20131115Post Hearing Brief.pdf

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Peter J. Richardson
ISB No. 3195
Gregory M. Adams
ISB No. 7454
Richardson Adams, PLLC
515 N. 27tr Street
Boise,ldaho 83616
Telephone: [phone]
Fax: [phone]
Attorneys for the Industrial Customers of ldaho Power
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY'S APPLICATION FOR A ) CaSp NO. IpC-E-13-16
CERTIFICATE OF PUBLIC CONVENIENCE )AND NECESSITY FOR THE INVESTMENT ) POST HEARTNG BRIEF OF THEIN SELECTIVE CATALYTIC REDUCTION ) N.TOUSTRI,AL CUSTOMERSCONTROLS ON JIM BRIDGER UNITS 3 AND) OF IDAHO pOWER4)
)
COMES NOW, the Industrial Customers of ldaho Power, and pursuant to the briefing
schedule adopted by the Commission in this matter hereby provides its Post Hearing Brief on the
sole issue of the applicability of ldaho Code Section 6l-541.
THE APPLICATION
Idaho Power asked the Commission to, for just the second time in the statute's history,
invoke Idaho Code Section 6l-541 and issue a "Binding Ratemaking Treatment" order in
connection with the Company's proposed Jim Bridger Plant environmental upgrades.' Idaho
Code Section 6l-541 provides, in relevant part, that:
I ldaho Power Application ("Application") at 8 - I l.
(2) A public utility that proposes to construct, lease or purchase an electric generation or
transmission facility, or make major additions to an electric generation or transmission
facility, may file an application with the commission for an order specifying in advance
the ratemaking treatments that shall apply when the costs of the proposed facility are
included in rates.
3(c) The ratemaking treatments specified in the order issued under this section shall be
binding in any subsequent commission proceedings regarding the proposed facility that is
the subject of the order, except as may otherwise be established by law.
The statute would tie the hands of future Commissions requiring them to put up to the entire
commitment estimate for the Bridger upgrades into rates. According to Idaho Power's
Application, it seeks an order from the Commission that:
Pursuant to Idaho Code $ 6l-541, the Commission provides ldaho Power with
authorization and a binding commitment to provide rate base treatment for the
Company's capital investment in SCR controls at Jim Bridger Unites 3 and 4 and related
facilities up to the amount of the $129,837,393 Commitment Estimate at such time the
plant is placed into operation. 2
The Application for Binding Ratemaking Treatment presents this Commission with several
troubling policy and legal issues. For the reasons stated below, the ICIP urges rejection of Idaho
Power's proposed Binding Ratemaking Treatment because it is not only bad public policy but is
based on questionable legal foundations.
BTNDING RATEMAKING TREATMENT IS BAD PUBLIC POLICY
According to the Company's Application, "Ms. Grow explains recent social, political and
regulatory events . . . prompted the Company to make this filing."3 Although Ms. Grow did not
reference any specific ldaho regulatory event prompting the Company's unusual ratemaking
treatment request, she did mention political and social reasons:
The Company is requesting a CPCN and binding ratemaking treatment under ldaho Code
2 Id. at 12.
3 Id. atB.
Post Hearing Legal Briefolthe ICIP
$ 6l-541 for the SCR investment because of the magnitude of the investment, the
uncertainty surrounding coal-fired generation in today's political and social environment,
and the amount of interest expressed by stakeholders.a
The Company's reference to social and political uncertainty is understandably centered
on a concern that coal plant investments may become obsolete before the expected useful
economic life of that investment. This focus manifests in Ms. Grow's testimony pointing out
that:
Members of the IRPAC fintegrated Resource Plan Advisory Council] representing the
Idaho Conservation League and Boise State University suggested an additional resource
portfolio which eliminated the Company's involvement in all of its coal-fired generation
plants be included and analyzed as part of the 2013 IRP.5
Thus, the Company's motivation in seeking Binding Ratemaking Treatment is that its coal plants
may be eliminated as a resource providing electric service to Idaho Power's ratepayers. Under
traditional ratemaking, were that to happen the coal plants would cease being used and useful.
They would therefore be subject to disallowance in future ratemaking proceedings.
On cross examination company witnesses Grow and Youngblood acknowledged that,
were the Bridger Plant to be closed, the ratepayers would still be obligated to continue paying for
this new investment if their Binding Ratemaking Treatment is adopted.6 Forcing ratepayers to
pay for a phantom plant, one that does not provide electric service, is bad public policy. The
Idaho Supreme Court has ruled that including nonoperative property in rates would "make a
farce of utility regulation:"7
Where the evidence shows that property is nonoperative, it surely cannot be the law that
the Commission must include the value of such property with that which is used and
o Grow, DI at 15.
s Id. at lg.
6 Tr. at 46,249.
7 Boise Artesian Water Co. v. Public Utilities Commission 40 Idaho 690, 236 P.2d 525, 529
(ldaho 1925)
Post Hearing Legal Brief of the ICIP
useful, because to do otherwise would constitute an interference with the managerial
functions of the company. Whatever powers or functions may be possessed by the
owners or managers of a utility, which may not be interfered with by a Commission,
users cannot be required to pay a return on property which the Commission has found on
sufficient evidence is nonoperative. To hold otherwise would make a farce of utility
regulation.8
As Dr. Reading pointed out in his testimony, it may be good shareholder policy, but it is bad
public poli"y.n Dr. Reading further testified that approval of the shareholder-centric 'Binding
Ratemaking Treatment' shifts the risk of the potential obselence of this investment in the
company's coal fleet from the shareholders to the ratepayers. The appropriate ratemaking
response to Binding Ratemaking Treatment should therefore result in a rate of return of only a
fraction of the company's overall rate of return to account for the reduced business risk.l0
Company witness Youngblood testified as to Idaho Power's goal:
By filing its application, the Company intended to provide the Commission with the
ability to evaluate whether this investment is economically, socially, and politically
prudent, and in the best interest of the Company and its customers, before the investment
is made.ll
It is not necessary to grant the Company Binding Ratemaking Treatment in order to
accomplish ldaho Power's stated goal. The grant of a certificate of convenience and necessity
("CPCN") provides the Company with more than adequate assurance of recovery while still
affording a modicum of protection to the ratepayers in the form of a prudence review when the
plant enters service to the public. For example the following language from the Commission's
order granting ldaho Power its CPCN for the Swan Falls hydro facility is typical:
By this Order we authorize Idaho Power Company to rebuild the Swan Falls
hydroelectric facility. We accept its offer of a cap for the cost of the rebuild that can be
passed on to ratepayers. We further recognize that, in the ordinary course of events, the
88 /d, emphasis provided.
e Reading, Di at 7 .
to Id. at 10.rr Youngblood, Reb at 8.
Post Hearing Legal Brief olthe ICIP
Company will be allowed to recover in its revenue requirement its prudently incurred
investment and expenses of the Swan Falls rebuild.''
But a CPCN is not a guarantee, nor should it become a guarantee if the Commission is to
meet its dual obligations of protecting ratepayers and allowing the utility monopoly an
opportunity to earn a fair return for its shareholders. In the same Swan Falls order quoted above,
the Commission admonished:
When the Commission authorizes construction of new generation, it has not as a matter
of law authorized the utility to recover from ratepayers whatever costs are invested in the
new generation under all circumstances whatsoever. The regulatory compact is not so
one-sided.l3
Here, Idaho Power is asking the Commission to allow ldaho Power to recover up to its
commitment estimate "under all circumstances whatsoever." One alternative solution the
Commission may consider is to utilize the flexibility built into ldaho Code $ 6l-541to condition
future recovery of the investment in the SCR on the continued used and useful status of the
Bridger units without the need for additional ratepayer funded upgrades. The statute clearly
contemplates conditional Binding Ratemaking. Section 4 provides:
Based upon the hearing record, the commission shall issue an order that addresses the
proposed ratemaking treatments. The Commission may accept. deny or modify a
proposed ratemaking treatment requested by the utility. In determining the proposed
ratemaking treatments, the commission shall maintain a fair. just and reasonable balance
of interests between the requesting utility and the utility's ratepayers.
Binding Ratemaking Treatment, as requested by Idaho Power, includes binding the ratepayers to
the SCR investment even if the Bridger Plant is mothballed or requires even more costly
pollution controls in the near future that would have rendered the current upgrades uneconomic.
That is not a "reasonable balance of interests" between the utility and its ratepayers. The
'' OrderNo.23520 at l.
t3 Id. at 19.
Post Hearing Legal Brief of the ICIP
ratepayers would have no ability whatsoever to seek redress from these costs in the event these
coal plants are shuttered.
..THE REGULATORY COMPACT IS NOT THAT ONE-SIDED"
The Idaho Public Utilities Commission is a legislative body when it sets rates.ra As a
general rule legislative bodies may not reach into the future and bind future legislative bodies.
This concept is known as the 'reseryed powers doctrine' or the 'rule against legislative
entrenchment' which provides that no legislature may legitimately pass a law that prohibits its
amendment or repeal by later legislatures. The exception to this rule is when the legislative body
enters into a contract that is binding into the future beyond the life of the initial legislative body.
However, the legislative intent in entering into the contract under the modern unmistakability
doctrine must be clear. The United States Supreme Court's discussion of this issue in US. v.
Winstar Crop. is instructive:
[A]lthough we have recognized that "a general law. . . may be repealed, amended or
disregarded by the legislature which enacted it," and "is not binding upon any subsequent
legislature . . . the principle has always lived in some tension with the constitutionally
created potential for a legislature, under certain circumstances, to place effective limits on
its successors, or to authorize executive action resulting in such a limitation.
The impetus for the modern unmistakability doctrine was thus Chief Justice Marshall's
application of the Contract Clause to public contracts. Although that Clause made it
possible for state legislatures to bind their successors by entering into contracts, it soon
became apparent that such contracts could become a threat to the sovereign
responsibilities of state governments. ls
Thus, when this Commission acts in its legislative rate setting function it, may bind future
commissions by contract but only to the extent such contract does not become a "threat to the
ta Application of (Itah Power & Light Co. 107 ldaho 446,448-449,690 P.2d 901, 903-904
(ldaho 1984)
't U.S. v. Winstar Corp.,5l8 U.S. 839, 873 -874,1l6 S.Ct. 2432,2454,135 L.Edzd964 (1996)
Post Hearing Legal Briefofthe ICIP
sovereign responsibilities" of the State of ldaho acting through its public utilities commission.
There is no bright line test for determining whether a particular contract impugns on the state's
sovereign responsibilities. The Court in Winstar explained:
The application of the doctrine will therefore differ according to the different kinds of
obligations the Government may assume and the consequences of enforcing them. At
one end of the spectrum are claims for enforcement of contractual obligations that could
not be recognized without effectively limiting sovereign authority, such as a claim for
rebate under an agreement for a tax exemption. Granting the rebate, like enjoining
enforcement, would simply block the exercise of the taxing power, . . .and the
unmistakability doctrine would have to be satisfied. At the other end are contracts, say,
to buy food for the army; no sovereign power is limited by the Government's promise to
purchase and a claim for damages implies no such limitation. That is why no one would
seriously contend that enforcement of humdrum supply contracts might be subject to the
unmistakability doctrine. Between these extremes lies an enormous variety of contracts
including those under which performance will require exercise (or not) of a power
peculiar to the Government.ro
Although it is clear granting Binding Ratemaking Treatment is a waiver of the State of
Idaho's sovereign power to regulate state sanctioned monopolies, whether that grant to ldaho
Power satisfies the unmistakability doctrine is not clear. Indeed, it may well run afoul of the
reserved powers doctrine. The Commission should therefore proceed with utmost caution lest it
create needless litigation and uncertainty for subsequent commissions. Fortunately, the solution
is at hand today because the Commission may, under $61-541 , simply issue a CPCN similar to
its Swan Falls CPCN order and not issue an order with a Binding Ratemaking commitment.
DATED this l5th day of November, 2013.
Richardson Adams, P LLP
-,P,fu^,?,M- FJ., t E"[uEion
Attorney for the Industrial Customers
of ldaho Power
'6 Id. 88o,l16 s.ct. at2457 -2458.
Post Hearing Legal Briefofthe lClP
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the l5th day of November, 2013, a true and correct copy of
the within and foregoing POST HEARING LEGAL BRIEF OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER, Case No. IPC-E-13-16, was served as noted below, to:
Lisa D. Nordstrom
Idaho Power Company
l22l West ldaho Street (83702)
PO Box 70
Boise, Idaho 837 07 -007 0
Via E-mail: [e-mail]
Hand Delivery
Jennifer Reinhardt-Tesser
Idaho Power Company
l22l West ldaho Street (83702)
PO Box 70
Boise, Idaho 83707-0070
Via E-mail: [e-mail]
Hand Delivery
Kris Sasser
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Via E-mail: kris.sasser@puc. idaho.gov
Hand Delivery
Benjamin J. Otto
Idaho Conservation League
710 N. Sixth Street
Boise, Idaho 83702
Via E-mail: [e-mail]
Ken Miller
Snake River Alliance
PO Box 1731
Boise, Idaho 83701
Via E-mai I : km i I ler@.snakeri veral I iance.org
Dean J. Miller
McDevitt & Miller LLP
420 West Bannock Street . /1 A ^ -Jj
??iT:rlil",ffi.r.",,,-r",. rurtis, Legat Assistant
Post Hearing Legal Brief of the ICIP