20140619Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER
CASE NO. IPC.E.I4-08
COMMENTS OF THE
COMMISSION STAF'F
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of Record, Donald L. Howell II, Deputy Attorney General, and submits the following
Comments in response to Order No. 33040 issued on May 22,2014.
BACKGROUND
The J.R. Simplot Company operates a PURPA cogeneration facility at its Pocatello plant.
In February 2006,Idaho Power and Simplot entered into a Power Purchase Agreement (the "2006
PPA") whereby Simplot agreed to sell power to the utility over a seven-year period ending on
February 28,2013 . See Order No. 30028, Case No. IPC-E-06-03. Under the terms of the 2006
PPA, Simplot was generally required to deliver no less than90Yo of the contracted monthly amount
of power and no more than ll0% of the monthly amount (commonly referred to as the "90-110
band"). If Simplot's delivery of energy was outside of the 90-1 10 band, then Idaho Power was
STAFF COMMENTS JUNE I9,2OI4
required to price the power using a different pricing methodology which would typically result in
smaller payments to Simplot in those months.
Idaho Power asserts that upon termination of the 2006 PPA in February 2013, it "discovered
an ove{payment [to Simplot] had occurred" during the term of the expired contract. Application at
2. Apparently Idaho Power did not adjust the monthly payments to Simplot for power outside the
90-1 l0 band.
The parties subsequently began discussions regarding the recovery of the overpayments
made to Simplot. Id. As a result of these discussions, Idaho Power and Simplot entered into a
confidential Settlement Agreement in February 2014. Under the terms of the Settlement
Agreement, Simplot agreed to repay $1,564,503.76 of the $1,884,406.85 that was proportedly
overpaid to Simplot. Id. at !i 3. Idaho Power will also repay to customers the unrecovered balance
of $319,903.09 ($1,884,406.85 - $1,564,503.76). Id.
Idaho Power proposes to record the recovery of the overpayments to customers through the
annual PCA mechanism.l The utility asserts that the recovery of the overpayments "will be a direct
benefit to . . . customers in the form of a reduction in net power supply expense." Application at 3.
STAFF ANALYSIS
The 2006 PPA contained a 90-110 band requirement under which Simplot was to provide
Idaho Power with estimated monthly generation values. Under the 90-110 band requirement, actual
energy deliveries are compared to these estimates, and if the actual energy deliveries are less than
90Yo or greater than I l0% of the estimated amounts, an alternative pricing methodology would be
applied to the energy payments.
These adjustments to the energy payments were not made during the entire seven-year term
of the 2006 PPA, and Idaho Power paid Simplot the full value of the energy regardless of whether it
fell outside the 90-l l0 band. Idaho Power stated it did not discover the overpayment until the
Simplot Agreement terminated in 2013. Simplot and Idaho Power subsequently entered into a new
PPA (the "2013 PPA") for this facility, which was approved by the Commission on April 17, 2013.
Order No. 32790, Case No. IPC-E-13-02.
'The Company's proposed recovery of the overpayments does not affect the2Ol4 PCA application that was recently
approved by the Commission in Order No. 33049, Case No. IPC-E-14-05.
STAFF COMMENTS JUNE T9,2OI4
Overpayment Amount
In various production requests, the Staff asked Idaho Power for information regarding the
calculation of the "overpayment amount" agreed to by the parties. In response, Idaho Power
reported that the difference in total payment to Simplot between the full contract price and the 90-
110 alternative pricing periods over the seven-year term of the contract is$2,429,438. This amount
was subsequently adjusted to reflect Simplot's planned maintenance for this facility occurring in
May and June of every year. When the May-June planned maintenance events are taken out of the
90-110 determination, the difference is reduced by $545,031.90, resulting in the reported total
overpayment amount of $ 1,884,406.85.
Because both parties understood in advance that these planned maintenance periods would
occur each year, Staff believes this adjustment to the overpayment amount is appropriate. Staff
reviewed Idaho Power's computation of the total overpayment amount and the planned
maintenance adjustments and believes these adjustments are accurate. Consequently, Staff concurs
with the reported overpayment amount of $1,884,406.85.
Internal Controls
The Staff also asked the Company how the overpayments occurred and what internal
controls were presumably in place to verify the accuracy of the payments. In response, the
Company detailed the internal controls that should have prevented the overpayments, and why the
internal controls failed. Staff further inquired as to what changes in internal controls are being
implemented to prevent this type of overpayment in the future. The Company has implemented
additional controls to prevent any future overpayments.
The Company also disclosed that it reviewed all of its other 90-110 band PURPA contracts
to ensure the contract billing terms were properly applied. In addition, the Company examined the
payment calculation process to determine if any manual calculations and or verifications could be
programmed into the PURPA application process in order to reduce the potential for human error.
Staff believes the necessary changes to prevent a future event have been prograrrmed into the
PURPA application process and appear to adequately address the past problem.
STAFF COMMENTS JUNE I9,2OI4
Sharing and Repayment of the Overpayment Amount
Apparently neither Idaho Power nor Simplot wished to bring this matter before a court or
the Commission in a contested proceeding. Staff notes that the Application and Settlement
Agreement do not request that the Commission approve the Settlement but only request an
accounting order to implement the Settlement. Idaho Power and Simplot negotiated a Settlement
Agreement that provides for the recovery of the overpayment to the benefit of the Company's
customers. The Agreement provides that Simplot will pay $1,564,503.76 and Idaho Power will
contribute the remaining $319,903.09 for a total amount of $1,884,406.85. Staff expects that the
source of Idaho Power's contribution will be shareholder funds, not ratepayer funds.
Under the terms of the Settlement, Simplot will repay its $1,564,503.76 share of the
overpayment in
(This section of Staff s comments contains confidential
information subject to protective agreement.)
Idaho Power proposes to pay the $3 19,903.09 in one lump
sum, to flow back to customers in the next year's Power Cost Adjustment.
Although the parties entered into their settlement in February 2014, recovery of the
overpayments to Simplot was not included in the most recent PCA filing (IPC-E-14-05) because the
Company had not recorded any recovery transactions related to the Simplot overpayment during the
PCA period of April 2013 through March 2014. The first recovery payment from Simplot was paid
in April 2014 and will be reflected in next year's PCA filing in April 2015.
Staff Proposed Accounting Treatment and Modified Recovery Period
Despite the lack of a request to approve the Settlement Agreement, Staff believes the
Commission has authority to review Idaho Power's conduct and the Settlement. Based upon its
review, Staff believes the Settlement (as modified below) is fair and reasonable. Staff does not
oppose the proposed sharing of the overpayment costs between the parties. Although it might be
argued that Simplot should be liable for the entire amount of the overpayment, Staff believes that
Idaho Power must bear some responsibility for failing to adequately monitor and adjust the contract
payments. Because the overpayment occurred over a seven-year period, there is also an issue
whether Idaho Power would be able to recover the full amount from Simplot.
STAFF COMMENTS JUNE I9,2OI4
Although Staff supports the agreement between the parties, Staff does not support Idaho
Power's proposed accounting treatment to recover the overpayments
(This section of Staff s comments contains confidential information
subject to protective agreement.)Staff believes
the Company should credit the entire amount of the overpayment to customers in the 2015 PCA
year. Because the overpayment occurred over a seven year period, the proposal to recover the
overpayments I (Redacted)] does not necessarily compensate the same customers
that were overcharged when the overpayment occurred. Moreover, a year has already passed since
Idaho Power discovered the overpayments. Staff believes that the Company's failure to properly
compensate Simplot under the 2006 PPA should not excuse the utility from immediately
compensating customers for the overpayments.
Idaho Power proposes to record recovery of the overpayments by debiting either the Federal
Energy Regulatory Commission (FERC) Account No. 143 (Other Accounts Receivable) for funds
to be received, or by debiting FERC Account No. 235 (Customer Deposits) and crediting FERC
Account No. 555 (Purchased Power) if the funds are already on deposit with the Company. The
Company proposes to refund the money to customers as repayments from Simplot are received.
Staff recommends that the full amount of the repayments be recorded in the PCA immediately,
rather than when the payments are received. Requiring repayment in next year's PCA will not
adversely affect the Company's financial position. The overpayment amount to be recovered from
Simplot is 1.2%o of the total actual PURPA expenses as included in the past two PCA filings, and
the total amount is less than lYo of the Company's net income for 2013. Staff sees no reason for
customers to wait for the repayment from Simplot.
STAFF RECOMMENDATIONS
Staff believes that the Settlement between Simplot and Idaho Power as modified by Staff is
fair, reasonable and in the public interest. Staff believes that it is reasonable for the recovery to be
apportioned for Simplot to pay $1,564,503 .76 and for Idaho Power to pay $319,903.09. However,
Staff recommends that customers be compensated by Idaho Power in a single year through the 2015
PCA for the agreed upon amount of the overpayments. Staff recommends the Commission issue an
accounting order authorizingthe Company to set up the necessary regulatory accounts needed to
STAFF COMMENTS JUNE I9,2OI4
reflect the full amount of the overpayment in the next year's PCA case. Stafffirther recommends
that ttre Company file the actual initial accounting entries with Commission Staff.
Respecttutly submitted this lIt'day of June 2014.
Technical Staff: Rick Sterling
Kathy Stocklon
i :umisclcomments/ipce l4.8dhrpskls commcnts
6
Deputy Attorney General
STAFF COMMENTS JUNE I9,2OI4
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF JLINE 2014,
SERVED THE FOREGOING NON-CONFIDENTIAL COMMENTS OF THE
COMMISSION STAFF, IN CASE NO. IPC-E-14-08, BY MAILING A COPY
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
DONOVAN E. WALKER
JULIA A. HILTON
IDAHO POWER COMPANY
P.O. BOX 70
BOISE, IDAHO 83707
E-MAIL: [e-mail]
i hilton@ idahopower. com
(Donovan - Confidential Copy)
(Julia - Non-Confidential Copy)
MICHAEL J. YOUNGBLOOD
REGULATORY DOCKETS
IDAHO POWER COMPANY
P.O. BOX 70
BOISE,IDAHO 83707
E-MAIL: [e-mail]
dockets@ idahopower. com
(Non-Confi dential Copy)
CERTIFICATE OF SERVICE