20140414Reply Comments.pdf

3Effi*.
An IDACORP Company
LISA D. NORDSTROM
Lead Counsel
[e-mail]
April 1 1,2014
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-13-23
Approval of Special Contract with J. R. Simplot Company - ldaho Power
Company's Reply Comments
Dear Ms. Jewel!:
Enclosed forfiling in the above matterare an original and seven (7) copies of ldaho
Power Company's Reply Comments.
Sincerely,
X;cz/,^-t-r,**-
Lisa D. Nordstrom
LDN:csb
Enclosures
1221 W. ldaho St. (83702)
PO. Box 70
Boise, lD 83707
LISA D. NORDSTROM (!SB No. 5733)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
I nord strom @ ida hopower. co,m
Attorney for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A SPECIAL CONTRACT
WITH J.R. SIMPLOT COMPANY.
BEFORE THE IDAHO PUBLIC UT!LITIES COMMISSION
CASE NO. |PC-E-13-23
IDAHO POWER COMPANY'S
REPLY COMMENTS
ldaho Power Company ("ldaho Powe/' or "Company") respectfully submits the
following Reply Comments in response to the comments filed by the ldaho Public
Utilities Commission ("Commission") Staff ("Staff') and J. R. Simplot Company
("Simplot") on March 28,2014.
I. BACKGROUND
On December 4, 2013, ldaho Power filed an application ("Application") with the
Commission requesting approval of the proposed Electric Service Agreement
("Agreement") between ldaho Power and Simplot regarding Simplot's new Caldwell
facility. On February 5, 2014, Simplot filed an answer ("Answe/') to ldaho Power's
Application outlining two areas of disagreement with the proposed contract terms: (1)
the inclusion of certain limitation of liability clauses and (2) the Company's proposed
IDAHO POWER COMPANY'S REPLY COMMENTS. 1
electric rates for the new Caldwell facility. On March 28, 2014, comments were
simultaneously filed by Staff ("Staff Comments"), Simplot ("Simplot Comments"), and
ldaho Power addressing the issues raised by Simplot in its Answer. ldaho Power's
Comments explained why its narrowly tailored limited liability provisions are reasonable
in light of current litigation and market conditions and, if approved, why the seasonal
rates it proposed best reflect the Company's cost to serye Simplot's new Caldwell
facility.
Focusing solely on ldaho Power's rate calculation, Simplot and Staff each filed
comments opposed to the Company's proposed special contract rates for Simplot's new
Caldwell facility. For reasons addressed in detail below, Staff and Simplot contend that
the Company's cost-of-service study ("COS Study") utilized to determine the proposed
Simplot contract rates is inappropriate. ln place of the Company's cost-based rates,
both Simplot and Staff propose alternate methodologies in which the rates for the
Company's three existing special contract customers are averaged to determine rates
for the new Simplot Caldwell facility.l ln the discussion that follows, Idaho Power
responds to the assertions made by Staff and Simplot in regard to the appropriate
determination of Simplot's new special contract rates, and reaffirms its position that the
Company's proposed rates are a reasonable reflection of the expected cost of providing
service to the new Caldwell facility.
II. CALCULATION OF SIMPLOT'S SPECIAL CONTRACT RATES
A. Simplot lnaccuratelv Characterizes ldaho Power's Rate Determination
Methodolosv and Obiectives.
Page 7 of the Simplot Comments details Simplot's understanding of Idaho
Powe/s rate calculation methodology and what it perceives as the Company's true
1 Simplot Comments at 7; Staff Comments at 3.
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
"motivation" behind this methodology. Simplot misstated the Company's approach in
multiple areas and drew erroneous conclusions from its apparent misunderstanding of
how the proposed rates were determined. Many of Simplot's assertions have no basis
in fact or analysis, and do not accurately reflect the actua! methodology utilized by the
Company. The subsections that follow provide clarity in each of these areas.
1. ldaho Power's Proposed Rates Are Based on a Cost-of-Service
Studv.
According to Simplot, ldaho Power's proposed rate "is designed not based on
any cost-of-service study."2 ldaho Power disagrees with this statement. The Company
first provided an electronic version of the COS Study to Simplot in August of 2013, then
met with Simplot in person to step through the cost-of-service models on September 4,
2013, and again with Simplot and Staff on March 10, 2014. After discussing the
Company's cost-of-service process with Simplot multiple times, and providing Simplot
with the models, work papers, and spreadsheets to develop the cost-based rates, ldaho
Power finds it inexplicable that Simplot is now stating that the Company did not use any
cost-of-service study to determine the proposed rates. The Commission can be
assured that ldaho Power utilized its COS Study to develop the rates included in the
proposed contract as detailed in these Reply Comments and ldaho Power's Comments
filed on March 28,2014.
2. The Proposed Rates Are Hisher Than Existins Special Contract Base
Rates Because Existing Special Gontracts Are Below Cost-of-
Service.
Describing the "compromise rate" proposed in its Answer, Simplot states:
Dr. Reading's rationale was that using the special contract
customers' cost-of-service as a basis to calculate the rate
more accurately reflects the fact that the ldaho Project will
2 Simplot Comments at 7 (emphasis in original).
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
also be a special contract customer that takes power at the
transmission, rather than the primary voltage level."3
Simplot goes on to conclude:
Obviously, Simplot could reasonably expect to receive a
lower, cost-based electricity rate commonly available to
special contract customers taking transmission level service.a
These statements reflect Simplot's apparent belief that the new Caldwell facility
should receive a rate reduction because it will purportedly take service at transmission-
level voltage. First, to be clear, Simplot's new facility does not take service at
transmission-level voltage of 44 kilovolts ('kV") or higher but, rather, at primary-level
voltage of 12.5 kV through a distribution substation. Second, as detailed on pages 21
and 22 of the Company's Comments filed on March 28, 2014, the COS Study
appropriately reflects the voltage level and facilities specifically required to serve the
new Caldwell facility. Distribution substation investment and Simplot's offsetting
Contribution in Aid of Construction ("C|AC") were directly assigned, while transmission-
related and generation-related costs were allocated using the Company's COS Study
methodology. Any perceived benefits resulting from voltage level are accurately
reflected in the Company's proposed rates.
The reason the proposed rates are higher than existing special contract rates is
because the existing rates for the Company's three special contract customers are
approximately 10 percent below cost-of-service, while the Company's proposed rates
for the new Caldwell facility reflect full cost-of-service. To illustrate, increasing existing
special contract customers' rates by 10 percent brings them more in-line with the
3 Simplot Comments at 3.
o td. atB.
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
Company's proposed rates for the new Caldwell facility,s while still reflecting the
differences in special contract rates that are based upon individual cost-of-service
results for each customer. Therefore, Simplot's 3.699 fi/kilowatt-hour ("kWh") proposal
is not reflective of a cost-based rate resulting from a shift from primary-level voltage to
transmission-level voltage but, rather, a rate that does not reflect the full cost of serving
the new Caldwell facility.
3. Idaho Power's Rates Were Not Desisned with the Obiective of
Revenue Neutralitv.
Simplot summarizes its understanding of ldaho Power's rate determination
process as follows:
Idaho Power's approach is to assess Simplot's overall fleet
of ldaho Plants the same amount in base rated as it would
have if Simplot were not closing three primary-level voltage
plants
Simplot then concludes that:
ldaho Power's motivation is now clear. ldaho Power's
rate is driven by a revenue neutrality goal on ldaho Power's
part."7
The conclusions drawn in these statements are entirely erroneous, and have no
basis in fact or analysis. As stated on page 26 of ldaho Power's Comments filed on
March 28, 2014, "[the proposed rates] are reflective of the detailed cost-of-service
analysis performed by the Company based on the expected cost to serve the specific
Ioad requirement at Simplot's new Caldwell plant." !n other words, ldaho Power
established the proposed rates by calculating the new special contract's allocable share
5 lncreasing Staff's proposed rate of 3.795 O/kWh by 10 percent results in a rate of 4.175 O/kWh,
while increasing Simplot's proposed rate of 3.699 6/kwh by 10 percent results in a rate of 4.069 //kwh,
compared to ldaho Power's proposed rate of 4.243 O,lkWh.
6 Simplot Comments at 4.
' td. arr.
IDAHO POWER COMPANY'S REPLY COMMENTS.5
of currently approved costs utilizing the Company's COS Study methodology as the
starting point. The Company did not goal seek to obtain any sort of revenue neutrality;
rather, it utilized a well-established methodology to calculate a revenue requirement
specific to the new special contract independent of the revenue reduction associated
with the three closing plants.
The only relationship between the proposed special contract rates and Schedule
19P rates arises from the adjustment the Company was required to make to update the
proposed cost-based rates to include additional costs that had been approved for
recovery since the conclusion of the Company' last general rate case, Case No. !PC-E-
1 1-08 (2011 Rate Case"). As detailed in the Company's Comments filed on March 28,
2014, this was accomplished by first calculating cost recovery associated with the Open
Access Transmission Tariff (.OATT') deferral,8 the Boardman balancing account
adjustment,e the Langley Gulch power plant,10 and revised depreciation ratesll
embedded in Schedule 19P rates on a per-kWh basis. The Company then applied this
per-kWh value to the expected load provided by Simplot for the new Caldwell facility to
calculate the amount of additional revenue necessary to bring the new Caldwell facility's
rates into alignment with currently approved costs. This adjustment was not performed
to make up for lost revenue from the closing of the three plants, but rather to update the
rates calculated in the COS Study to reflect new costs that have been approved for
recovery since the conclusion of the 2011 Rate Case. If the Company did not make this
adjustment, Simplot's new special contract rates would not reflect any costs associated
I Case No. IPC-E-12-06, Order No. 32540.
t Case No. IPC-E-12-09, Order No. 32549.
'o Case No. IPC-E-12-14, Order No. 32585.
" Case No. IPC-E-12-08, Order No. 32559.
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
with the four base rate changes approved by the Commission since the conclusion of
the 2011 Rate Case-most significantly the Langley Gulch power plant.
Contrary to Simplot's assertion that rates were developed to maintain revenue
neutrality from the three closing plants, ldaho Powe/s true intent was to calculate cost-
based rates that reflect the new Simplot facility's allocable share of all currently
approved costs. For Simplot to say that ldaho Powe/s rate development was motivated
by the desire to remain revenue neutral is simply incorrect; the final revenue
requirement for the Caldwell facility was in no way linked to lost revenue from the three
closing plants.
4. Simplot Inaccuratelv Characterizes the Rates Provided bv ldaho
Power.
ln September 2013, ldaho Power provided Simplot with a preliminary rate for
discussion purposes of 3.937 //kwh, as calculated in the COS Study detailed in these
Reply Comments and the Company's Comments filed on March 28,2014. ln December
of 2013, ldaho Power filed its Application in this proceeding containing the final
proposed rate of 4.243 O/kWh. With respect to these rates, Simplot states that the
3.937 //kwh rate calculated within the COS Study incorporated adders to adjust for
costs approved since the conclusion of the 2011 Rate Case,12 which is not accurate.
The 3.937 l/kwh rate reflects the results of the COS Study, while the 4.243 l/kwh
reflects the 3.937 //kwh rate plus cost recovery associated with the four base rate
changes detailed above. The Company provided Simplot with the spreadsheets
developed to adjust the cost-based rate of 3.937 d/kwh from the COS Study to the final
proposed rate of 4.243 //kwh to reflect Commission orders regarding the OATT deferral
adjustment, the depreciation study adjustment, the Boardman balancing account
12 Simplot Comments at 3.
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
adjustment, and most recently, the Langley Gulch power plant adjustment. ln other
words, the only difference between the rate provided in September 2013 and the rate
provided in December 2013 was the adjustment made for costs that were approved for
recovery following the conclusion of the 2011 Rate Case.
B. ldaho Power's Proposed Rates Were Calculated Utilizing the Commission's
Most Currentlv Approved Cost-of-Service Methodolosv and Established
Ratemakins Pri nciples.
A common principle of ratemaking utilized by ldaho Powerl3 and the
Commissionlo is to implement rates that are reflective of cost. According to the widely
accepted Principles of Public Utility Rafes, authored by James C. Bonbright, ef a/., cost-
of-service is a basic standard of reasonableness when setting rates for electrical
service.ls ln light of these principles, it logically follows that one of the basic foundations
of the rate determination for a prospective special contract should be a cost-of-service
study. Accordingly, when developing the rate determination methodology for the new
Simplot Caldwell facility, ldaho Power utilized its most current class cost-of-service
study as the basis of its analysis.
Contrary to Simplot's assertion that ldaho Power's study "has no basis in
Commission precedent or rate-making principles,"l6 the COS Study is firmly rooted in
the last cost-of-service methodology formally approved by the Commission in Case No.
tt Page 33, ll. 10-13, Direct Testimony of Matthew T. Larkin, Case No. IPC-E-11-08. ("The
Company's primary approach to ratemaking in the last several general rate cases has been to establish
rates that reflect costs as accurately as possible.")
to Case No. IPC-E-94-05, Order No. 25880 at 36; Case No. IPC-E-08-10, Order No. 30722 at 37.
'u James C. Bonbright, et al., Principles of Pubtic lJtility Rates, at 109-1 10 (2"d ed. 1988). ("For if
rates are not compensatory, they are not subsidy free. ln fact, the golden rule of socially optimal
ratemaking is that, whenever possible, prices should track all the identifiable (marginal private and social)
costs occasioned by a service's provision. A cost standard of ratemaking has been most generally
accepted in the regulation of the levels of rates charged by private utility companies.")
16 Simplot Comments at 7.
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
IPC-E-08-10 ('2008 Rate Case"). This final approved methodology, referred to as the
"3 Coincident Peak ("CP")/12 CP" study, was filed by the Company as one of three
alternative cost studies in the 2008 Rate Case, and was evaluated alongside a number
of independent studies and/or study modifications offered by Staff and intervening
parties. All studies were subject to the rigors of a fully litigated rate case, including
written testimony, discovery, and live cross-examination before the Commission. At the
conclusion of the 2008 Rate Case, the Commission ultimately determined that the
Company's 3CP/12CP cost-of-service methodology was a reasonable reflection of the
cost of providing service and appropriate to serve as the basis for allocating revenue
requirement to the Company's rate classes.lT This Commission-approved methodology
served as the basis for the Company's cost-of-service study utilized in the 2011 Rate
Case and the current proceeding, reflecting the most current Commission-approved
methodology available.
C. ldaho Power's COS Studv Reasonablv Reflects the Cost to Serve the New
Caldwel! Facilitv According to the Companv's Currentlv Approved Gost
Structure.
The Company updated all inputs to the COS Study that were reasonably required
to estimate the cost of providing service to the new Simplot Caldwell facility according to
costs the Company is currently authorized to recover. Staff is critical of the Company's
COS Study due to a perceived lack of updated data, stating, ". . the cost of service
calculations presented in this case are based on data and methodology from Case No.
IPC-E-11-08 with very few updates."18 Staff specifically cites accounting data and
energy and demand data by customer class as areas that it believes have not been
" Case No. IPC-E-08-10, Order No. 30722 at 36.
" Staff Comments at 4.
IDAHO POWER COMPANY'S REPLY COMMENTS.9
updated appropriately.'e ldaho Power respectfully disagrees with Staff in this regard
and believes that modifications to the COS Study were made to the fullest extent
possible short of filing a comprehensive general rate case.
To understand the logic behind the inputs that were updated and those that were
not, one must first understand the components of the 3CP/12CP study that impact the
determination of rates for a special contract customer taking service through a
Company-owned, customer-funded distribution substation. Within the 3CP/12CP study,
this customer is fully-removed from the allocation of distribution-related investment and
instead receives a direct assignment of its substation investment and offsetting CIAC.
Because ldaho Power directly assigned these values to the new special contract in the
COS Study, the treatment of this investment in the current proceeding is identica! to the
treatment it would receive in a comprehensive general rate case. Meter investment was
directly-assigned in a similar manner, mirroring the Company's general rate case
methodology as well. Aside from the direct assignment of the meter and distribution
substation investment, the only other allocation factors that directly impact a special
contract customer such as Simplot's new Caldwell facility are the 3CP|12CP demand
factors utilized to allocate generation and transmission, the energy allocation factor, and
customer-related allocation factors. As detailed in the Company's initial comments,
these factors were all updated to reflect the expected loads at the new Caldwel! facility
that were provided by Simplot.2o
The remaining components of the Company's COS Study that were not updated
either would have had no material impact on cost allocation to the new Caldwell facility
or would have reflected a change to the Company's currently approved cost recovery.
'e /d. at 3.
'o ldaho Power Comments at2O-21 (March 28,2014\.
IDAHO POWER COMPANY'S REPLY COMMENTS - 1O
In regard to cost allocation, the Company did not update a number of allocation factors
because they would have had minimal impact on rates for the new special contract. As
detailed in the previous paragraph, under the current 3CP/12CP methodology, the new
Caldwe!! facility is excluded from the allocation of distribution-related plant, rendering
updates to the majority of the distribution-related allocation factors inconsequential. For
all other allocation factors within the 3CP/12CP methodology, the Company performed
an in-depth review to determine which factors required updating and which factors were
negligible within this specific context.
In regard to the Company's currently approved cost structure, Idaho Power did
not update system account totals to reflect current costs because doing so would have
effectively resulted in the preparation of a comprehensive general rate case. Rather
than requesting a modification to the leve! of costs approved for recovery through rates,
the Company's intent was to calculate the new Caldwell facility's allocable share of
currently approved costs. While Simplot's Caldwell facility is a new special contract
customer, because it is effectively replacing three existing plants ldaho Power
determined that it is appropriate to price this contract according to the Company's
currently approved embedded cost structure.2l
ln summary, ldaho Power's 3CP|12CP study was appropriately updated in all
areas that directly impact a special contract customer served through a Company-
owned, customer-funded distribution substation. Areas that were not updated reflect
either allocation factors that would have had no materia! impact on the new special
21 Simplot mistakenly states in footnote 1 of page 4 of its Comments that the Company's marginal
costs are lower than embedded costs. ln actuality the Company's marginal cost of energy is higher than
the embedded cost of energy. ldaho Power cannot comment on the marginal cost of capacity because it
is unsure which costs Simplot is referencing.
IDAHO POWER COMPANY'S REPLY COMMENTS - 11
contract or accounting data that would have reflected a change to the Company's
overall authorized cost recovery.
D. The Companv's Three Existinq Special Contract Customers Represent
Three Distinct Rate Classes that Should Not Be Relied Upon to Establish
Rates for a New Special Contract Customer.
Given their unique qualities, each special contract is considered an individual and
distinct rate class within the class cost-of-service study.22 For as long as special
contract customers have existed on ldaho Power's system, they have been considered
individual rate classes within the Company's (and the Commission's) class cost-of-
service framework. The term "Specia! Contracts" is not representative of a combined
class of similar customers within the Company's tariffs or cost-of-service models, but
rather three separate customer classes that are unique to the extent that they warrant
individual consideration from a regulatory and ratemaking perspective.
lf the aggregate power requirement of a customer exceeds 20 megawatts
("MW"), it is required to make special contract arrangements with the Company.23
Additionally, a Schedule 19 customer may optionally take service under a mutually
agreed upon special contract if the customer contracts for firm electric demand between
10 and 20 MW.24 Aside from these demand thresholds, there are no other tariff
requirements that contribute to special contract customers being similarly situated from
a cost-of-service perspective. To suggest that all special contracts are similarly situated
and therefore rate averaging is an appropriate basis for ratemaking is equivalent to
saying that all customers above 10 or 20 MW are reasonably similar from a cost-of-
service perspective. Such a statement is absolutely false.
22 Direct Testimony and Exhibits of Matthew T. Larkin, Case No. IPC-E-11-08.
'3 l.P.U.C. No. 29, Tariff No. 101, First Revised Sheet No. 19-1.
'o rd.
IDAHO POWER COMPANY'S REPLY COMMENTS - 12
The Company's three existing special contract customers-Micron Technology,
lnc. ("Micron"), Simplot's Don Plant ("Don Plant"), and the Department of Energy's ldaho
National Laboratory ('lNL'Fillustrate the extent to which current special contracts differ
from one another, and demonstrate why it is inappropriate to apply rate averaging to a
prospective special contract. Using 2011 Rate Case test year billing data as an
example,2s billing demand for Micron, the Don Plant, and INL peaked at 61 MW, 24
MW, and 45 MW, respectively, reflecting a range of nearly 40 MW. Average annual
load factors for these three customers ranged from 60 percent (lNL) to 86 percent
(Micron and the Don Plant). Perhaps most tellingly, the final mill rates resulting from the
filed 2011 Rate Case study ranged from 40.26 mills/kWh to 43.97 mills/kWh,
representing a percentage difference between low and high values of 9.2 percent. To
put this figure into perspective, applying a 9.2 percent variance to Simplot's proposed
revenue requirement of $8,945,1 15 equates to a dollar magnitude of $822,951 per year.
ln addition to the differences among the three existing special contract customers, the
proposed averaging methodologies are also inappropriate because the new Caldwell
facility is unlike any existing special contract, with an expected peak billing demand of
approximately 30 MW and an average annual load factor of 84 percent.
Given the variance among the Company's existing special contracts and the
unique characteristics of the new Simplot Caldwell facility, the methodologies proposed
by Staff and Simplot represent an unreasonable departure from cost-based pricing. ln
light of the usage and cost characteristics detailed above, these customers are not
similarly situated from a cost-of-service perspective and their rates should not be
averaged to determine rates for the new Caldwell facility.
25 To avoid using confidential information, customer billing data in this section reflects publicly
available test year data from the 2011 Rate Case.
IDAHO POWER COMPANY'S REPLY COMMENTS - 13
E. Establishinq Rates That Are Below Cost-of-Service Creates the Potential
for Rate lnstabilitv for Prospective Specia! Contracts and/or Cost Shiftins
to Other Customer Glasses.
As demonstrated by the COS Study prepared in this proceeding, both Staffs and
Simplot's averaging proposals result in rates that are below the expected cost to serve
the new Caldwell facility. lf the Commission chooses to adopt rates that are not
reflective of cost, it will create the potential for adverse financial impacts to either
Simplot's new Caldwell facility or the Company's other rate classes in ldaho Power's
next general rate case.
First, the new special contract customer may be adversely impacted because
below-cost rates will likely result in rate instability. Due to the revenue deficiency
created by implementing rates that are below cost, above-average increases will be
required in subsequent cases if the Commission is to ensure that the special contract
customer is contributing its full revenue requirement and not shifting costs to other rate
classes. Alternatively, if rates are established at less than cost and the new special
contract customer is not brought to full cost-of-service in the next rate case, the
Company's remaining customer classes will experience upward rate pressure as they
will be left to compensate for the revenue shortfall.
Regardless of whether or not the Commission chooses to move customer
classes to full cost-of-service in the Company's next general rate case, establishing
below-cost rates at this time will create the potentia! for adverse financial impacts to
either the new Simplot Caldwe!! facility or the Company's other customer classes. Both
of these potential scenarios can be addressed in the current proceeding if the
Commission establishes rates that reflect the expected cost of providing service at the
new Caldwell facility.
IDAHO POWER COMPANY'S REPLY COMMENTS - 14
F. The Approval of Rate Averaqinq Will Neqativelv lmpact ldaho Power's
Existins Customers and the State of ldaho's Abilitv to Attract New Larse
Businesses to ldaho Power's Service Area.
ldaho Power believes that the approval of rate averaging may set a Commission
precedent that will ultimately harm the Company and its customers, and prove to be
unworkable as the Company acquires new large loads over time. Generally speaking,
applying the average of existing rates to a special contract customer whose only
commonality with existing special contracts is a load greater than 10 MW is a complete
departure from cost-based ratemaking. Because each special contract rate is currently
below cost, this will likely result in below-cost rates when new special contracts are
established in the foreseeable future. This may also incent any current or potential
customer above 10 MW to request a special contract arrangement to gain access to the
lower averaged rates. As detailed in Section E above, this will contribute to rate
instability for new special contracts and/or potential cost shifting to the Company's
remaining rate classes.
Staffs and Simplot's proposals also present difficulties in practical application
due to the relative infrequency of fu!!y litigated general rate cases and the frequency of
special contract pricing requests. Because cost-of-service is often a contentious issue
in a general rate case, a specific methodology typically does not receive explicit
Commission approva! unless the case is fully litigated. ln fact, over the last 20 years, a
cost-of-service methodology has received final Commission approva! just three times,
with the most recent approval occurring in 2009.26 Due to the number of large load
requests received by the Company compared to the relative infrequency and resource-
intensive nature of fully litigated rate cases, the Company believes that Staff's and
Simplot's proposals will dampen its ability to provide reasonable and cost-based rate
'u Case No. IPC-E-08-10, Order No. 30722 at 36.
IDAHO POWER COMPANY'S REPLY COMMENTS. 15
determinations for prospective special contract customers, whether they are entirely
new to ldaho Power's service area or approach special contract status due to the
expansion of existing operations.
Since the conclusion of the 2011 Rate Case, ldaho Power has been contacted by
more than 10 prospective large loads requesting potential pricing information. These
large companies base location decisions in part on electricity costs in each geographic
area under consideration, and require a sound cost-based rate estimation to make an
informed decision. !f the Commission establishes averaging as the methodology to
determine rates for new special contracts, the Company will be greatly limited in the
level of reliable pricing information it can provide. Essentially, the Company would be
limited to providing an average of existing special contract rates as a short-term price
estimation, with the significant caveat that the Company's next general rate case may
result in a shift to cost-based rates that is completely unrelated to the initial average
price. This unpredictable volatility will likely be viewed negatively by prospective special
contract customers, thus hindering the State of ldaho's ability to attract new large
businesses to ldaho Power's service area.
By establishing cost-based rates from the outset, the Company will be able to
provide prospective customers with the assurance that the initial contract rates are
reflective of currently approved costs, and future rate adjustments wi!! be limited to
changes in cost-of-service since the initial contract rates were established. This will
allow the Company to work with potential customers to provide reasonable pricing
information with an element of stability that will be eliminated if the Commission
approves either of the proposed rate averaging methodologies.
IDAHO POWER COMPANY'S REPLY COMMENTS - 16
III. CONCLUSION
ldaho Power's proposed cost-based rates are reflective of the most current cost-
of-service information available. Utilizing the Company's currently approved cost
structure and the most recently approved 3CP/12CP cost-of-service methodology, the
Company calculated the proposed rates based on the expected cost to serve the new
Simplot Caldwell facility. Adopting either Staff's or Simplot's rate averaging proposals
would reflect a departure from cost-based pricing and establish rates for the new
Caldwell facility that are below cost-of-service, potentially resulting in rate instability for
the new special contract customer and/or cost shifting to the Company's other rate
classes. Further, approving rate averaging as a methodology for determining new
special contract rates would limit the Company's ability to provide prospective
businesses with sound and relatively stable cost-based pricing estimates, thus hindering
the State of Idaho's ability to attract new large businesses to Idaho Power's service
area. Due to the adverse impacts of establishing rates that are not reflective of cost,
and because the Company's proposed rates capture the best and most current cost
information available, the Commission should approve the Company's proposed rates
as filed.
Respectfully submitted this 11th day of April 2014.
Attorney for ldaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 17
CERTIFICATE OF SERVICE
! HEREBY CERTIFY that on this 11th day of April 2014 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
Kristine A. Sasser
Deputy Attorney General
!daho Public Utilities Commission
47 2 W est Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
J. R. Simplot Company
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27th Street
Boise, ldaho 83702
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Cr
Christa Bearry, Legal Assistant
IDAHO POWER COMPANY'S REPLY COMMENTS - 18