplus energy sales by $61.4 million,which would
have normally offset power supply expenses recovered from customers.Application at 8.
The Company calculated the proposed,$140.4 revenue increase by combining the
three standard PCA components—projected power cost,true-up,and reconciliation—with the
fourth,revenue-sharing component.The Company calculated the three standard PCA
components to be:(1)projected power costs for the 2013-2014 PCA are 0.82580/kWh;(2)the
true-up of last year’s projected costs to reflect actual costs results in 0.46220/kWh;and (3)the
reconciliation of the 2012-2013 true-up results in a PCA reconciliation rate of negative
ORDER NO.32821 3
O.0574/kWh.These three standard PCA components combine for a new PCA rate for the 20 13-
2014 PCA year of 1.2306/kWh.Id.at 6-7.The Company then applied the fourth,revenue
sharing component as specified in Order Nos.30978 and 32424.The Company noted that its
Idaho jurisdictional 2012 year-end ROE was 1 1.8%,and that customers would receive a
$21,769,753 total benefit consisting of a $14,618,532 offset to the Company’s pension balancing
account and a $7,151,221 rate credit.This revenue sharing rate credit reduces the 2013-2014
PCA Year calculation by about $7.2 million.Id.at 5,7-8.
B.The PCA Proposals
The Company’s Application offers alternative proposals for recovering $140.4
million through the PCA.These are as follows.
1.Standard PCA Proposal.Under a standard PCA recovery,the Company would
seek to recover the full $140.4 million revenue increase from June 1,2013 to May 31,2014,for
an overall increase of about 15.34%.Id.at 2.Under this standard proposal,the proposed PCA
rates (including the revenue sharing component)for the major customer classes are as follows:
Percentage
Customer Group Current Proposed Change Billed to
(Schedules)PCA Rate PCA Rate Billed Revenue
Residential (1)0.07930/kWh 1.1630/kWh 12.54%
Small General Service (7).00940/kWh 1.1450/kWh 10.36%
Large General Service (9).14920/kWh 1.1820/kWh 16.86%
Large Power Service (19).19860/kWh 1.1940/kWh 2 1.07%
Irrigation (24).1295 0/kWh I .1 770/kWh 15.38%
Source;Atch.1;Atch.3,p.1.See also,Press Release accompanying Application.
The PCA rates for Idaho Power’s four special-contract customers would also increase.Under
the Company’s proposal,the PCA rate for all the special-contract customers would be
1 .23060/kWh.Id.In addition,special-contract customers would receive the following monthly
credit during the PCA year:Micron —$180,702;Simplot —$55,194;DOE (INL)—$71,326;and
Hoku —$0.00.Atch.1,pp.2-3.
2.Mitigated PCA Proposal.As an alternative to collecting the entire $140.4 million
in one year,the Company proposes to mitigate the immediate rate impact on customers by
deferring $52.5 million of the $140.4 million PCA recovery until the next PCA year (June 1,
2014 —May 31,2015).Under this alternative,effective June 1,2013 to May 31,2014,the
ORDER NO.32821 4
Company would increase revenues by $87.9 million through rates and charges to all customer
classes and special contracts,for an overall 9.6%increase over current billed revenue.Id.at 2,9.
Under the alternative,mitigated proposal,the approximate,proposed PCA rates (including the
revenue sharing component)for the major customer classes are as follows:
Percentage
Customer Group Current Proposed Change Billed to
(Schedules)PCA Rate PCA Rate Billed Revenue
Residential (1)0.0793/kWh 0.77300/kWh 8.03%
Small General Service (7).00940/kWh .75430/kWh 6.80%
Large General Service (9).14920/kWh .79150/kWh 10,47%
Large Power Service (19).19860/kWh .80390/kWh 12.81%
Irrigation (24).1295 0/kWh .78650/kWh 9.65%
Source:Atch.2;Atch.3,p.3.See also,Press Release accompanying Application.
The PCA rates for Idaho Power’s four special-contract customers would also increase.Under
the Company’s alternative proposal,the PCA rate for all the special-contract customers would be
.84040/kWh.Id In addition,as with the standard PCA proposal,special contract customers
would receive a monthly credit during the PCA year as follows:Micron —$180,702;Simplot —
$55,194;DOE (INL)—$71,326;and Hoku—$0.00.Atch.2,pp.2-3.
COMMENTS AND DISCUSSION
Staff,ICIP,and Idaho Power filed comments or testimony,or both.In addition,the
Commission received about 31 public comments.The parties’and commenters’views on the
proposed PCA proposals are discussed below,along with our findings.The parties’views and
our findings on two additional issues—whether the PCA true-up calculation should use actual
revenues instead of normalized revenues,and whether the PCA calculation should include both
transmission expenses and revenues or just transmission expenses—are also discussed.
A.The PCA Proposals
1.Public Comments.The Commission received about 31 public comments.
Commenters included residential,small business,and irrigation customers,larger customers like
Wal-Mart Stores,Inc.(Walmart)and the U.S.Department of Energy (DOE),and the Snake
River Alliance (SRA).All customers were concerned about the proposed rate increases.
Customers said the Company needs to do a better job of forecasting hydro flows and
market prices.Further,the Company should reduce costs by encouraging net metering,work on
ORDERNO.32821 5
the efficiency of its operations,trim its costs and “tighten its belt,”stop using a defined benefit
pension plan,and ensure that ratepayers are not funding the Company’s charitable contributions.
Customers also suggested that the Company avoid rate increases by reducing executive
compensation.Customers noted that the average Idahoan—and especially residents on a fixed
income—cannot afford a rate increase at this time,
Walmart says Idaho Power serves 13 Walmart stores in Idaho.Walmart observes
that while the proposed PCA increase will impact large general service customers by about
16.86%,it will impact Walmart by about 20%due to the higher load factor of Walmart’s stores.
Walmart says it agrees conceptually with Idaho Power’s reservations about implementing a
mitigation plan.But the extraordinary impact of a non-mitigated increase coupled with the
Company’s favorable financial position lead Walmart to recommend that the Commission
approve the mitigation proposal.
DOE commented on behalf of the Idaho National Laboratory and Federal Executive
Agencies.DOE argues that the Company’s traditional,single-year PCA proposal would have
“punishing effects”and that even the Company’s mitigated,two-year PCA proposal “would
impose unduly burdensome increases.”DOE thus recommended the Commission order the
Company to implement the increase in the form of a three-year amortization.DOE Comments at
1-2.DOE says the PCA is “a multifaceted,time-consuming and resource-intense series of
exercises in accounting and bookkeeping”that aims to “allow the Company to collect prudently
incurred costs while making rates that do not harm any ratepayer or class of ratepayers,nor harm
the State’s economy and areas beyond.”Id.at 2.But DOE notes that the Company’s proposed
PCA increases will likely harm the State’s large users and cause a loss of industrial load that will
result in higher rates for all customers.Id.DOE thus urges the Commission to adopt “a more
meaningful mitigation plan”Id.at 3.Specifically,DOE proposes that the Commission adopt a
first-year,single digit percentage rate increase cap for all individual customer classes and special
contract customers.Under DOE’s proposal,any remaining balance due to the Company would
be amortized over the next two years,with the single-digit percentage increase cap applying
again in the second year.DOE says its proposed three-year mitigation plan would reduce the
risk that rate shock will adversely affect energy-intensive customers and Idaho’s economy.Id.
Snake River Alliance (SRA)notes that the magnitude of this year’s PCA is enormous
regardless of how it is put into rates.SRA Comments at 1.SRA says the Commission faces a
ORDERNO.32821 6
i—lobson’s Choice”in deciding whether to impose a large,one-year rate increase on customers
or to soften that burden by opting for Idaho Power’s alternative rate mitigation proposal or a
mitigation strategy proposed by others.Id.at 2.At issue is whether the Commission opts to
impose on consumers the true cost of their electricity over the past year,punishing as that might
be,or whether it defers some of the cost to 2014 without knowing if that bill may be even greater
next year.Id,SRA is concerned that deferring some of the PCA recovery to another year may
result in rate “pancaking”and future,unknown rate hits on consumers.SRA thus generally
supports recovering verifiable expenses as close to the time in which they are incurred.But in
this case SRA is concerned that the Company’s non-mitigation proposal will be overly
burdensome on the Company’s most vulnerable customers.Id.SRA thus supports recovery of
this PCA over two years.Id.But SRA opposes spreading the PCA over three years as proposed
by DOE (and ICIP).Id.at 1.SRA shares Walmart’s concern that the PCA’s large impact on
Schedule 9 customers may have long-lasting secondary effects.Id.at 4.SRA agrees with the
Company that when considering mitigation options for this year’s PCA,the Commission should
factor-in the continuing deterioration of the Lower Snake River Flows.Id.at 5.SRA believes
the sub-par hydropower conditions reflect a new climatic normal in Idaho and in the Columbia
River Basin.Id.
2.Staff.Staff analyzed and verified the Company’s PCA calculations.Staff
calculated that the uniform PCA rate surcharge is 1.2306 cents per kWh (comprised of the three,
traditional PCA components:forecast 0.8258 cents,plus the true-up 0.4622 cents,minus the
reconciliation 0.0574 cents).Staff also confirmed that the Company correctly determined the
revenue sharing component of this year’s PCA,and calculated the revenue sharing credit to be
$7.2 million.Staff confirmed that the new PCA surcharge rate combines with the revenue
sharing rates to produce PCA rates as calculated by Idaho Power.Staff agreed with the
Company’s calculations for the traditional,one-year recovery option and the two-year,
mitigation option.Of the two options,Staff favors a rate mitigation plan that passes costs to
ratepayers over two years.See Staff Comments at 4-12.
Staff suggested its own two-year mitigation plan.Staff’s plan calls for a 7.84%
average increase each year.In contrast,Staff said under similar conditions the Company’s
mitigation plan would call for a 9.6%increase the first year and a 4.5%increase the second year.
ORDER NO.32821 7
3.ICIP.ICIP said that this year’s $140 million PCA is the second highest PCA
ever,not counting the anomalous two years following the west coast energy crisis of 2001 and
2002.ICIP Comments at 1.In discussing the PCA components,ICIP notes that Idaho Power’s
over-forecasting of hydro generation and wholesale prices was by far the largest year-over-year
contributor to the PCA increase.ICIP acknowledges that the forecast error is largely outside the
Company’s control.ICIP suggests.however,that the parties meet to explore whether
institutional fixes exist that may make for a more accurate or timely forecast.Id.at 2.ICIP also
clarifies that while there is a large.carry-over balance of PURPA costs embedded in the PCA,
the PURPA-related increase in the PCA this year over last year is 1.5%or $2.1 million.Id.at 3.
ICIP explained that the PCA increase disproportionately impacts high-load factor
customers like J.R.Simplot Company,which under a one-year recovery would face a 25.95%
increase while the average overall increase is 15.34%.Id.at 4.ICIP thus proposes an alternative
to Idaho Power’s rate mitigation proposal.Id.at 5.To guard against rate instability,ICIP
initially proposed spreading the $140.4 million over three years,with the Company’s proposed
9.6%increase limit being applied on a class-by-class basis.Under this approach,9.6%would be
the limiting factor for any class for the 2013-2014 and 2015 PCA years.A residual 5.7%
recovery would be allowed in the 2015-2016 PCA year.Using this approach,the Company
would collect $52 million in 2013-2014;$55 million in 2014-2015;and $36 million in 2015-
20 16.Id.ICIP says its mitigation proposal does not extend the increase over an unreasonable
amount of time.Further,the PCA has $62.6 million in embedded,carry-over PURPA expenses
that have accumulated since base rates were last established.ICIP says that moving these
PURPA expenses from the PCA to base rates in a general rate case would equalize the rate
impact among customer classes.Id.at 6.Lastly,ICIP stressed that mitigation is especially
appropriate because the proposed PCA increase follows the recent Langley Gulch 7%rate
increase.Further,deferring the revenue over three years will not impose a hardship on Idaho
Power’s shareholders,as evidenced by Idaho Power’s 12%compound annual growth rate over
the last five years.Id.
After submitting its initial comments,ICIP replied to the Staffs suggestion of a two
year mitigation plan.See ICIP Reply Comments.ICIP said that given the Company’s healthy
earnings and positive cash flow there is no urgent need to compress this PCA recovery into two
years.Rather,ICIP concurs with DOE that the Commission should mitigate the impact of the
ORDER NO.32821 8
requested increase over three years by holding the increase to a single-digit percentage in each
year.Id.at 1-2.
4.Idaho Power Reply.Idaho Power’s reply comments addressed the rate mitigation
proposals submitted by the Company,Staff,ICIP,and DOE.The Company observed that each
mitigation proposal carries a risk that deferred amounts will compound with a subsequent year’s
increase to create rate “pancaking.”But the Company stressed that its PCA rate mitigation
option would result in the lowest amount of deferred cost recovery of any of the mitigation
options presented and,therefore,a lower risk of rate “pancaking”than the other options.
Company Reply at 1-3.
The Company also noted that streamfiow conditions have further deteriorated since
the Company’s March 2013 Operating Plan,and it urged the Commission to factor in the
continuing deterioration of the Lower Snake River flows in deciding whether mitigation is
appropriate.In light of the current streamfiow expectations,the Company believes that any
mitigation option that defers more costs than the Company’s PCA rate mitigation alternative
brings with it too much risk.The Company explained that it is less likely that next year’s April
through July streamfiow conditions will be worse than the 2013 condition,but it is likely that the
Company will experience higher than forecast power costs in the 2013/2014 PCA year
associated with lower than forecasted hydro production.The Company says this foreshadows
the rate “pancaking”risk that exists today.Id.at 4-5.
Lastly,the Company addressed ICIP’s argument that Idaho Power’s recent earnings
performance indicates that the Company can withstand additional cost deferrals beyond that
offered in the Company’s mitigation proposal.Id.at 5-6.The Company said that ICIP ignores
that the Company’s ability to defer costs for future recovery is not enabled by its earnings
performance,but by its access to cash to cover the costs during the deferral period.The
Company says the $52.5 million in deferred recovery offered by Idaho Power represents the
upper limit of what the Company can comfortably withstand from a cash flow perspective,The
Company expressed concern that the investment community could view the other PCA rate
mitigation proposals as creating recovery lag in an otherwise mechanistic and reliable cost
recovery mechanism.Id.at 6.
Commission Findings:After reviewing the PCA Application and the comments
filed in this case,the Commission finds that the current PCA rates are insufficient for the
ORDER NO.32821 9
Company to recover its annual power costs.Idaho Code §61 -502.We also find it is fair,just,
and reasonable to grant Idaho Power’s Application to increase its PCA rates for the 2013-2014
PCA year.Specifically,the Commission finds it reasonable to allow the Company to recover the
full $140 million revenue increase using the Company’s traditional,single-year PCA recovery
proposal from June 1,2013 to May 31,2014.We find that the combination of the three
traditional PCA components results in a PCA rate of 1.2306 cents per kWh.We further find that
it is reasonable to offset the PCA rate increase with the $7.1 million in revenue sharing funds.
When the PCA rates are combined with the revenue sharing funds,we find that the combined
PCA rates in Schedule 55 (Atch.I to the Application,as corrected by Replacement Sheet 55-2)
are fair,just and reasonable.
In making this finding,we note that no party opposed the Company’s calculations of
the PCA components,revenue sharing amounts,or other numerical aspects of the filing.Rather,
the timing of the recovery is the disputed issue.We are sympathetic to the request to spread the
authorized rate increase over time,and we understand that allowing full recovery in one year will
have an immediate,negative impact on all customers,some more than others.Our concern for
creating the risk of compounding or “pancaking”rate increases in the future overshadows the
impact we know will be felt this year.Forecasts for water are,at best,uncertain.Given this,we
find it is too risky and potentially could compound “rate shock”for customers to spread this
year’s PCA recovery across multiple future years.
We also note that the Company’s PCA includes about $60 million in embedded
PURPA costs and $23 million in costs related to HOKU.The Company is carrying these costs in
its PCA due to decisions made in the settlement of Case No.IPC-E-11-08 that were accepted by
the Commission.If not for that decision,these costs would have been included in base rates and
customers would already be paying rates that recover them.Instead of collecting these costs
from customers though base rates,the parties to the Case No.IPC-E-1 1-08 settlement stipulation
agreed that the Company should recover these costs by collecting them through the PCA.See
Order No.32426,Case No.IPC-E-ll-08.3 The settlement thus reduced the immediate base rate
impact on customers.But as we see now,it has exposed them to a large increase in the PCA
adjustment.Had this been even a normal water year,the decision to recover these costs in the
In that case,parties including Idaho Power,Staff,ICIP,DOE,and SRA signed the Settlement Stipulation.Other
parties including the Idaho Irrigation Pumpers Association,Inc.;Micron Technology,Inc.;NW Energy Coalition;
The Kroger Co.;Hoku Materials,Inc.;and Idaho Conservation League also signed.
ORDER NO.32821 10
PCA would not have been so onerous.However,below normal water has compounded the rate
impact.Until the Company files a general rate case,the embedded PURPA and HOKU costs
will accumulate and appear each year in the Company’s PCA.
The danger of using the PCA as a cost recovery mechanism for more than the current
annual power cost fluctuation is plainly demonstrated here.The PCA was never intended for
long term recovery of costs that continue year to year.It was implemented to properly recover
the Company’s annual fluctuation in power supply costs and keep the customers from paying
either too little or too much of those costs.Using the PCA as a means for recovering year-to-
year costs also distorts the allocation of costs among customer classes because it is all recovered
in the energy charges.
B.Including Actual Revenue instead ofNormalized Revenue in the True-Up
1.Staff.Staff reported on an issue that arose in last year’s PCA case relating to the
revenue credit included in the true-up mechanism.See Order No.32552 at 7 (encouraging “Staff
to discuss with the Company Staff’s concerns about using normalized data versus actual data in
the true-up component of the PCA mechanism”).Staff said the Company has historically used
normalized energy data to calculate revenue from the prior year’s forecast rate.But Staff would
prefer the Company credit customers with actual revenue by applying the prior year’s forecast
rate to actual Idaho jurisdictional energy sales.Staff said it discussed this with the Company and
the Company has agreed to implement the change with the new PCA rates on June 1,2013,if
approved by the Commission.See Staff Comments at 13-14.
2.ICIP.ICIP says it understands that Staff and the Company have agreed the
Company would use actual loads for the true-up beginning with this year’s PCA.ICIP supports
this change.ICIP Comments at 7.
Commission Findings:Based on our review of the record,we find it reasonable for
the Company to apply actual Idaho jurisdictional energy sales to the forecast rate in the
calculation of the true-up component of the PCA mechanism.We direct the Company to
implement this change with the new PCA rates on June 1,2013.
C.Including Transmission Expenses,or
Transmission Expenses and Revenue in the PCA
When this case began,the Commission invited the parties to comment on whether
the Company’s PCA calculation should continue to include only transmission expenses or both
ORDERNO.32821 11
transmission expenses and revenues.See Order No.32796.Stafl ICIP,and Idaho Power
commented on this issue.
1..Staff explained that transmission expense arises when the Company uses
another utility’s transmission system to deliver market purchased power to the Company’s native
load customers.Transmission revenue,on the other hand,results from two other utilities
wheeling power across the Company’s system when the Company’s customers do not need the
transmission capacity.Thus,transmission expense is associated with delivering power to native
load customers,while transmission revenue accrues from an opportunity to profit from
transmission that would otherwise go unused.Staff’explained that when transmission expense
differences were first added to the PCA.Staff and the Company also discussed including
transmission revenue differences.But Staff said in the course of trying to resolve a group of
issues it ultimately dropped the idea of including transmission revenue differences.In these
comments,Staff notes that Avista’s PCA includes transmission revenue differences,and that
Staff again supports including transmission revenue differences in the Company’s PCA.4 See
Staff Comments at 14.
2.ICIP.ICIP noted that the Company’s base rates include both expenses and
offsetting revenues for transmission by third parties,but that the Company only includes
expenses when calculating the PCA.For matching purposes.and because both revenues and
expenses for transmission by others are included in base rates,ICIP recommended that revenues
from transmission transactions for third parties be included in the PCA as well.See ICIP
Comments at 7.
3.Idaho Power Reply.Idaho Power sees no “mismatch”in including third-party
transmission expenses but excluding third-party transmission revenues from the PCA.The
Company explains that it buys transmission wheeling from other companies to bring purchased
power into its system for service to its customers or to allow for surplus sales to be made to other
utilities.The transmission wheeling expense varies directly with the number of purchased power
transactions the Company makes to serve its load or surplus sales transactions,and the expense is
included as a customer credit in the PCA.In contrast,the Company says third-party
Staff originally commented that both Avista’s PCA and Rocky Mountain Power’s Energy Cost Adjustment
Mechanism (ECAM)include transmission revenue differences.However,in subsequent discussions with Idaho
Power,Staff confirmed that Rocky Mountain Power’s ECAM does not track transmission revenue differences.See
Company Reply Comments at 8.
ORDER NO.32821 12
transmission wheeling revenues result when other utilities pay the Company for the use of its
transmission system to facilitate their power supply transactions.The Company’s third-party
transmission wheeling revenues are independent of the power supply expenses incurred by the
Company to provide service to its customers.The Company notes that expenses associated with
third-party transmission revenues are captured in other accounts like operations and maintenance
expense,depreciation expense,etc.The Company concludes that since there is no direct
relationship between third-party transmission wheeling revenues and the Company’s power
supply expenses,there is no “mismatch”of the PCA components.See Company Reply at 6-7.
Further,the Company notes that transmission wheeling revenues are not tracked
through the PCA because they are intended to recover the costs of owning and operating the
Company’s transmission system,not power supply costs.The Company thus disagrees with
including third-party wheeling revenue in the PCA,because doing so would create a mismatch of
cost and revenues.Id.at 7-8.
Lastly,the Company says including transmission revenues in the PCA would be
problematic because the Company’s currently-approved revenue requirement does not include an
explicit component related to transmission wheeling revenue.In other words,there is not an
established base level amount of transmission wheeling revenue or costs related to those
revenues from which deviations could be tracked.Id.at 8.
Commission Findings:Based on our review of the record,we find that the
Company’s current practice of excluding transmission revenue differences from the PCA results
in a regulatory mismatch.Under the current practice,the Company’s ratepayers are responsible
for transmission expense differences each year through the PCA,but they do not receive the
benefit of changes in transmission revenues unless and until a rate case occurs.We find it
reasonable for the Company to include both transmission revenue and expense differences when
calculating future PCAs.We acknowledge,however,that this cannot occur until a base level of
third-party transmission revenues is established in the Company’s next rate case so that
deviations may be tracked.Once this base level is established,the Company is to include both
expense and revenue differences in its PCA calculations.We reject the Company’s claim that a
mismatch will arise if the Company’s PCA includes transmission wheeling revenues without
their associated costs.The Company provided no detail about these costs.We expect they are
de minimis.
ORDER NO.32821 13
ORDER
IT IS HEREBY ORDERED that the Company’s Application to increase its Power
Cost Adjustment (PCA)rates effective June 1.2013 through May 31,2014,is granted as
reflected in this Order.The update to tariff Schedule 55 as reflected in Attachment I to the
Company’s Application (as modified by Replacement Sheet 55-2)is approved;the Company’s
determination of the 2012 revenue sharing amounts is approved;and the Schedule 55 PCA rates
that allow the Company to collect the $140.4 million over one year are approved,effective June
1,2013 through May 31,2014.
IT IS FURTHER ORDERED that the Company shall use actual Idaho jurisdictional
energy sales to calculate revenue from the forecast rate in the true-up component of the PCA
mechanism,effective June 1,2013.
IT IS FURTHER ORDERED that the Company shall include both transmission
revenue and expense differences in its future PCA calculations,as reflected in this Order.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-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 Idaho Code 61-626.
ORDER NO.32821 14
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this 3/
day of May 2013.
MACK A.REDFORD,COMMISSIONER
ATTEST:
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Jean D.JeweIl 1,
Commission Secretary
0:1 PC-B-I 3-IOkk2
Jt)L&_
MARSHA H.SMITH,COMMISSIONER
PRESIDENT
ORDER NO.32821 15