20150608Application.pdf

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An IDACORP Company
LISA D. NORDSTROM
Lead Counsel
I [e-mail]
June 5,2015
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Enclosures
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VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-15-17
Long Term Program Contract with Siemens Energy, lnc. - ldaho Power
Company's Application and Testimony
Dear Ms. Jewell:
Enclosed for filing in the above matter please find an original and seven (7) copies
of ldaho Power Company's Redacted Application. An original and seven (7) copies of the
confidential pages of and the attachment to the Application are provided separately.
ln addition, enclosed are an original and eight (8) copies each of the Redacted
Direct Testimony of Trevor Mahlum and Courtney E. Waites filed in support of the
Application. One copy each of the aforementioned testimonies has been designated as
the "Reporte/s Copy." ln addition, a disk containing Word versions of Mr. Mahlum's and
Ms. Waites' testimonies is enclosed for the Reporter. An original and seven (7) copies
each of the confidential pages of Mr. Mahlum's and Ms. Waites'testimonies are provided
separately.
Also enclosed is a Protective Agreement ldaho Power Company requests the
parties execute in this matter. lf the Protective Agreement is satisfactory, please have the
attomey assigned to this case execute the same.
lf you have any questions about this filing, please do not hesitate to contact me.
Very truly yoursi,
X*^-Cfl**ha*-
Lisa D. NordstFom
1221 W. ldaho St. (83702)
P.O. Box 70
Boise, lD 83707
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 no rd stro m @ ida hopower. co m
Attorney for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ORDER AUTHORIZING THE APPROVAL
OF A LONG TERM PROGMM CONTMCT
WITH SIEMENS ENERGY, INC., AND
DEFERRAL OF ASSOCIATED COSTS.
;Il
CASE NO. !PC-E-15-17
REDACTED APPLICATION
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ldaho Power Company ("ldaho Powe/' or "Company"), in accordance with ldaho
Code S 61-328, S 61-524 and RP 052, hereby respectfully makes applicatlon to the
ldaho Public Utilities Commission ("Commission") for an order (1) approving a Long
Term Program ('LTP') Contract with Siemens Energy, lnc. ("Siemens"'), (2) approving
the transfer and sale of certain assets to Siemens pursuantlo ldaho Code S 61-328,
and (3) approving the Company's proposed accounting treatment of costs associated
with the LTP Contract. The Company is not requesting to change customer rates at this
time.
ln support of this Application, ldaho Power represents as follows:
REDACTED APPLICATION - 1
I. INTRODUCTION
1. ldaho Power owns and operates three natural gas-fired facilities: the
Langley Gulch combined cycle combustion turbine ("CCCT"), the Danskin simple cycle
combustion turbine (.SCCT'), and the Bennett Mountain SCCT. The Langley Gulch
plant consists of one 180 megawatt ("MW") Siemens combustion turbine and one g6
MW Siemens reheat steam turbine and is located south of New Plymouth in Payette
County, Idaho. Located northwest of Mountain Home, Idaho, the Danskin facility
consists of one 169 MW Siemens and two 44 MW Siemens-Westinghouse combustion
turbines. The Bennett Mountain plant is located east of the Danskin plant in Mountain
Home, ldaho, and consists of one 162 MW Siemens-Westinghouse SCCT.
2. At this time, Idaho Power self-manages its natural gas fleet through a
collaborative effort between the Company and the original equipment manufacturer
("OEM"). The Company's OEM for all its combustion turbines is Siemens. ldaho
Powe/s combustion turbines are subject to required maintenance outages at OEM-
recommended intervals based upon each plant's primary mode of operation. Based on
ldaho Powe/s historical operating profile, the Danskin and Bennett Mountain SCCTs
have maintenance intervals based on the number of plant start-ups and Langley Gulch
has a maintenance schedule based on hours of operation. Currently, each
maintenance outage has been contracted to Siemens for service on a case-by-case
basis.
3. Under the Company's self-management of its gas plants, ldaho Powe/s
current practice is to purchase parts from Siemens in advance of an outage, allowing
adequate time for delivery and possession of the parts prior to @mmencement of the
REDACTED APPLICATION - 2
outage. Upon receipt, the parts are capitalized. During the outage, the existing parts
are removed and the replacement parts are installed, resulting in short outage windows
and earlier plant availability. The parts that have been removed are retired from ldaho
Powe/s books and sent to Siemens' service shop, where they are inspected and
repaired. Once refurbished, the parts (known as "initial spare parts") are returned to the
Company, capitalized, and ready for use again. Until the addition of the Langley Gulch
CCCT, contracting for gas plant maintenance services with Siemens at each outage
interval has been the most cost-effective approach to maintain the Company's gas fleet.
II. LTP CONTRACT
4. During construction of the Langley Gulch plant, ldaho Power began
looking at other maintenance options for its gas fleet. The Langley Gulch plant is the
Company's only CCCT and employs some of the newest, most technologically
advanced parts on the market. ldaho Power recognized that its employees did not have
al! of the necessary technical skills to maintain al! three plants to the leve! offered by
Siemens and reached out to multiple third-party providers of gas plant maintenance as
part of a formal request for information process. ldaho Power analyzed the proposals
and determined that there are currently no other third-party maintenance providers that
could provide services equivalent to those provided under the LTP Contract with
Siemens. Because Siemens is the OEM for all of the Company's gas plants and is the
industry leader in gas plant maintenance, the only available alternative to the LTP
Contract with Siemens would be the continuation of a Company-managed maintenance
program with technical support and parts purchased from Siemens.
REDAGTED APPLICATION - 3
5. Under the LTP Contract, Siemens will provide scheduled maintenance on
all three combustion turbines, including program parts or repairs, shipping, services,
labor, engineering services, and program management services. Program parts consist
of the major combustion turbine parts provided by Siemens and the parts installed in the
combustion turbine upon the effective date, all initial spare parts, and all parts changed
during the length of the contract. Some of these program parts are the latest
technology that ldaho Power would not otherwise have access to and they are available
under the LTP Contract "t , I discount from the list price. Siemens will also
perform unscheduled maintenance on a!! three combustion turbines, based on an
agreed price list, to the extent such work is not covered by Siemens' other warranties
under the contract. Leveraging Siemens' pool of regional inventory, outage resources,
and technical expertise will result in lower overall costs to ldaho Power and its
customers.
6. The pricing structure under the LTP Contract involves per-unit initiation
fees combined with periodic milestone amounts due at or near the actual outage events.
Similar to the accounting for work performed by Siemens under the cunent self-
management of maintenance, a portion of the milestone payments will be capitalized
and a portion will be operation and maintenance expense. The LTP Contract will
provide a Iower-priced alternative to the maintenance of the Company's gas plants;
ldaho Power estimates the cost to continue with self-management would be
approximat"V $I over the life of the contract, while the LTP Contract would
cost approximately $I over the comparable time period, a savings of $I
I over the life of the agreement.
REDACTED APPLICATION - 4
III. APPROVAL OF THE INITIAL SPARE PARTS TRANSFER
7. With a LTP Contract, the Company has no need for lts cunent inventory of
spare parts; Siemens will provide all parts necessary for maintenance and repair of
ldaho Powe/s gas fleet. Under the terms of the LTP Contract, Siemens will take
ownership of ldaho Powe/s inventory of initial spare parts for each combustion turbine,
as listed in Exhibit G to the LTP Contract provided as confidential Attachment 1 to this
Application, and is expected to remove them from ldaho Powe/s facilities soon after
approval of the LTP Contract. ln consideration of the transfer of the initial spare parts to
Siemens, the contract price has been reduced to reflect ldaho Powe/s net book value
of the initial spare parts.
8. Pursuant to ldaho Code S 61-328, an electric utility must obtain approval
from the Commission before it sells or transfers ownership in any generation,
transmission, or distribution plant located in ldaho.
Before authorizing the transaction, the public utilities
commission shall find: (a) That the transaction is consistent
with the public interest; (b) That the cost of and rates for
supplying service will not be increased by reason of such
transaction; and (c) That the applicant for such acquisition or
transfer has the bona fide intent and financial ability to
operate and maintain said property in the public service.
ldaho Code S 61-328(3).
9. This transfer of the initial spare parts meets the above-stated
requirements of ldaho Code S 61-328(3). ln addition to the financial benefit of reduced
contract costs over the life of the agreement, the transfer and sale of the initial spare
parts will allow for the return of spare parts ldaho Power would otherwise no longer use.
The demand for these specific spare parts is limited as the parts are no longer the latest
REDACTED APPLICATION - 5
technology and have a limited buyer pool, limiting its market value. During negotiations
with Siemens regarding the LTP Contract pricing, Siemens agreed to take back
ownership of the initial spare parts in exchange for reduced contract pricing based on
the net book value of those parts. As of December 31,2014, the net book value of the
assets that will be transferred to Siemens is approximately $21.9 million on an ldaho
jurisdictional basis. The transfer and sale of the initial spare parts to Siemens is
consistent with the public interest and wi!! result in lower overall costs to ldaho Power
and its customers. Lastly, Siemens has the bona fiUe intent and financia! ability to
operate and maintain the initial spare parts in the public service.
IV. PROPOSED ACCOUNTING TREATMENT
10. ldaho Power requests approval of (1) the deferral of the initiation fees to a
regulatory asset, (2) the transfer of the net book value of the initial spare parts and
associated net tax expense to a regulatory asset, and (3) a carrying charge on a portion
of the regulatory asset balance. While the LTP Contract provides significant benefits to
customers over the life of the contract, absent the requested accounting treatment, the
financial impact to the Company in the first year is considerable, primarily attributable to
the initiation fees and the net tax expense. The initiation fees serve as a prepayment
toward services that will be performed by Siemens over the life of the agreement.
Because the expense is for work performed throughout the duration of the contract,
ldaho Power is proposing to establish the initiation fees of $I on an ldaho
jurisdictional basis as a regulatory asset and amortize that balance, on a straight-line
basis, over the length of the contract. The defenal and subsequent amortization of
REDACTED APPLICATION - 6
initiation fees will more closely match the expense recognition with the work being
performed.
11. The Company is also requesting to transfer to a regulatory asset the
unrecovered portion, or net book value, of $21.9 million in initial spare parts subject to
true-up at closing. The Company also proposes to include in the regulatory asset the
defened taxes that result from the transfer and sale of the initial spare parts. The
transfer and sale of the initia! spare parts to Siemens wi!! create a net tax expense of
approximately $1.8 million on an ldaho jurisdictional basis. Idaho Power is proposing to
amortize both amounts on a straight-line basis over the length of the contract
commencing on the execution of the LTP Contract. The defenal and subsequent
amortization of the unrecovered portion of the initial spare parts and the net tax expense
over the contract life will more closely align the benefits received from the LTP Contract
with the costs associated with transfer and sale of the assets.
12. Finatly, the Company proposes to accrue a carrying charge on $I
of the regulatory asset, $I in initiation fees and $2.9 million of the initial spare
parts. Because $2.9 million of the initial spare parts has not yet been included in the
Company's authorized rate base and therefore the Company is not currently earning a
retum on the amounts, ldaho Power is requesting to accrue a carrying charge on that
amount using the Company's most recent authorized rate of return.
V. MODIFIED PROCEDURE
13. ldaho Power believes that a hearing is not necessary to consider the
issues presented herein and respectfully requests that this Application be processed
under Modified Procedure; i.e. by written submissions rather than by hearing. RP 201
REDACTED APPLICATION - 7
ef seq. lf, however, the Commission determines that a technical hearing is required, the
Gompany stands ready for immediate consideration of its Application and will present
the testimony of Power PIant Area Maintenance Leader Trevor Mahlum and Senior
Regulatory Analyst Courtney Waites to support the Application in such hearing.
VI. COMMUNICATIONS
14. Communications and service of pleadings, with reference to this
Application should be sent to the following:
Lisa D. Nordstrom
ldaho Power Company
P.O. Box 70
Boise, ldaho 83707
Tim Tatum
ldaho Power Company
P.O. Box 70
Boise, ldaho 83701
1221 West ldaho Street (83702) 1221West ldaho Street (83702)
[e-mail] [e-mail]
dockets@dahopower. com
VII. REQUEST FOR RELIEF
15. ldaho Power respectfully requests that the Commission issue an order (1)
authorizing that this mafter may be processed by modified procedure, (2) approving the
LTP Contract with Siemens, (3) approving the transfer and sale of the initia! spare parts
to Siemens pursuant to ldaho Code S 61-328, and (4) approving the Company's
proposed accounting treatment of costs associated with the LTP Contract.
DATED at Boise, tdaho, this 5h day of June 2015.
REDACTED APPLICATION - 8
VERIFICATION
STATE OF IDAHO
Gounty of Ada
LISA D. NORDSTROM, being duly swom, deposes and states that she is an
attomey for ldaho Power Company, that she has read the foregoing Application and
knows the contents thereof, and that the same are true to the best of her knowledge
and belief.
SUBSCRIBED AND SWORN TO before me, a notary public of the state of ldaho,
this 5h day of June 2015.
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REDACTED APPLICATION . 9
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
GASE NO. IPC-E-15-17
IDAHO POWER GOMPANY
. ATTACHMENT 1
THE ATTACHMENT IS
CONFIDENTIAL
AND WI LL BE PROVI DED
TO THOSE PARTIES THAT
HAVE SIGNED THE
PROTECTIVE
AGREEMENT