20151026Redacted Petition for Reconsideration.pdf

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Alr IDACORP Company
LISA D. NORDSTROM
Lead Counsel
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October 26,2015
VIA HAND DELIVERY
Jean D. Jewell, Secretary
!daho 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 Redacted Petition for Reconsideration of Order No. 33391
Dear Ms. Jewel!:
Enclosed for filing in the above matter please find an origina! and seven (7) copies
of ldaho Power Company's Redacted Petition for Reconsideration of Order No. 33391.
ln addition, an original and seven (7) copies each of confidential page 10 and
confidential Attachment 1 to the Petition for Reconsideration are provided separately.
Please handle the confidential information in accordance with the Protective Agreement
executed in this matter.
Very truly yours,
(
Lisa D. Nordstrom
LDN:csb
Enclosures
1221W. lriaho 5t. (83702)
PO. Box 70
Rorsc, lD 83 /07
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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 n o rdstrom@ ida hopower. com
Attorney for ldaho Power Company
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
APPROVAL OF LONG.TERM
MAINTENANCE PROGRAM CONTRACT
WITH SIEMENS ENERGY, SALE OF
SPARE PARTS INVENTORY TO SIEMENS
ENERGY, AND DEFERRAL OF
ASSOCIATED COSTS
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISS!ON
CASE NO. IPC-E-15-17
IDAHO POWER COMPANY'S
REDACTED PETITION FOR
RECONSIDERATION OF ORDER
NO. 33391
COMES NOW, ldaho Power Company ("ldaho Powe/' or "Comp?ry"), by and
through its undersigned counsel, and hereby petitions the ldaho Public Utilities
Commission ("Commission") to reconsider, pursuant to Rule of Procedure 331, certain
portions of the accounting treatment authorized by Order No. 33391.
This Petition is based on the following:
I. BACKGROUND
1. On June 5,2015, ldaho Power filed an application for an order (1)
approving a Long Term Program ('LTP') Gontract with Siemens Energy, lnc.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 1
("Siemens"), (2) approving the transfer and sale of certain assets to Siemens pursuant
to ldaho Code S 61-328, and (3) approving the Company's proposed accounting
treatment of costs associated with the LTP Contract.
2. On July 21,2015, the Commission issued a Notice of Application, Notice
of Modified Procedure, and Notice of Hearing. Order No. 33340. The Commission
granted the timely Petition to lntervene filed by the lndustrial Customers of ldaho Power
("!ClP"). Order No. 33352.
3. The Commission Staff ("Staff') and lClP filed Comments on August 27,
2015. Staff recommended the Commission approve the LTP Contract with Siemens,
approve the sale and transfer to Siemens of $21.9 million in spare parts for the
Company's gas plants, and approve (1) the deferral of the initialization/initiation fees to
a regulatory asset to be amortized over the remaining life of each asset, (2) the transfer
of initial spare parts' net book value (approximately $21.9 mi!!ion, subject to true-up) and
associated tax expense (approximately $1.8 million, subject to true-up) to a regulatory
asset to be amortized over the life of the plant to which the initial spare parts are
associated, and (3) no carrying charge on any of the regulatory assets. Staff
Comments at 8-9.
4. The lClP supported the Company's Application but requested the
Commission reject the carrying charge on the regulatory assets proposed by the
Company at its overal! rate of return. lClP Comments at 7. lf, however, the
Commission approved a carrying charge, lClP stated it should be at the Company's
current cost of debt. ld. at8.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 2
5. The Company filed Reply Comments on September 3,2015, responding
to issues regarding the Company's proposed accounting treatment and reiterating its
request for the Commission to issue an order authorizing (1) the deferral to a regulatory
asset the sum of the entire initiation fee and the net book value of the initial spare parts
plus the associated net tax expense with amortization to begin coincident with the
effective date of the LTP Contract, (2) an amortization period for the regulatory asset
equal to the length of the LTP Contract or a period consistent with the remaining life of
the associated plant, and (3) that the entire unamortized balance of the regulatory asset
approved in this case be eligible for rate base treatment in the Company's next revenue
requirement proceeding. Reply Comments at 8-9. ldaho Power stated that without
such assurance, pursuant to a provision of the contract, the Company would reevaluate
the business case of entering into the LTP Contract with Siemens under its current
terms and reassess the associated financial risk. /d. at 8.
6. A technical hearing was held on September 9, 2015, during which the
Commissioners and the parties had the opportunity to cross-examine the Company's
witnesses. Tr. at 21-22 and 37.
7. On October 5, 2015, the Commission issued Order No. 33391 approving
the Company's proposed contract with Siemens and the transfer and sale to Siemens of
$21.9 million in initial spare parts. Order No.33391 at4. ln addition, the Commission
approved the establishment of at least two regulatory assets, one titled "Rate Based"
that will include the $19.1 million of initial spare parts currently in rate base and the
second that will include 100 percent of the initiation fees, the $2.9 million of initia! spare
parts not in the Company's authorized rate base, and the associated net tax expense.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 3
Order No. 33391 at 8. Amortization of the regulatory assets will be over the remaining
life of each asset. /d. The Rate Based regulatory asset will continue to be in rate base
and earn a return like the current treatment of those assets, while the second regulatory
asset will not. /d. lnstead, the Company is authorized to move the unamortized amount
to the Rate Based regulatory asset in equal installments over ten years, with the first
transfer made at the end of 2016. /d. at 8-9. Once transferred to the first regulatory
asset, the unamortized portion will be included in rate base in the next genera! rate
case. /d. at 9.
II. PETITION FOR RECONSIDERATION
8. Because the Company does not believe it was the Commission's intent to
create a financial disincentive for ldaho Power to reduce costs over the long term, ldaho
Power requests that the Commission reconsider certain portions of Order No. 33391
pertaining to the accounting treatment of LTP Contract costs and the related financial
impact thereof.
A. Accountins Treatment of LTP Contract Costs.
9. ln its Application and supporting testimony, ldaho Power requested
approval of the Company's proposed accounting treatment of costs associated with the
LTP Contract. Specifically, ldaho Power requested authorization of (1) the deferra! 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 the regulatory asset, and (3) a carrying
charge on a portion of the regulatory asset balance. Application at 6. The ldaho
Power-proposed accounting treatment is earnings neutral to the Company and, without
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 4
its approva!, the financia! impact in the first few years is considerable. Waites Direct at
7,Tr. at 30.
10. On page 5 of Order No. 33391, the Commission approved the deferral of
100 percent of the initiation fees in a regulatory asset and on page 6 the Commission
found that an amortization period over the remaining life of each asset aligns with the
recovery that would have occurred absent the Siemens contract and is therefore "fair,
just, and reasonable." ldaho Power does not request reconsideration of these findings.
11. The Commission did, however, order the establishment of two regulatory
asset accounts with unique regulatory treatment for the second of the two accounts.
The language at issue is found on page 8 of Order No. 33391 where the Commission
stated:
[t]he Company to establish at least two regulatory assets:
(1) one to initially cover the initial spare parts currently in rate
base with a subaccount with "Rate Based" in the title; and (2)
the other to include the initiation fees, and the $2.9 million in
initial spare parts that currently are not in the Company's
authorized rate base and do not earn a return and the
associated net tax expense . . . . The first regulatory asset
will continue to be in rate base and earn a return like the
current treatment . . . . The second regulatory asset will not
earn a return. lnstead, the Company will move the
unamortized amount to the first regulatory asset in equal
installments over ten years, with the first transfer made at
the end of 2016. Once transferred to the first regulatory
asset, the unamortized portion will be included in rate base
in the next general rate case.
While ldaho Power does not contest the first "Rate Based" regulatory asset, the
Company requests reconsideration regarding the accounting treatment of the second
regulatory asset that includes the initiation fees, the $2.9 million in initial spare parts,
and the $1.85 million associated net tax expense.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 5
12. The Company requests the Commission make findings upon
reconsideration that:
o The entirety of the second regulatory asset is eligible for rate base
treatment at the time of the Company's next general rate proceeding;
o Amortization of the second regulatory asset is to begin immediately
over the remaining life of the plant and the then-current annua! amortization expense of
the second regulatory asset will be eligible for recovery in the next genera! rate
proceeding; and
o The Company should transfer unamortized amounts of the second
regulatory asset to the first regulatory asset in equa! installments over ten years,
resulting in an account balance of zero in the second regulatory asset after ten years of
transfers to the first regulatory a5set, taking into account the reduction of the second
regulatory asset due to amortization over the remaining life of the asset.
Rate Base Treatment
13. ldaho Power's Application requested approval to accrue a carrying charge
on the initiation fees, $2.9 million of the initial spare parts, and the net tax expense
because the amounts have not yet been included in the Company's authorized rate
base. Application at 7. lncluded in the second regulatory asset are amounts paid
upfront by ldaho Power to Siemens to contractually obtain cost savings for the
Company and its customers over the life of the agreement. These net cost savings
benefits reflect an offset for the initiation fee paid to secure the contract with Siemens.
The savings are not the result of just the lower future capital maintenance costs to be
performed under the LTP Contract with Siemens; rather, a significant part of those
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 6
future savings that customers and the Company will enjoy are a direct result of the
required upfront payment to Siemens. The overall savings of over $37 mi!!ion, even
with the upfront payment, reflect avoided combustor inspections, access to discounted
parts, and the time value of money recognition by Siemens within the contract.
14. The proposed accounting treatment is similar to the regulatory treatment
ldaho Power regularly receives as the Company makes prudent investments throughout
its service territory to serve its customers. ldaho Power routinely makes investments in
infrastructure to serve customer growth in larger increments to achieve lower overall
cost to serve customers over time. The Commission has considered these investments
to be prudent and eligible for inclusion in the Company's authorized rate base and to be
eligible to earn a return at the time they are placed in service. Likewise, the $2.9 million
of initial spare parts is an investment equivalent to the $19.1 million on initial spare parts
approved for rate base treatment in the first regulatory asset; the only difference is that
ldaho Power has not yet had a general rate proceeding to include the $2.9 million in
initial spare parts in the Company's authorized rate base. Yet, on page 8 of Order No.
33391, the Commission states "[t]he second regulatory asset will not earn a return."
Because this treatment would be contrary to treatment received today, ldaho Power
seeks reconsideration of the regulatory treatment of the second regulatory asset such
that it can earn a return and that it is eligible for rate base treatment at the time of the
Company's next general rate proceeding.
Amortization
15. On page 8 of Order No. 33391, the Commission ordered both regulatory
assets to be amortized over the remaining life of the associated plant. Further, the
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 7
Order stated treatment of the first regulatory asset "will be consistent with current
recovery, and wil! not shift costs to customers prematurely" indicating amortization
expense will simply replace depreciation expense upon execution of the LTP Contract
with Siemens. Order No. 33391 at 8. However, the commencement and recovery of
amortization of the second regulatory asset is unclear. ldaho Power requests the
Commission authorize the Company to begin amortization of the second regulatory
asset immediately and confirm that the then-current annual amortization expense wil! be
eligible for recovery in the Company's next general rate proceeding.
U namoftized Balance Transfers
16. The Commission ordered the Company to move unamortized amounts of
the second regulatory asset to the "first regulatory asset in equal installments over ten
years, with the first transfer made at the end of 2016." Order No. 33391 at 8-9. As
discussed earlier, the Commission also ordered the second regulatory asset to be
amortized over the remaining life of the associated planl. ld. at 6. But, moving an equa!
installment of the second regulatory assets balance each year for ten years is not
straightforward given that at the same time the asset is also being amortized over the
remaining life of the plant. A simple one-tenth approach will create a negative
regulatory asset balance, or a regulatory liability, by year ten. Coincident with the
transfer of equal installments, the regulatory asset is being amortized, further reducing
the account balance over time. ldaho Power seeks authorization from the Commission
to move equal installments of the unamortized portion to bring the account to zero
rather than create a negative balance in the second regulatory asset.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 8
B. The Financial lmpact of Order No. 33391.
17. ldaho Power has quantified the financial impact of Order No. 33391 based
on the Company's interpretation of the accounting treatment authorized by the
Commission and it is substantial. While the Company's proposed accounting treatment
of costs associated with the LTP Contract with Siemens kept ldaho Power earnings
neutra!, the Commission's authorized treatment creates a net present value impact to
shareowners of approximately $3.7 million over the remaining life of the assets, as can
be seen in the confidentialworkpaper (Attachment 1 to Petition for Reconsideration).
18. The primary driver of the financial impact of Order No. 33391 to ldaho
Power is a result of the Company's inability to earn a return on the second regulatory
asset. The Company is concerned Order No. 33391 could result in an immediate
disallowance of amounts that would have otherwise been included in rates. Accounting
Standards Codification 980 provides that when a regulator excludes from rate base a
portion of plant, the entity must record the present value loss associated with the
disallowed return on investment-referred to as an indirect disallowance. The
Company is also evaluating whether the delay associated with receiving a return on the
second regulatory asset has indirect disallowance implications. In the worst case
scenario, this disallowance could be as much as $4.8 million, which represents the
foregone return on the second regulatory asset not immediately eligible for rate base
treatment. The approved accounting treatment in Order No. 33391 could require,
during the year the LTP Contract is executed, a write down of assets, resulting in an
immediate reduction in income for the Company.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 .9
19. lf Order No.33391 is affirmed on reconsideration, the financial harm
resulting from the authorized accounting treatment of the second regulatory asset will
require ldaho Power to seek to mitigate the impact through the renegotiation of the LTP
Contract with Siemens pursuant to the contract's PUC Approval provision, which
requires accounting treatment consistent with the Company's Application or acceptable
to the Company. Application Attachment 1 at 3 and 7. Without amendment, it is
possible the Company will not enter into the LTP Contract with Siemens due to the
exposure to financial risk that it creates. Additionally, amending the contract would
delay execution of a long-term service agreement; thus, potentially requiring the
Company to perform plant maintenance outside of the contract with Siemens.
20. Although renegotiation of the LTP Contract may still result in cost savings
to customers over time, the delay would require significant immediate investments-
costs that wi!! ultimately be passed on to customers. Over the next two years, under
continued self-management of the Langley Gulch and Bennett Mountain power plants,
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 1O
ldaho Power estimates capital investments of $21.7 million that would, under normal
circumstances, be eligible for inclusion in the Company's authorized rate base in the
next general rate proceeding. Under the LTP Contract, including all of the initiation fee
payment, the estimated capital investment for the same capital maintenance activity for
the Langley Gulch and Bennett Mountain power plants is nearly equivalent. However,
the LTP Contract includes a $6 million payment lag to Siemens of approximately one
year compared to the self-management option. This is one example that illustrates the
value to customers of the upfront payment under the LTP Contract as written.
21. Commission Rule of Procedure 331 requires that ldaho Power state the
nature and extent of evidence or argument it will present or offer if reconsideration is
granted. ldaho Power believes that the evidentiary record could be augmented by
written comments or oral argument at the discretion of the Commission, and the
Company is prepared to do so.
ilt. coNcLusroN
22. ldaho Power requests reconsideration of the accounting treatment
authorized by Order No. 33391. The Company requested a carrying charge on the
upfront expenditures because those expenditures result in future benefits to customers.
However, under the accounting treatment authorized, the Company will not be allowed
a carrying charge and also will not be eligible to earn a return on its investment when it
is placed in service in the next general rate proceeding. lt is also unclear if the
Company will be eligible to recover the amortization expense associated with the
investment.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 11
23. Therefore, ldaho Power requests that the Commission reconsider Order
No. 33391 and authorize the Company (1) to include the unamortized balance in the
second regulatory asset in rate base during the Company's next general rate
proceeding, (2) to begin amortization of the second regulatory asset immediately and
include the amortization expense for recovery in the Company's next general rate
proceeding, and (3) to move equal installments of the unamortized portion of the second
regulatory asset to the first regulatory asset to bring the account to zero over ten years.
ldaho Power believes this treatment is consistent with the Commission's treatment of
other plant related expenditures and will eliminate financial disincentives for the
Company to reduce costs over the long term.
Respectfully submitted this 26th day of October 2015.
IDAHO POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 12
Attorney for ldaho Power Company
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 26th day of October 20151 served a true and
correct copy of IDAHO POWER COMPANY'S REDACTED PETITION FOR
RECONSIDERATION OF ORDER NO. 33391 upon the following named parties by the
method indicated below, and addressed to the following:
Commission Staff
KarlT. Klein
Deputy Attorney General
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
lndustrial Customerc 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 POWER COMPANY'S REDACTED PETITION
FOR RECONSIDERATION OF ORDER NO. 33391 - 13
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BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
GASE NO. !PC-E-15-17
IDAHO POWER COMPANY
ATTAGHMENT 1
THE ATTACHMENT IS
GONFIDENTIAL
AND WI LL BE PROVIDED
TO THOSE PARTIES THAT
HAVE SIGNED THE
PROTECTIVE
AGREEMENT