20131101Application.pdf

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An IDACORP Company
LISA D. NORDSTROM
Lead Counsel
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November 1,2013
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
47 2 W est Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-13-20
Base Level of Net Power Supply Expense - ldaho Power Company's
Application and Direct Testimony
Dear Ms. Jewell:
Enclosed for filing in the above matter please find an original and seven (7) copies
of ldaho Power Company's Application.
Also enclosed are nine (9) copies of the Direct Testimonies of Scott Wright and
Timothy E. Tatum filed in support of the Application. One copyof each testimony has been
designated as the "Reporte/s Copy." A disk containing a Word version of both testimonies
is enclosed for the Reporter as well.
Very truly yours,
a- .,-1 //f^'O %^/-ho*--
Lisa D. Nordstrot
LDN:kkt
Enclosures
LISA D. NORDSTROM (lSB No. 5733)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
I nord strom @ ida hopower. co m
Attorneys for ldaho Power Company
Street Address for Exoress Mai!:
1221West ldaho Street
Boise, ldaho 83702
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO ESTABLISH A NEW
BASE LEVEL OF NET POWER SUPPLY
EXPENSE
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-13-20
APPLICATION
ldaho Power Company ("ldaho Powed' or "Comp?f,y"), in accordance with RP
052, hereby respectfully makes application to the ldaho Public Utilities Commission
("Commission") for an order approving the Company's determination of the new "base
level" net power supply expense ("NPSE') to be utilized: 1) to update base rates on
June 1,2014, and 2) as the basis for quantifying the 201412015 Power Cost Adjustment
('PCA') rates that would also become effective June 1, 2014. lf approved, the
Company's proposed change in base level NPSE would have no net impact to the
overall revenue collected through customer rates and would also be "revenue neutral"
for all classes of Idaho customers.
As described in the direct testimonies of Regulatory Analyst Scott Wright and
Senior Manager of Cost of Service Timothy E. Tatum that accompany this Application,
APPLICATION - 1
the current level of NPSE recovery in ldaho Powe/s base rates is significantly below the
current normalized level of NPSE resulting in an artificially high PCA rate. The
Company's proposal in this case is a simple and effective way to restore the PCA
mechanism to its intended purpose with no impact to customers' bills. This Application
is based on the following:
I. BACKGROUND
1. The PCA is a rate mechanism that quantifies and tracks annual
differences between actual NPSE and the normalized or base Ievel of NPSE recovered
in the Company's base rates for recovery or credit through an annual rate change each
June 1. The PCA mechanism utilizes a 12-month test period of April through March and
is composed of a forecast component and a true-up component. The PCA forecast is
based on the Company's March Operating Plan and represents the difference between
the NPSE forecast from the March Operating Plan and the base level NPSE recovered
in the Company's base rates. The PCA true-up includes a backward-looking tracking of
differences between the prior year's PCA forecast and actual NPSE incurred by the
Company during the prior PCA year. The PCA true-up contains a second component
that tracks the collection of the prior year's true-up amount, referred to as the "true-up of
the true-up."
2. Base Ievel NPSE is comprised of the following Federal Energy Regulatory
Commission ("FERC") Accounts: FERC Account 501, Fuel (coal); FERC Account 536,
Water for Power; FERC Account 547, Fuel (gas); FERC Account 555, Purchased
Power; FERC Account 565, Transmission of Electricity by Others; FERC Account 442,
Hoku Materials, lnc. ("Hoku") Revenues (first block energy only); FERC Account 447,
Sales for Resale. The Company's base net power supply expenses are normally
established in general rate cases. However, the last time that total net power supply
APPLICATION - 2
expenses were reviewed and approved by the Commission was in 2010 (Case No. IPC-
E-10-01) in response to an approved settlement stipulation ("Stipulation") in Case No.
IPC-E-09-30. The Stipulation included a provision that addressed setting the base level
for net power supply expenses prior to implementing the 2O1O|2O11 PCA and effective
with the coincident PCA rate change on June 1,2010. On April 13,2010, the
Commission issued Order No. 31042 establishing the Company's base level NPSE at
$220,770,137 on a total system basis.
3. ln ldaho Poweds last general rate case (Case No. IPC-E-11-08), the
Commission issued Order No. 32426 on December 30, 2011, approving a Settlement
Stipulation whereby the parties agreed to set base level NPSE at $208,100,936 on a
total system basis. This amount held all base level NPSE cost and revenue categories
at the same levels established in 2010, with the addition of expected revenue from Hoku
and demand response program incentive payment amounts. Finally, as part of the
Company's request to include the Langley Gulch power plant in rate base (Case No.
IPC-E-12-14),ldaho Power included the associated reduction in net power supply costs
in base rates. On June 29, 2012, as part of its decision in that case, the Commission
established the now-current base level NPSE of $199,993,778 on a tota! system basis.
This newly established base level NPSE maintained the original 2O1O load and fuel cost
inputs with the exception of the addition of Langley Gulch as a generation resource.
!I. REASONS TO INCREASE BASE NET POWER SUPPLY EXPENSE
4. Most of the individual cost and revenue components of NPSE have
changed significantly and permanently resulting in an overall increase in the normalized
level of NPSE of approximately $100 million from the 2O1O normalized condition to the
2013 normalized condition. Because these increased expenses are not reflected in
APPLICATION - 3
base rates, such ongoing and permanent costs are instead cunently being recovered
through the PCA annually. On page 11 of Order No. 32821 regarding the 201312014
PCA, the Commission made the following statement with regard to its concems about
the level of ongoing NPSE recovery in the 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. lt
was implemented to properly recover the Company's annual
fluctuation in power costs and keep the customers from
paying either too little or too much of those costs.
The Company likewise believes that it is more appropriate for these ongoing and
permanent power costs to be recovered through base rates than through PCA rates.
Therefore, ldaho Power is proposing to remove the recovery of these additional
normalized NPSE from the PCA and instead collect these ongoing NPSE through base
rates. ldaho Power believes its proposa! in this case is a simple and effective way to
address the Commission's concerns regarding the PCA and would restore the PCA to
its intended purpose with no impact to customers' bills.
5. ldaho Power has computed an updated base leve! NPSE of $304,684,869
based on a 2013 calendaryear ("2013 Base Level NPSE") utilizing methods previously
supported by the Commission and has compared the 2013 Base Level NPSE to the
currently approved base level NPSE. The development of and the methodology used to
determine the 2013 Base Level NPSE are described in detail in the direct testimony of
Mr. Wright. Based on the comparison, the Company has determined that the difference
between the 2013 Base Level NPSE and the cunently approved base levels would be
$105.7 million on a system level, demonstrating that the leve! of NPSE recovery in base
rates is significantly below the current normalized level of NPSE. Periodic conection of
APPLICATION - 4
the normalized NPSE in base rates also corrects the PCA price signa!. The
computations of the comparison between NPSE levels are shown in Table 1 - System-
Level PCA Accounts of Mr. Tatum's testimony.
6. There are three main factors contributing to the increase in base level
NPSE since the 2010 normalized condition. First, market prices are lower, which
impact the current expectation of the normalized level of surplus sales. Surplus sales
serve to offset power supply expenses, ultimately benefitting customers. Lower market
prices impact ldaho Power's ability to economically dispatch its thermal generating units
for surplus sales resulting in a reduction to the overall value of surplus sales. The
elimination of anticipated Hoku revenues has also increased NPSE. Electric service to
Hoku under its Special Contract terminated on April 26, 2012, and neither Hoku nor its
United States bankruptcy trustee has given the Company any indication that it intends
to take service in the foreseeable future; therefore, no Hoku first block revenue, and
subsequently no Hoku load, has been included in the determination of the 2013 Base
Level NPSE. Finally, growth in energy purchases under the Public Utility Regulatory
Policies Act of 1978 ("PURPA") has contributed significantly to the increase in NPSE in
recent years. PURPA generation has more than doubled since 2O1O and PURPA-
related expenses have increased 1 13 percent over the three-year period.
7. The Company believes that it is more appropriate for ongoing and
permanent power costs to be recovered through base rates than through PCA rates.
The collection of significant ongoing and permanent costs through the PCA has
compromised the intended symmetrical design of the PCA and has created
counterintuitive messaging on customers' bills. While fuel costs and market energy
prices contribute to annual fluctuations in NPSE, it is the availability of hydroelectric
generation that can have the most significant impact on year-to-year differences in
APPLICATION - 5
NPSE. When the Company's base level NPSE is reflective of current normalized
NPSE, one would expect that a better than average water-year would result in a
negative PCA or a credit and a worse than average water-year would result in a positive
PCA or a surcharge. Because the PCA is collecting nearly $100 million in ongoing and
permanent NPSE, the annual PCA collection is likely to always be positive or a
surcharge to customers, even in a good water-year. This is not representative of the
symmetrical mechanism the PCA was intended to be and has been a source of
confusion for customers.
III. IMPLEMENTING A REVENUE NEUTRAL RATE
8. To successfully implement the proposed revenue neutral update to base
level NPSE, the Company requests that the Commission issue an order by March 31,
2014, approving ldaho Powe/s determination of the system-level 2013 Base Level
NPSE in the amount of $305,684,869. Receiving an order by March 31, 2014, will allow
the Company time to compute the 201412015 PCA using the newly established 2013
Base Level NPSE. On April 15,2014, ldaho Power will file its annual request to adjust
its PCA rates and will request to simultaneously adjust base rates effective June 1,
2014. The Company's PCA request would include a PCA determination based upon a
measurement of the forecast April 2014 through March 2015 NPSE to the newly
established 2013 Base Level NPSE. Because the 2013 Base Level NPSE will be
higher than the current base level NPSE, the resulting proposed PCA collection amount
will be lower by the ldaho jurisdictional share of the incremental base level NPSE
requested in this case, adjusted for PCA sharing. The Company will also request an
equal and offsetting increase to base rates to become effective on June 1, 2014. ln
other words, base rates would be increased in a manner that will generate the same
level of revenue that would have otherwise been allowed for recovery through the PCA.
APPLICATION - 6
9. Based upon the current energy-based allocation used for PCA
computational purposes of 95.53 percent, the ldaho jurisdictional share of the $105.7
million difference in system-level base NPSE would be approximately $101.0 million.
Because the Company's proposal in this case envisions a rate adjustment that is
intended to maintain the same overall level of revenue recovery from base rates and the
PCA in aggregate (i.e. "revenue neutral"), it will be necessary to adjust the $101.0
million difference in ldaho jurisdictional base level NPSE to reflect the 95/5 customer to
Company sharing provision that exists in the PCA. Under the PCA mechanism, the
total allowed recovery under the PCA would be $99.3 million. Therefore, the
Company's proposal would result in an increase to base rates of approximately $99.3
million, which includes a $1.2 million reduction to the tota! difference in ldaho
jurisdictional base level NPSE of $101.0 million. This $1.7 million "PCA sharing
adjustment" would continue to be reflected in base rates until the Company files its next
general rate case or it is otherwise adjusted by Commission order.
10. The Company proposes to use the same energy allocation basis that
would exist under the PCA to apportion the approximately $99.3 million base rate
increase to each customer class; that is, in proportion to each class's annual energy
consumption. By using the same energy allocation basis applied in next year's PCA
filing, each customer class will contribute exactly the same amount of revenue to offset
NPSE that would exist under the PCA collection. Exhibit No. 2 to Mr. Tatum's testimony
demonstrates that the Company's proposal would result in no change to the total
amount of revenue by customer class from base rates and the PCA, in aggregate. For
illustrative purposes, Exhibit No. 2 has been prepared utilizing the currently approved
revenue from base rates and revenue from the 201312014 PCA. As can be seen on
APPLICATION - 7
Exhibit No. 2, the Company's proposal would result in an increase to base rate revenue
of $99.3 million and an equal and offsetting reduction in PCA revenue.
11. ln addition to the changes discussed above, the Company is proposing to
update the Load Change Adjustment Rate ('LCAR") effective June 1, 2014, to reflect
the incremental change in base level NPSE collected through base rates. By applying
methodology established by Commission Order No. 32206 in Case No. GNR-E-10-03,
the LCAR should be increased from the current level of $17.64 per megawatt-hour
(.MWh') to $24.34 per MWh.
IV. WHEELING REVENUE IN THE PCA
12. ln the 201312014 PCA filing, Case No. IPC-E-13-10, the Commission
invited the parties to comment on whether Idaho Powe/s PCA calculation should only
include transmission expenses, as had been the practice since 2009, or should be
expanded to include both transmission expenses and transmission revenues.
Ultimately, in Order No. 32821, the Commission directed the Company to establish a
base level of transmission wheeling revenue in the next rate case so that deviations
may be tracked through the PCA.
13. Because the Company's proposal in this case is intended to be revenue
neutral, it would not be appropriate to establish a base level amount for a new PCA
component as part of this case. The Company believes that it was the Commission's
intent that a new base level of transmission wheeling revenue would be established as
part of a broader general rate case where the associated transmission costs would also
be addressed. However, in Order No. 32821, the Commission indicated that the
Company "provided no detail" about the costs that transmission wheeling revenues are
intended to recover. With this in mind, the Company believes that it is appropriate as
part of this case to provide the Commission with additional detailed information that
APPLICATION - 8
demonstrates the significant regulatory mismatch that would occur as a result of
including transmission wheeling revenues as an offset to transmission wheeling
expense in the PCA.
14. Transmission wheeling refers to the transfer of electric power by use of
the transmission network of one utility for the benefit of a transmission customer, such
as another utility or an independent power generator. Third-party transmission
expenses result when ldaho Power purchases transmission service from other
transmission owners 1) to move purchased power over their system(s) into ldaho
Powe/s system for service to customers or 2) to move surplus sales off of the ldaho
Power system on to the transmission system(s) of other transmission owners. These
expenses result from PCA-related transactions and are booked to FERC Account 565.
Such expenses have been included in the PCA since 2009 (Case No. IPC-E-09-11).
Transmission wheeling revenues result when third-parties buy capacity on ldaho
Powe/s transmission system to facilitate the movement of their power. These third-
party transmission customers are charged the Open Access Transmission Tariff
('OATT') rate and the revenues ldaho Power receives are booked to FERC Account
456 and serve to offset the Company's transmission-related costs or revenue
requirement. The OATT is designed to recover the cost of owning, operating, and
maintaining ldaho Powe/s transmission facilities and the rate specifically excludes
expense accounts or plant items FERC has deemed to be generation related and not
appropriately recovered in the transmission formula rate, even though those items are
properly recorded in the transmission function FERC accounts. The OATT rate
explicitly excludes third-party transmission expenses because they are not expenses
related to ldaho Powe/s transmission system; there is no portion of Company-owned
APPLICATION - 9
transmission-related costs of which transmission wheeling revenues are intended to
recover that are tracked through the PCA.
15. Retail customers receive the benefit of transmission wheeling revenues as
a revenue credit in base rates. The test-year leve! of transmission wheeling revenues is
set at the time of a general rate case to offset the test-year amount of transmission
investment and expenses in the Company's revenue requirement determination. The
test year level of transmission wheeling revenues in base rates is reflective of the
transmission plant and expense information current at the time of the test year. Base
level transmission wheeling revenues and base leve! transmission expenses should be
based on the same test period. lntroducing transmission wheeling revenues as an
offset to base transmission expenses outside a general rate case creates an improper
matching of transmission wheeling revenues and transmission expenses. ldaho Power
believes transmission wheeling revenues do not offset third-party transmission
expenses and should not be tracked through the PCA.
V. MODIFIED PROCEDURE
16. Simultaneous with the filing of this Application, ldaho Power has filed the
direct testimonies and exhibits of Mr. Scott Wright and Mr. Timothy E. Tatum which
support the increased net power supply expense described above. ldaho Power
believes that it would be appropriate to process this case by means of modified
procedure in accordance with the provisions of RP 201-210. However, if the
Commission determines that another procedure for processing this case is preferable,
Idaho Power is prepared to immediately present its case in support of the relief
requested in this Application.
APPLICATION - 1O
VI. COMMUNICATIONS
17. Communications and service of pleadings, with reference to this
Application should be sent to the following:
Lisa D. Nordstrom
Regulatory Dockets
ldaho Power Company
P.O. Box 70
Boise, ldaho 83707
I nord strom @ ida hopower. com
dockets@ id ahopower. co m
Tim Tatum
ldaho Power Company
P.O. Box 70
Boise, ldaho 83707
ttatum@ id aho power. com
VI!. REQUEST FOR RELIEF
18. By utilizing an artificially low normalized NPSE, an artificially high PCA
rate must be approved year after year. In the altemative, the Company believes that it
is more appropriate for these ongoing and permanent power costs to be recovered
through base rates than through PCA rates. ldaho Power respectfully requests that the
Commission issue its order approving the Company's determination of the new base
level NPSE no later than March 31, 2014, in order to utilize the new base level NPSE 1)
to update base rates on June 1,20'14, and 2) as the basis for quantifying the 201412015
PCA rates that would also become effective June 1,2014.
DATED at Boise, Idaho, this 1"t day of November 2013.
Attorney for ldaho Power Company
APPLICATION - 11