20131115Memorandum.pdf

3Effi*.
An IDACORP Company. ,:1.
?li'r ill'j
JENNIFER M. REINHARDT.TESSMER
:Corporate Counsel ,.:.:: , ![e-mail] li:'-: i
November 15,2013
VIA HAND DELIVERY
Jean D. Jewell, Secretary
!daho Public Utilities Commission
47 2 W est Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-13-16
Certificate for Public Convenience and Necessity for Jim Bridger Units 3 and
4 - ldaho Power Company's Memorandum
Dear Ms. Jewell:
Enclosed forfiling in the above matterare an originaland seven (7) copies of ldaho
Power Company's Memorandum Regarding ldaho Code SS 61-526-61-528 and 61-541 .
ifer M. Reinhardt-Tessmer
JMR:csb
Enclosures
1221 W. ldaho St. (83702)
P.O. Box 70
Boise, lD 83707
L: lrj
LISA D. NORDSTROM (lSB No. 5733)
JENNIFER M. REINHARDT-TESSMER (lSB No. 7432)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
I nord strom @ ida hopower. com
i rei n ha rdt@ idahopower. com
Attorneys for ldaho Power Company
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY FOR THE INVESTMENT
IN SELECTIVE CATALYTIC REDUCTION
CONTROLS ON JIM BRIDGER UNITS 3
AND 4.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-13-16
IDAHO POWER COMPANY'S
MEMORANDUM REGARDING
TDAHO CODE SS 61-526-61-528
AND 61-541
Pursuant to the schedule set forth in the ldaho Public Utilities Commission's
("Commission") Order No. 32884, ldaho Power Company ("ldaho Power" or "Company")
hereby respectfully submits this Memorandum regarding ldaho Code SS 61-526 through
61-528 and 61 -541.
I. PROCEDURAL BACKGROUND
On June 28,2013, Idaho Power filed an Application for a Certificate of Public
Convenience and Necessity ("CPCN"), supported by concurrently filed direct testimony.
ldaho Power's Application requested authorization of its investment in Selective
Catalytic Reduction ("SCR") controls in Jim Bridger Units 3 and 4 pursuant to
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-528 AND 61-541 - 1
LC. SS 61-526 through 61-528 and binding ratemaking treatment of its investment
pursuant to l.C. S 61-541. ln order to meet contractual deadlines, Idaho Power
requested an order of approval from the Commission by November 29,2013.
Following the Commission's Notice of Application on July 29, 2013, the lndustrial
Customers of ldaho Power, the ldaho Conservation League, and Snake River Alliance
(collectively hereinafter referred to as the "lntervenors") petitioned for, and were
granted, intervention pursuant to Order No. 32859. On August 30, 2013, the
Commission issued a Notice of Scheduling, which provided deadlines for pre-filed direct
testimony, rebuttal testimony, and legal briefs on the narrow issues related to the lega!
interpretation and application of l.C. SS 61-526 through 61-528 and 61-541 (collectively
referred to herein as "the Governing Statutes"). On October 24,2013, the Commission
issued a Revised Notice of Technical Hearing, which re-scheduled the technical hearing
for November 7,2013.
On October 11,2013, Staff and the lntervenors filed direct testimony and, on
October 29,2013, ldaho Power filed its rebuttal testimony. The technical hearing was
held on November 7,2013. Pursuant to Order No. 32884, this brief addresses the legal
interpretation and application of the Governing Statutes.
II. DISCUSSION
A. Grantinq a CPCN and Bindins Ratemakins Treatment for lnvestment into
the SCR Controls Will Effectuate the Purpose of the Governinq Statutes.
Prior to constructing a generation plant, utilities must secure a certificate of
convenience and necessity from the Commission. See I.C. SS 59-526 through 59-528;
ln re Garrett Transfer & Sforage Co., 53 Idaho 200,23 P.2d 739 (1933). The purpose
of requiring such a certificate is to protect the public from speculation, duplication of
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-s28 AND 61-541 -2
facilities, inadequate service, higher rates, and to protect utilities from competition.
73B C.J.S. Public Utilities S 182 (September 2013). When considering whether a
CPCN should be granted, the primary consideration should be the rights and interests
of the people of the State. See Application of Kootenai Natural Gas Co., 78 ldaho 621,
308 P.2d 593 (1957) (public interest is the paramount consideration of public utilities
commission in passing on application for certificate of convenience and necessity).
ldaho Code S 61-541 states that a public utility that proposes to construct, lease,
purchase, or make a major addition to an electric generation or transmission facility,
may requesf approval from the Commission in advance for ratemaking treatment that
shall apply when the costs of the investment are included in the public utility's revenue
requirements for ratemaking purposes. l.C. S 61-541. ln essence, the statute provides
a utility a vehicle for obtaining stakeholder participation in decision making prior to a
significant investment into its generation while obtaining regulatory assurance that the
investment will be recovered in rate base if the utility takes subsequent actions to
appropriately manage the project.
When enacting I.C. S 61-541, the Legislature intended to provide the
Commission with the "ability to shape the resources in a utility's portfolio prior to
construction or commitment to such a resource." See l.C. S 61-541, RS18716
Statement of Purpose (2009). The statute was further intended to ensure utility
expenditures are prudent and "pose less risk of financial loss," while benefitting
customers through lower financing costs and a more transparent system of resource
selection. ld. The Legislature recognized the magnitude of generation projects faced
by many utilities and determined it was in the public interest to create a transparent
process that permitted public input and an evaluation by the Commission in order to
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-528 AND 61-541 - 3
procure binding ratemaking treatment, rather than shift the financial risk for such
investments wholly onto utilities. New federal and state environmental rules and
regulations and growing uncertainty about the future of traditiona! energy resources, like
coal-fired generators, have resulted in pre-approval mechanisms like that provided in
I.C. S 61-541, which enable utilities to obtain a prudence review prior to investing in new
projects, rather than after the investment is made, with results binding on future
commissions. See Burr, Michae! T., Game Changers - Sfafe Regulators Address
Transformative Forces, Fortnightly Magazine, p. 33, 35-36 (comments by Commissioner
Kjellander), November 2013; see a/so McDermott, Dr. Karl, Cost of Service Regulation
in the lnvestor-Owned Electric Utility lndustry, pp. 37-38, June 2012
(www.eei.org/issuesandpolicy/stateregulation). "The twist on traditional regulation in
this approach is moving the bulk of the prudence discussion to the front end (ex ante) of
the regulatory process as opposed to the traditional (ex posf) review upon completion of
the plant." McDermott, Dr. Karl, Cost of Service Regulation in the lnvestor-Owned
Electric Utility lndustry, June 2012. "[P]re-approval rearranges the order and effort
expended in the regulatory process. lt represents a change in kind, not quality. The
same levels of effort and review are utilized but in a different order than under the
traditional approach." /d.
Here, Idaho Power is not constructing a new plant but installing pollution controls;
therefore, the Governing Statutes do not explicitly mandate a certificate of convenience
and necessity. However, as explained through the Company's testimony, the
magnitude of this investment and the growing sensitivity and uncertainty surrounding
coal-fired generation in today's political and social environment require assurance from
the Commission that the Company will obtain rate base treatment for its investment
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-s26-61-s28 AND 61-541 - 4
prior to proceeding with such large expenditures. See Technical Hearing Transcript, p.
15, ll. 13-25; p. 237, ll. 7-25; p. 238, ll. 1-7. Granting a CPCN and binding ratemaking
treatment for installation of the SCR controls will effectuate the intent of the Governing
Statutes and ensure future commissions are bound by this Commission's findings,
permitting a level of certainty on prudence and ratemaking for a resource decision
before significant investment by the utility occurs. Thus, although the Commission's
pre-approval is discretionary, any suggestion that ldaho Powe/s considerable
investment into SCR controls should only be evaluated for prudence affer the utility
obtains financing and expends significant amounts of capital is contrary to the legislative
intent of the Governing Statutes.
Additionally, as intended by l.C. S 61-541, a Commission order providing a
CPCN and assurance of binding ratemaking treatment reduces the Company's risk of
higher financing costs,l not only for implementation of the SCRs but for the Company's
entire construction program, which benefits both ldaho Power and its customers. See
l.C. S 61-541, RS18716 Statement of Purpose (2009) (1.C. S 61-541 enacted in part to
benefit customers with lower financing costs); Technical Hearing Transcript, p. 241, ll.
18-24.
'ldaho Power plans to fund the SCR controls through a combination of internally generated funds
and externally financed capital consistent with the financing of its total construction program. The terms
that ldaho Power obtains for its externally financed capital (including cost thereof, desired maturity of
issue, and financing terms) are dependent on the financial condition of ldaho Power and its parent
company, IDACORP, lnc., and on the credit ratings, which are based in part on regulatory risk, which
includes the extent to which regulatory agencies support the utility, the ability of the utility to recover its
costs in a timely manner, and the ability of the utility to earn its regulated return. When the Commission
issues an order, rating agencies assess the Commission's support of the utility and its impact on
regulatory risk. See Technical Hearing Transcript, p.241,1l. 18-24.
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-s28 AND 61-s41 - 5
B. The SCR Controls Ensure Reliable Service and Are the Least-Gost.
Gom pliance Alternative.
The Jim Bridger power plant is a critical component of ldaho Power's diverse
generation portfolio; specifically, Units 3 and 4 constitute 10% of ldaho Power's total
system generation capacity and 19o/o of the Company's baseload capacity. As aptly
noted by Staff witness Mike Louis in his direct testimony, "halting operation of Bridger
Units 3 and 4 without replacing this generation capacity is not an option." See
Technical Hearing Transcript, p.293, !!. 11-13.
The Company conducted an extensive analysis of its options for future
generation in light of impending environmenta! regulations, including the BART
Settlement Agreement (which requires that the Company's emissions at Jim Bridger
Units 3 and 4 be reduced by 2015 and 2016, respectively), Wyoming law, the Wyoming
Regional Haze lmplementation Plan and anticipated U.S. Environmental Protection
Agency ("EPA") requirements. The Company concluded implementation of the SCR
controls in Units 3 and 4 is the least-cost, least-risk, compliance alternative; thus, the
project is in the public interest. ldaho Power put significant effort into examining the
economics of the SCR controls before concluding the controls were, by far, the least-
cost alternative. See Technical Hearing Transcript, p. 136, ll. 17-25; pp. 137-142. As
set forth in the testimony of Tom Harvey, the SCR controls are $254 million less than
the next least-cost, compliance alternative for Unit 3 and $237 million less than the next
least-cost, compliance alternative for Unit 4. ld. alp.142,ll. 8-10.
Moreover, none of the lntervenors have demonstrated that a realistic lower-cost,
reliable alternative exists that would allow the Company to comply with the BART
Settlement Agreement or anticipated EPA regulations. Though parties can speculate as
IDAHO POWER COMPANY'S MEMOMNDUM
REGARDTNG TDAHO CODE SS 61-s26-61-528 AND 61-s41 - 6
to what legislation may come about in future decades that may impact plant operations
and investments, such speculation is pure conjecture and does not provide the
framework for the Commission's evaluation of a requested CPCN pursuant to the
Governing Statutes. When acting on an application for a CPCN, the Commission must
confine its determination to facts that can be demonstrated within reasonable limits.
See Applications of lntermountain Gas Co.,77 ldaho 188,289 P.2d 933 (1955)
certiorari dismissed 77 S.Ct. 20,352 U.S. 801 , 1 L.Ed.2d 37 (when considering natural
gas company's application for a CPCN, the Commission could not speculate on future
availability of gas, but was required to confine its determination to facts susceptible to
reasonable demonstration). Based on the information reasonably demonstrable today,
investment into the SCRs is in the best interest of the public as the lowest-cost,
compliance alternative to ensure reliable service to ldaho Power's customers.
G. The Gompanv Requests Bindins Ratemakins Treatment in the Full Amount
of its Commitment Estimate.
ldaho Power's Commitment Estimate is a reliable estimate of the total capital
cost of the installation of the SCRs (including an Allowance for Funds Used During
Construction or AFUDC) based on the Engineering and Procurement Contract, actual
costs incurred in the development phase, and the forecast of future costs that the
Company cannot quantify with 100% accuracy at this time ("estimated costs"). See
Application, p.7. As Tom Harvey stated in his rebuttal testimony, and as acknowledged
by Staff witness Mike Louis at the technical hearing, the installation of the SCRs will
necessarily require the Company to incur certain estimated costs. See Technical
Hearing Transcript, p. 165, ll. 17-26; pp. 166-167; p. 322, ll. 21-25; p. 323, Il. 1-8. After
a thorough analysis of Idaho Power's proposed investment, Mr. Louis concluded that
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-528 AND 61-541 -7
the investment is prudent and recommended binding ratemaking treatment of the
investment pursuant to l.C. S 61-528, with the exception of the estimated costs. ld. alp.
290, ll. 1-8. !n explanation, Mr. Louis articulated his concern that approving the
estimated costs may serve to dis-incentivize the Company to implement the project in a
cost-effective manner. ld. at p. 308, ll.2-14. Mr. Louis's concerns appear to arise from
a misunderstanding of l.C. S 61-541 and the impact of binding ratemaking treatment on
a rate case, which the Commission appropriately ruled was a topic for legal briefing as
opposed to witness testimony during the technical hearing.
ldaho Code S 61-541 is a relatively new statute, which has not received the
benefit of lengthy interpretation by the Commission or the Idaho Supreme Court.
Nevertheless, the plain language of the statute is clear as to the impact of binding
ratemaking treatment on future rate case determinations. The statute provides in
pertinent part that "A public utility that proposes to . . make major additions to an
electric generation or transmission facility, may file an application with the commission
for an order specifying in advance the ratemaking treatments that shall apply ."
LC. S 61-541. The statute goes on to provide that ratemaking treatment would include
"[t]he maximum amount of costs that the commission will include in rates at the time
determined by the commission without the public utility having the burden of moving
fonrvard with additional evidence of the prudence and reasonableness of such costs."
td.
According to the plain language, the Company would no longer carry the legal
burden of demonstrating prudence and reasonableness when the Company seeks
inclusion of the investment in its rate base; however, the statute does not prevent a
prudence review by the Commission. !n fact, it is presumed that when the Company
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-s26-61-s28 AND 61-s41 - 8
later seeks inclusion of this investment in its rate base, Staff would perform a
comprehensive audit of the Company's expenditures and a detailed review of the
Company's contracts and financial transactions to ensure reasonableness, accuracy,
and prudence, which is exactly what it did in response to ldaho Powe/s application to
increase its rate base and rates upon completion of the Langley Gulch power plant.
See Order No. 32585 (Case No. IPC-E-12-14), pp. 6-7. As explained by Mr.
Youngblood in his rebuttal testimony, just because an amount is pre-approved for
binding ratemaking treatment, it does not mean that is the amount that will be included
in rate base. See Technical Hearing Transcript, p. 236, 1l. 14-25. lf in prudently
carrying out the project the Company's actual expenses are less than the pre-approved
amount, the savings would be passed onto customers through a lower amount in rate
base. ld. lf the actual expenses exceed the pre-approved amount, the Company would
have to establish the prudency of those excess expenses.
Therefore, in light of the prudency review that wi!! occur when Idaho Power
requests inclusion of this investment in its rate base, the Company has every motivation
to implement the SCRs in a prudent and reasonable manner, even if the Company
obtains binding ratemaking treatment of its full Commitment Estimate in this proceeding.
As recognized by the Wyoming Public Service Commission in its memorandum opinion
and order granting Rocky Mountain Powe/s application for a CPCN for the same SCR
investments at issue in this case,2 a prudence review by the Commission in a tater rate
case would act "as a check on any tendency the Company might have to inflate its cost
'The Wyoming commission's ruling was subject to a stipulation that should the commission grant
a CPCN, the utility would be entitled to a presumption of prudency in a future rate case, similar to the
presumption provided through ldaho Code S 61-541 .
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-s28 AND 61-541 - I
estimates" in the CPCN proceeding. See Docket No. 2OO0-418-EA-12, Record No.
13314, Memorandum Opinion, Findings and Order, par. 67.
Depriving the Company of binding ratemaking treatment for those estimated
costs that the Company is certain will be required for this investment and which can be
fairly estimated based on similar projects, yet cannot be determined with 1OO%
accuracy, means the Company would lose the security of binding ratemaking treatment
on a significant portion of this socially and environmentally controversial investment.
Limiting binding ratemaking treatment to only those future costs that can be measured
with complete precision would frustrate the purpose of l.C. S 61-541, which envisions a
utility seeking pre-approva! for a large-scale, future investment. A utility cannot
reasonably be expected to calculate future expenses associated with such large-scale
projects with complete precision, and to interpret the statute as requiring such precision,
would act to defeat the Legislature's intent in implementing the section, as described in
greater detail above. Therefore, Idaho Power seeks binding ratemaking treatment in
the full amount of its Commitment Estimate, which is the most accurate gauge available
of total expenses the Company anticipates it will be necessary to incur in order to
complete installation of the SCRs.
ilt. coNcLUSroN
The Company has a statutory duty to provide electric service, and as the
Company's least-cost thermal generation resource, the Jim Bridger plant is a critical
part of the Company's ability to provide such service. ln light of state and proposed
federal legislation mandating reduction of nitrogen oxide emissions on Jim Bridger Units
3 and 4, the SCR controls are the lowest-cost, alternative that allows the Company to
comply with the BART Settlement Agreement and its environmental obligations while
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-s26-61-528 AND 61-s41 - 10
serving the energy needs of its customers. Therefore, investment in the SCR controls
for Units 3 and 4 is in the public interest and, accordingly, ldaho Power respectfully
requests that the Commission issue a CPCN and grant the Company binding
ratemaking treatment in the ful! amount of its Commitment Estimate.
DATED at Boise, ldaho, this 1sth day of November 2013.
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODESS 61-52ffi1-528 AND 61-541 - 11
for ldaho Power Company
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 1sth day of November 2013 I served a true and
correct copy of IDAHO POWER COMPANY'S MEMORANDUM REGARDING IDAHO
CODE SS 61-526-61-528 AND 61-541 upon the following named parties by the method
indicated below, and addressed to the following:
Commission Staff
Kristine A. Sasser
Deputy Attomey General
ldaho Public Utilities Commission
47 2 W est Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
lndustrial Customers of ldaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, ldaho 83707
Dr. Don Reading
6070 Hill Road
Boise, ldaho 83703
Idaho Conservation League
Benjamin J. Otto
ldaho Conservation League
710 North Sixth Street
Boise, ldaho 83702
Snake River Alliance
Dean J. Miller
McDEVITT & MILLER LLP
420 West Bannock Street
P.O. Box 2564
Boise, ldaho 83701
IDAHO POWER COMPANY'S MEMORANDUM
REGARDTNG TDAHO CODE SS 61-526-61-s28 AND 61-541 - 12
Hand Delivered
U.S. Mail
Overnight Mail
FAXX Email [e-mail]
Hand Delivered
U.S. Mail
Overnight Mail
FAX
Email peter@richardsonadams. com
q reg@ richa rdsonadams. com
Hand Delivered
U.S. Mail
,Overnight Mail
FAX
Email [e-mail]
Hand Delivered
U.S. Mail
,Overnight Mail
FAX
Email [e-mail]
Hand Delivered
U.S. Mail
Overnight Mail
FAX
Email [e-mail]
X
Ken Miller, Glean Energy Program Director
Snake River Alliance
P.O. Box 1731
Boise, ldaho 83701
_Hand Delivered
_U.S. Mail
_Ovemight Mail
_FAXX Email [e-mail]
IDAHO POWER COMPANY'S MEMOMNDUM
REGARD|NB TDAHO CODE SS 61 -52ffi1 -528 AND 61 -541 - 1 3