20160803final_order_no_33561.pdf

Office of the Secretary
Service Date
August 3, 2016
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER'S )
COMPLIANCE FILING REQUEST ) CASE NO. IPC-E-16-06
FOLLOWING THE COMMISSION'S PRIOR )
APPROVAL FOR THE COMPANY TO )
EXCHANGE CERTAIN TRANSMISSION ) ORDER NO. 33561
_A_S_S_E_T_S_W_IT_H_P_A_C_IF_I_C_O_R_P ______ )
In December 2014, PacifiCorp dba Rocky Mountain Power and Pacific Power
(collectively "PacifiCorp") and Idaho Power Company filed a joint Application asking the
Commission to approve the exchange of certain transmission assets. The Commission granted
the Utilities' Application in June 2015, in Case Nos. IPC-E-14-41 and PAC-E-14-11, and
directed the Utilities to establish regulatory deferral accounts for transmission revenues resulting
from the transaction and the resulting changes in the Utilities' OATT rates. Order No. 33313. In
February 2016, Idaho Power made a compliance filing asking the Commission to approve its
treatment of Idaho Power's deferral account, given the subsequent (and unexpected) denial by
the Federal Energy Regulatory Commission (FERC) of the Company's petition for a one-time
adjustment to its transmission formula rate. Compliance Filing at 5-7, citing "OATT Rate
Order," 153 FERC § 61,212 (2015).
The Commission issued a Notice of Application and Notice of Modified Procedure in
April 2016. Order No. 33500. The Industrial Customers of Idaho Power filed a Petition to
Intervene, which the Commission granted. Order No. 33510. Commission Staff timely filed the
only written comments received by the Commission. In light of the complexities in the case,
Idaho Power requested additional time to file its reply, to which no parties objected. The
Commission extended the reply deadline, and Idaho Power timely filed its reply on July 1, 2016.
The Commission now issues its decision as follows.
BACKGROUND
Over the past 40 years, Idaho Power and PacifiCorp entered into a number of
agreements (generally referred to as "Legacy Agreements") through which they jointly own and
operate the Jim Bridger power plant and associated transmission assets. In October 2014, Idaho
Power and PacifiCorp entered into a Joint Purchase and Sale Agreement (JPSA) and a Joint
Ownership and Operating Agreement (JOOA) to largely replace or amend three prior Legacy
ORDER NO. 33561 1
Transmission Agreements. The agreements addressed inefficiencies caused by changes in "the
regulatory landscape . . . load growth, and investments in system upgrades" by exchanging
assets, and reallocating ownership interests and operational responsibilities. Application at 2-3
in Case No. IPC-E-14-41.
The "changes in the regulatory landscape" included the "advent of [FERC] open­
access policies." Duvall Direct at 4, Case No. PAC-E-14-11. FERC's open access policies were
initiated in 1996, under FERC Order No. 888, which require public utilities to provide open
access transmission service on a comparable basis to the transmission service they provide
themselves (i.e., non-discriminatory access). 61 Fed.Reg. 21540, 21541. Order No. 888 requires
electric utilities providing transmission services to file an Open Access Transmission Tariff
(OATT) with "minimum terms and conditions of non-discriminatory service." Id.
In June 2015, the Commission granted Idaho Power and PacifiCorp's application to
approve their exchange of transmission assets. Order No. 33313. As part of the Order, the
Commission directed the Utilities to establish regulatory deferral accounts for revenues resulting
from the transmission assets exchange and the resulting changes in the Utilities' OATT rates.
The parties in that case anticipated that the transaction would result in an increase in Idaho
Power's OATT rate, upon the Company's request to FERC for a one-time adjustment to its
transmission formula rate calculation. However, FERC denied Idaho Power's request.
Idaho Power's transmission formula rate is updated each year and is in effect for the
following October 1 through September 30. Compliance Filing at 5. The transmission formula
rate calculation uses actual costs from the previous calendar year ending December 31. Id. at 5-
6. The calculation's "load divisor" accounts for all long-term firm demands on Idaho Power's
transmission system, which include contract demand. Id. Contract demand input for the
transmission formula rate calculation uses a rolling 12-month average of the transmission system
peak. Id.
Idaho Power states that it petitioned FERC to adjust the contract demand input in its
transmission formula rate load divisor to reflect actual contract demands on its transmission
system, which no longer include the now-terminated Legacy Agreements. Id. However, because
Idaho Power's formula rate is backward-looking rather than forward-looking, FERC determined
the formula rate did not allow the adjustment, and denied the Company's petition. Id.; see
"OATT Rate Order," 153 FERC § 61,212 (2015).
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According to Idaho Power, the effect of FERC' s Order "will delay the full realization
of increased OATT-related revenues resulting from termination of the Legacy Agreements until
October 1, 2017." Id. at 7. Consequently, Idaho Power proposes including transmission revenue
decreases as well as increases in its regulatory deferral account that the Commission directed the
Company to establish in its Order approving the asset exchange.
THE COMPLIANCE FILING
In its Compliance Filing, the Company provided an updated revenue analysis. Idaho
Power stated that the net result of FERC's Order denying the Company's requested increase in
OATT rate calculation is a $1.1 million decrease in Idaho Power's transmission revenues in
2015, thus creating a regulatory liability balance. Compliance Filing at 10. Idaho Power
anticipates that its total cumulative transmission revenue will decrease over the next three years
before turning positive in 2019. Id. Idaho Power seeks approval from the Commission
confirming that its proposed accounting treatment, in light of FERC' s ruling and the impacts
therefrom, complies with Order No. 33313. The Company is not requesting any rate increase as
a result of this filing.
STAFF COMMENTS
Staff recommended denying Idaho Power's proposed accounting from the 2014 asset
exchange matter. Staff believes Idaho Power's proposal does not comply with the Commission's
intent in final Order No. 33313.
A. Deferral Accounting from the Asset Exchange
Staff noted that the Commission's approval ofldaho Power's asset exchange in Order
No. 33313 "only discussed the financial benefits and the treatment of the anticipated financial
benefits during future general rate cases and, eventually, a revised Power Cost Adjustment
(PCA) methodology." Comments at 2-3. In its application for approval of the asset exchange,
Idaho Power did not request, thus Staff did not address, "[s]ymmetrical tracking of transmission
revenue increases or decreases." Id. Specifically, the Company "made no recommendation in its
original application to defer [transmission revenue] losses for recovery from retail customers."
Id. at 3.
Upon its review of the Company's working papers and supporting spreadsheets, Staff
accepted the Company's calculations and believes that the forecasted revenues are reasonable.
Id. at 4. However, Staff does not support Idaho Power's request to include in the deferral
ORDER NO. 33561 3
account, the negative cumulative differences in total transmission revenue, resulting from the
asset exchange. Staff noted that, in the asset exchange case, the Company "did not provide
estimates of potential financial consequences in the event of a FERC denial." Id. at 5.
If the Commission approves Idaho Power's request and includes the decrease rn
transmission revenues in the deferral account, then Staff believes the Company's accounting
information "is a reasonable starting point." Id. In that circumstance, Staff recommended "that
the Company be required to recognize, as a credit to the deferral account, the annual
amortization amount approved in Case No. IPC-E-12-06, Order No. 32540." Id.
B. Amortization of Transmission Revenue Losses from Prior FERC Proceeding
Idaho Power "sought and received deferral and amortization through customer rates
of transmission revenue losses." Id. at 3; see Order No. 30940 (Case No. IPC-E-09-21, re:
deferring transmission service costs), and Order No. 32540 (Case No. IPC-E-12-06, re:
amortizing amounts in deferral account). Although the deferral balance was fully recovered in
2015, amortization of that deferral balance is still embedded in retail rates. Comments at 3. In
its Order from Case No. IPC-E-12-06, "the Commission allowed the Company to increase rates
to amortize transmission costs in the deferral account over a 3-year period . . . [which] ended
June 1, 2015." Id.; Order No. 32540. Staff proposes that the amortization amount, already in
rates from the 2012 case, should be credited to the deferral account from the asset exchange. Id.
C. Staff Recommendations
In summary, Staff recommended: (1) that the Commission clarify that the deferral
account should only reflect revenue increases caused by a new OATT rate; or (2) if the
Commission intended symmetrical tracking of increases and decreases in transmission revenues
from the asset exchange, that the unrecovered transmission revenues previously-approved in
rates be credited to the deferral account.
COMPANY'S REPLY
A. OATT Rate Adjustment
According to Idaho Power, it notified the Commission in the 2014 asset exchange
case, "of the potential that the Company would initially experience a decrease in transmission
revenues" and that the period of decrease would be longer if FERC denied its request to adjust
the inputs to its transmission formula rate. Reply at 6. However, Idaho Power maintained that
ORDER NO. 33561 4
the near-term loss of the asset exchange would be "more than offset by the gain over the long
run." Id. at 7.
B. Emphasis on Long-Term Gains
Idaho Power emphasized that its pursuit of the asset exchange reflects its
"commitment to making business decisions that benefit its customers in the long term." Id. at 7.
The Company noted it anticipated that benefits from the exchange would "be reflected in lower
retail rates and associated revenues once they are included in [Idaho Power's] next general retail
rate cases." Id. at 7-8.
Idaho Power indicated it "agrees with Staff that losses associated with the transaction
should not be borne by retail customers," and stressed that it never intended for the transaction to
result in an increase to customer rates. Id. at 8. But according to Idaho Power, Staff's approach
in this matter would "create a financial disincentive for the Company to reduce costs to
customers over the long term." Id. at 13.
C. Symmetrical Tracking
Idaho Power asserted that Staff's recommendation to track only positive changes in
transmission revenues resulting from the change in the OA TT rate is unjust. Id. at 11.
According to the Company, Staff's proposal to recognize only one, and not all, components of
transmission revenues that are affected by the asset exchange is "contrary to traditional
ratemaking practice" and "the Commission's long-standing treatment of costs and benefits." Id.
at 11, 13. The Company highlighted that transmission revenues (including long-term point-to­
point revenues and network transmission service revenues) increased as a result of the
transaction notwithstanding the outcome of its petition to FERC to adjust inputs to its OATT rate
calculation. Id. at 12.
The Company asked that the Commission "at a minimum," eliminate the requirement
to track and record changes in transmission revenues from the asset exchange, "and instead
address the changes at the time the Company files its next general rate case." Id. In such
circumstance, Idaho Power would be able to "incorporate the net impact of changes in
transmission revenues to retail customers' revenue requirement amounts." Id.
D. Prior Amortization Expense
Finally, Idaho Power objected to Staff's recommendation to offset deferral amounts
with the amortization expense approved in Order No. 32540 (Case No. IPC-E-12-06). Id. at 13.
ORDER NO. 33561 5
The Company agreed with Staff that the amounts included in the 2009 deferral account were
associated with a forecasted OATT transmission formula rate that was overstated. Id. But the
Company believes those amounts "are not components of the Company's transmission revenues
that are changing as a result of the transaction with PacifiCorp." Id. at 14-15. The Company
contended that those amortization amounts are unrelated to the asset exchange, thus it is
inappropriate to include them in the proposed deferral; they should instead be dealt with in Idaho
Power's next general rate case. Id. at 15.
E. Request for Relief
The Company argued that, for a fair outcome in this matter, the Commission should
either: ( 1) approve its proposal that tracking both the increases and decreases in transmission
revenues resulting from the transaction complies with Order No. 33313; or (2) eliminate the
requirement from Order No. 33313 to track and record any changes in transmission revenues
resulting from the transaction, and instead address all changes to transmission revenues at the
time Idaho Power files its next general rate case. Reply at 1-2.
DISCUSSION AND FINDINGS
We have thoroughly reviewed the record in this matter, including the Staff's and
Company's filings, as well as our Order No. 33313 from the asset exchange case in 2014. In the
asset exchange case, we found it "appropriate and direct[ed] Idaho Power to establish a
regulatory deferral account for transmission revenues resulting specifically from the transaction
and its resulting change in the OATT rates." Order No. 33313 at 13. As reflected in the record,
Idaho Power's asset exchange with PacifiCorp was and is overseen by both state and federal
regulatory authorities. This shared jurisdiction over the Utilities' interstate transmission assets
involves many complex moving parts and timing considerations. In 2015, FERC denied Idaho
Power's request -made as a result of the asset exchange -for a one-time adjustment to input for
the Company's OATT rate calculation.
In light of changed circumstances based on FERC' s ruling, and after consideration of
the issues raised by Idaho Power and Staff, we find it appropriate and reasonable to address the
change in transmission revenues from the asset exchange in Idaho Power's next rate case.
Transmission OA TT rates and Idaho Power transmission revenues will be better known at the
time of the next general rate case when the impact of the exchange can be seen. Therefore, no
ORDER NO. 33561 6
deferral is required or authorized and potential offsets need not be determined at this time. Idaho
Power will bear the risk of its decisions and timing of FERC and state filings.
We affirm the asset transfer agreement between Idaho Power and PacifiCorp.
However, we eliminate the requirement from Order No. 33313 that Idaho Power establish a
regulatory deferral account. Any changes in transmission revenues resulting from the asset
exchange will be addressed, prospectively, in Idaho Power's next general rate case.
ORDER
IT IS HEREBY ORDERED that Idaho Power's request for approval of its
accounting treatment from Order No. 33313 is denied.
IT IS FURTHER ORDERED that Order No. 33313 is amended to eliminate the
requirement that Idaho Power establish a regulatory deferral account for changes in OATT
transmission rates resulting from the asset exchange.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
ORDER NO. 33561 7
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of August 2016.
ATTEST:
J n D. Jewell
=ion Secretary
O:IPC-E-16-06_djh2
ORDER NO. 33561
PAULK
RIC ANDERSON, COMMISSIONER
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