20131115Post Hearing Brief.pdf

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McDevitt & Miller LLP
Lawyerc :'',i: liUI
420 West Bannock Stggt,
P.O. Box 2564-83?0i; : i :
Boise,Idaho 83702
Chas. F. McDevitt
DeanJ. (oe) Miller
Celeste trL Millet
ll.r f';i l:21
Novembet 75,2073
Via llaadDelivery
JeanJewelt Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise,Idaho 83720
Re: IPC-E-fi-16-SnakeRiverAlliance
Deat Ms.Jewell:
Enclosed for filing, please find an origlnal and seven (7) copies of Snake River Alliance's Post
Heating Btief.
Kindly retum a file stamped copy to me
DJM/hh
Encl.
Very Truly Yours,
McDevitt & Millet LLP
UA\l,[/-
DeanJ. Millet
ORIGINAL
Dean J. Miller (ISB No. 1968)
chas. F. McDevitt (ISB No. 835)
Celeste K. Miller (SB No. 2590)
McDEVITT & MILLERLLP
420 West Bannock Street
P.O. Box 2564-83707
Boise, D 83702
Tel: [phone]
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chas@mcdevitt-miller. com
ck@mcdevitt-miller. com
Attorneysfor the Snake River Alliance
IN TTIE MATTER OF IDAHO POWEI\
COMPANY'S APPLICATION FOR A
CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY FOR
TTIE INVESTMENT IN SELECTIVE
CATALYTIC REDUCTION CONTROLS
ON JIM BRIDGER UMTS 3 AND 4
na t--r lrnt-,
;i." :i !-,: -,,.,._ir.-
BEFORE TI{E IDAHO PUBLIC UTILITIES COMMISSION
Case No. IPC-E-13-16
POST IMARING BRIEF
OF SNAKE RTVER ALLIANCE
Pursuant to the Commission's Revised Notice, Order No. 32912 dated October 24,2013,
the Snake River Alliance ("SRA" or "Alliance") respectfrrlly submits this Legal Brief. This Brief
supports the Alliance's recommendation for the Commission's decision which is: If a certificate
of public convenience and necessity is issued, it should include the conditions that (1) the
Commission does not make a finding as to the prudence of the proposed investrnents; (2) the
Commission does not make a binding ratemaking commitnent.
POSTHEARING BRIEF OF SNAKE RTVERALLIANCE-I
ARGUMENT
A. The Evidence at Hearing.
To put the following legal argument in context, and as will be discussed in more detail
below, two primary evidentiary facts emerged from the testimony at the November 7,2013,
technical hearing:
First, there is substantial political and regulatory uncertainty with associated economic
risk regarding coal-fired electric generation. No party disputed this fact and there is no evidence
pointing to a contrary conclusion.
Second, binding ratemaking teatnent under Idaho Code $61-541 is not necessary or
required in order to finance the proposed investments. Although Company witnesses made
generalized and unpersuasive assertions to the contrary, the preponderance of evidence supports
a finding to this effect.
B. The Statutes.
The statutory provisions goveming the Commission's decision are Idaho Code $61-526
and $61-528, relating to Certificates of Public Convenience ("CPCN"), and $61-541, relating to
binding ratemaking treatment. I
C. A CPCN is a Flexible Document That Can be Tailored to the Facts of Particular
Cases.
Idaho Code $61-526 and $61-528 were part of Idaho's original public utility law adopted
in l9l3 and they reflect the now archaic approach to statutory drafting corlmon at the time.
Most critical to this case, however, is the final phrase of Idaho Code $61-528 which provides that
in granting a CPCN, the Commission "...may attach to the exercise of the rights by said
I For convenience, the text of Idaho Code $$61-526,528 and 541 is attached as Exhibit A.
POST HEARING BRIEF OF SNAKE RTVERALLIANCE-2
certificate such terms and conditions as in its judgment the public convenience and necessity may
require " (emphasis added).
This phrase necessarily implies that a CPCN does not have a fixed legal meaning,
applicable to all cases, but by adding terms and conditions, the Commission may tailor a CPCN
to the facts of particular cases. So, at one end of the spectrum a CPCN could merely constitute an
acknowledgement that the proposed investments are in facilities of a type consistent with Idaho
Power's electic utility business (as opposed, say, to investments in pork belly futures or wagers
on Boise State football games). A CPCN thus conditioned would not carry with it a finding of
prudence or an assurance of any particular ratemaking treatment. This could be viewed as a
"weak" CPCN. At the other end of the spectrum a CPCN could carry it with as a term or
condition a finding of prudence and an assurance of future ratemaking treatment under Idaho
Code $61-541. This could be viewed as a "strong" CPCN.
Commission precedent supports the view that a CPCN is a flexible document and may
carry with it a range of conditions ranging from weak to strong. In the early 1990's, in a series
of cases, IPCo applied for CPCNs and ratemaking assurances in conjunction with FERC
relicensing of its Snake River hydroelectric projects. In the first of those cases, Milner and Swan
Falls, the Commission solicited comments on the rate implications of granting a CPCN and
concluded that a CPCN does not have a fixed meaning for all cases and the degree of rate
assurance can vary with the circumstances of each case:
"Indeed, it would be unwise to attempt a "bright line" definition of the rate
implications of a certificate of public convenience and necessity. Idaho Power's
projects can and do vary dramatically. The risk inherent in constructing a coal-
fired or nuclear facility are greater in magnitude than those involved in
construction of Snake River hydro." Order No. 23529, P9.25, Case No. IPC-E-
90-08 (Milner).
POST I{EARING BRIEF OF SNAKE RIVER ALLIANCE.3
"It should be made clear, however, that the Commission has not adopted for all
future cases a fixed or binding definition of the legal effect of a certificate of
public convenience and necessity." Order No. 23520, Miller Concurring,PE.2,
Case No. IPC-E-90-02 (Swan Fatls).
The foregoing demonstrates the Commission has ample legal authority to include within
a CPCN the conditions recommended by the Alliance.
D. Idaho Code S6f-541 is Intended to Reduce Financial Risk of Major
Investments, not Insulate from Regulatory or Political Risk
Section $61-541 was added by the Legislature to the public utility law in 2009. S.L. ch.
145, Sec l,p. 436, S 1123. The legislative history associated with S 1123 makes it clear that the
central purpose of the act was to facilitate financing of major transmission or generation projects.
The Statement of Purpose accompanyrng S 1123 provided in part:
"At a time when financial markets are risk averse and utilities are embarking on
major transmission and generation projects to serve growing loads, this legislation
helps provide the stability necessary to athact investors at a more reasonable cost
of capital...It also provides additional surety to capital markets that utility
expenditures are prudent and pose less risk of financial loss."'
Legislative testimony by proponents of S 1123 confirms this central purpose.3
Since the enactment of Section 6l-541, the Commission has assured binding ratemaking
treatment on only one occasion-in connection with the Langley Gulch generating facility. Case
No. IPC-E-09-03, Order No. 30892. The circumstances surroundingLangley, however, were
much different from the circumstances of the present case. In 2009, the general economy was
poor and financial markets were in disarray. In the absence of rate assurances, financing was
unlikely. The size of the financial investrnent relative to IPCo's capitalization was large. The
'A full copy of the Statement of Purpose is attached as Exhibit B.
3 The minutes of the Senate State Affairs Committee of March 24,2OOg is attached as Exhibit C.
POST HEARING BRIEF OF'SNAKE RIVER ALLIANCE-4
time required to construct the project was much longer than that required to install SCR
systems.a
E. The Commission Should Not Use Section 6l-54l to Shift Regulatory and Political
Risk to Ratepayers.
As noted above, the evidence at hearing was clear that binding ratemaking heatment is
not required to secure financing of the proposed investments. Company Witness Youngblood
testified:
"But financing risk is not the primary reason the Company seeks preapproved
ratemaking treatment-the current social and regulatory risk associated with coal-
fired invesfinents is.")
Staff Witness Louis acknowledged on cross-examination that the Company had not made
a compelling case that binding ratemaking fieatment is necessary to secure financing.6
Idaho Power Company is financially healthy, not in financial distress:
*IDACOPJ's third quarter operating results continue to demonstrate the strength
of our underlying operations and we remain on track for a sixth consecutive year
of improved eamings."T
Idaho Power is capable of financing the investments in conjunction with its general
capital budget.s
The evidence was equally clear, and undisputed, that regulatory and political risk of
future environmental regulation may significantly alter the economics of coal fired generation.
For example, the United States Environmental Protection Agency has announced its intention to
a See SRA cross examination of Witness Youngblood, SRA Hearing Exhibit 408.
5 See Youngblood, Reb. Pgs. I 1-12.
6,See SRA cross examination of Witness Louis.
7 SRA Hearing Exhibit 409, IdaCorp Third Quarter Earnings Release.
8 SRA gearing Exhibits 406,407.
POST IMARING BRIEF OF SNAKE RTVER ALLIANCE-s
promulgate rules for carbon pollution reduction for existing power plants to be effective June
20$.e As SRA Witress Miller testified:
o'It is now established by federal court decisions that carbon dioxide (CO2) is
subject to regulation as a pollutant under the Clean Air Act. It is also clear that the
current presidential administration intends to regulate carbon from new and
existing power plants. On September 20,2013, EPA issued proposed New Source
Perfomrance Standard regulations for Greenhouse Gas (GHG) emissions from
new coal plants and stated it would issue proposed rules by June of 2014 for
existing coal-fired power plants. Furthermore, according to the utility trade group
the Edison Electric Institute,
(http ://www3 . eei. ore/meetinss/Meeting%2 0Documents/2 009-06-
22-GCC IntlElecPartnershio-CCStimelineFlNAl03l809.pdfl, the technology to
"capture" and "sequester" CO2 emissions from generating units on the scale of a
utility coal plant has not been deployed, and will not be for a number of years.
That further exposes utilities and their customers to additional unknown risks
from carbon restraints beginning as soon as 2015. Failure to consider the
probability of CO2 controls in the not-too-distant future raises serious questions
about the prudency of making an investnent of this magnifude at this time."l0
The effect of binding ratemaking teatuent under Section 61-541is to irrevocably and
prematurely shift these regulatory risks away from the utility and onto ratepayers. Section 61-
541 is intended to alter the traditional regulatory model and allow pre-construction risk shifting
in only one circumstance-when necessary to obtain project financing. The Commission should
reject the Company's proposal to use Section 6l-541for a purpose not intended by the
legislature.
F. The Company's Evidence Relating to the Evaluation Criteria Contained in Section
61-541 is Wealc
Underscoring the Alliance's legal objections to the use of Section 6l-541in this
circumstance is the fact that the Company's evidence relating to the evaluation criteria in Section
6l-541 is not persuasive.
'SRA Hearing Exhibit 403.
'o SRA Witress Miller, Di. Pg. 8.
POST HEARING BRIEF OF SNAKE RTYERALLIANCE-6
Section (4)(aXi) requires the Commission to consider whether the utility has in effect a
Commission accepted Integrated Resource Plan. It is undisputed that IPCo filed its 2013
Inrtegrated Resource Plan ('IRP") on the same day it frled the present "ase.ll The Commission
has not yet concluded its review of the IRP and has neither acknowledged it nor taken any other
action with respect to it.
Sections (a)(a)(iii) and (iv) require the Commission to determine whether the utility has
considered other sources of long-term supply and the use of energy efficiency, demand side
management and altemative sources. Other recent proceedings make it clear that the
Commission takes this criteria seriously. In Case No. PAC-E-I3-05 the Commission reviewed
PacifiCorp's 2013 Integrated Resource Plan. In OrderNo. 32890, the Commission expressed
skepticism regarding PacifiCorp's over-reliance on coal and under-reliance on alternatives.
Recognizing future uncertainty of environmental requirements, the Commission said:
"In light of this uncertainty, it appears to be in the best interest of the Company
and its customers to continue to evaluate and devote more focus on the
development of alternative energy sources....In futtue IRP and DSM filings, the
Commission directs the Company to present clear and quantifiable metrics
governing its actions regarding decisions to implement or decline to implement
energy efficiency programs". Order No. 32890, Pgs. I l-12.
If Idaho Power has considered other resources as required in these sections, the evidence
of that analysis is not reflected in this Application or direct testimonies from the Company, nor
was it made clear during the course of cross-examination of Company witnesses. The coal
studyr2 introduced by Idaho Power does not show how energy efficiency or any other DSM
measures, let alone renewable energy resources, were analyzed as replacement resources for
u Case No. IPC-E-13-15, filed July 1, 2013.
12 Redacted Exhibit 5.
POST HEARING BRIET' OF' SNAI(E RIVER ALLIANCE-7
some or all of Idaho Power's Bridger resources and therefore the Commission is left with
incomplete information.
CONCLUSION
Based on the reasons and authorities cited herein the Alliance respectfrrlly requests that if
a certificate of public convenience and necessity is issued, it should include the conditions that
(1) the Commission does not make a finding as to the prudence of the proposed investments; (2)
the Commission does not make a binding ratemaking commitnent.
DATED tnis \{ day ofNovember,2013.
MCDEVITT & MILLER, LLP
Attorneys for Snakp River Alliance
POST IMARING BRIEF OF SNAKE RIVERALLIANCE-8
CERTIX'ICATE OF SERVICE
Jean Jewell, Secretary
Idaho Public Utilities Commission
47 2 W est Washington Steet
P.O. Box 83720
Boise,lD 83720-0074
jj ewell@puc. state. id.us
Kris Sasser
Deputy Attomey General
Idaho Public Utilities Commission
472 W, Washington (83 702)
P.O. Box 83720
Boise,ID 83 720-0074
[e-mail]
Lisa D. Nordstrom
Idaho Power Company
l22l V/est Idaho Steet (83702)
P.O. Box 70
Boise,ID 83707
lnordstrom@idahopower. com
Jennifer Reinhardt-Tessmer
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise,lD 83707
i [e-mail]
Beqiamin J. Otto
Idaho Conservation League
710 N. Sixth Street (83702)
PO Box 844
Boise,ID 83701
botto@.idahoconservation. org
I hereby certiff that on tn" lR$uy of Novemb er,20!3,I caused to be served, via the
method(s) indicated below, true and correct copies ofthe foregoing document, upon:
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POST IIEARING BRIEF OF SNAKE RTVER ALLIANCE-g
Peter J. Richardson
Gregory M. Adarns
Richardson & Adams, PLLC
PO Box 7218
Boise,ID 83702
peter@ richardsonandolear.v. com
gre g@richardsonadams. com
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Boise,Idaho 83703
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POST HEARING BRIEF OF SNAKE RIVERALLIANCE.IO
Statutes Page I of I
Idaho Statutes
TITIE 61
PUBI,IC UTILITY REGULATION
CHAPTER 5
POWERS AND DUTIES OF PUBLIC UTILITIES COMMISSION
61--526. CERTIFICATE OF CONVENIENCE AND NECESSITY. No slreet railrOadcorporation, gas corporation, electrical corporation, telephone
corporation or water corporation, shaLL henceforth begin the constructionof a street railroad, or of a line, p1ant, or system or of any extensionof such street railroad, or line, p1ant, or system, without having first
obtained from the commj-ssion a certificate that the present or futurepublic convenj-ence and necessity require or will require suchconstruction: provided, that this section sha1l not be construed torequire such corporation to secure such certificate for an extensionwithin any city or county, within which it sha11 have theretofore lawfully
commenced operation, or for an extension into territory whether within orwithout a city or county, contiguous to its street railroad, or line,plant or system, and not theretofore served by a public utility of ]ike
character, or for an extension within or to territory already served by it
necessary in the ordinary course of its business: and provided further,that if any public utility in constructing or extendinq iLs lines, plant
or system, shall interfere or be about to interfere with the operation ofthe line, plant or system of any other public utility already constructed,or if public convenience and necessity does not reguire or will require
such construction or extension, the commission on complaint of the public
utility claiming to be injuriously affected, or on the commission's ownmotion, ilEly, after hearing, make such order and prescribe such terms and
conditions for the locating or type of the line, plant or system affectedas to it may seem just and reasonable: provided, that power companies may,without such certificate, increase the capacity of their existingt
generatingr plants.
History:
I(61-526) 1,913, ch. 67, sec. 48a, p' 248, substantially reen. 1915,ch. 62, sec.2, subd. 48a, p.155; reen. C.L., L06:106, C.S., sec. 2474;I.C.A., sec. 59-526; am, L970, ch. 134, sec. L, p. 327.1
The ldaho Code is the property of the state of ldaho and is made available on the Internet as a public
service. Any person who reproduces or distributes the ldaho Code for commercial purposes is in
violotion of the provisions of ldaho law and shall be deemed to be an infringer of the state of ldaho's
copyright.
EXHIBIT A
Page 1 of4
Statutes Page I ofl
Idaho Statutes
TTTLE 61
PUBLIC UTILITY REGU],ATION
CHAPTER 5
POWERS AND DUTIES OE PUBIIC UTIIITIES COMMISSION
61"_528. CERTIFICATE OF CONVENIENCE AND NECESSITY CONDITIONS. Before
any certificate of convenience and necessity may issueIr] a certified copyof its articles of incorporation, or charter, if the applicant be acorporation, shall be filed in the office of the commission. The
comrnission shall have power, after hearing involving the financial ability
and good faith of the applicant and necessity of additional service in the
community to issue said certificate as prayed for, or to refuse to issuethe same, or to issue it for the construction of any portion only of the
contemplated street railroad, Iine, plant or system or extensi-on thereof,or for the partial exercise only of said right or privilege, and mayattach to the exercise of the rights granted by said certificate, suchterms and conditions as in its judgment the public convenience andnecessity may require.
History:
t (61*528) 19L3, ch. 51, sec. 4Bc, p. 248; am. 1915, ch. 62, sec. 2,subd. 48c, p. 756; compiled and reen. C,T,. 106:108; C.S., sec. 2476;I.C.A., sec. 59-528.l
The ldaho Code is the property of the state of ldaho and is made available on the Internet as a public
service. Any person who reproduces or distributes the ldaho Code for cammereial purposes is in
violation of the provisions of ldaho law and shall be deemed to be an infringer of the state of ldaho's
copyright.
EXHIBITA-
Page? of 4
Statutes Page 1 of2
Idaho Statutes
TITLE 61
PUBLIC UTI],ITY REGULATION
CHAPTER 5
POWERS AND DUTIES OT PUBLIC UTIIITIES COMMISSION
67_547. BINDING RATEMAKTNG TREATMENTS APPIICABLE WHEN COSTS OF A NEW
ELECTR]C GENERATION FACITITY ARE INCLUDED IN RATES. (1) As used in Ihissection, t'certificate" means a certificate of convenience and necessit,y
issued under section S):-52{, ldaho Code.
l2l A public utility that proposes to construct, lease or purchase anelectric generation facility or transmission facility, or make majoradditions to an electric generation or transmission facility, may file anapplication with the commission for an order specifying in advance theratemaking treatments that shall appty when the costs of the proposedfacility are included in the public utility's revenue requirements for
ratemaking purposes. For purposes of this section, the requestedratemaking treatments may include nontraditional ratemaking treatments ornontraditional cost recovery mechanisms.(a) In its application for an order under thls section, a public
utility shaLl describe the need for the proposed facility, how thepublic utility addresses the risks associated r,qith the proposedfacility, the proposed date of the lease or purchase or commencementof construction, the public utility's proposal for cost recovery, andany proposed ratemaking treatments to be applied to the proposedfacility.(b) For purposes of this section, ratemaking Lreatments for a
proposed facility include but are not limited to:(i) The return on common equity investment or method of
determining the return on common equity investment;(ii) The depreciation life or schedule;(iii) The rnaximum amount of costs that the commission will
incfude in rates at the time determined by the commission withoutthe public utility having the burden of moving forward with
additional evidence of the prudence and reasonabLeness of such
costs;(iv) The method of handling any variances between cost estimates
and actual costs; and(v) The treatment of revenues received from wholesale
purchasers of service from the proposed faciliLy.(3) The commission shall hold a public hearing on the application
submitted by the public utility under this section. The commission may
hold its hearing in conjunction with an application for a certificate.(4) Based upon the hearing record, the commission sha1l issue anorder that addresses the proposed ratemaking treatments. The commissj-on
may accept, deny or modify a proposed ratemaking treatment reguested bythe utility. In determining the proposed ratemaking treatments, the
commission shal-I maintain a fair, just and reasonable balance of interests
between the requesting utility and the utility's ratepayers.(a) fn reviewing the application, the commission shall also determine
EXHIBIT A
Page 3 of4
Page2 of?
whether:(i) The public utility has in effect a commission-acceptedintegrated resource plan;(ii) The services and operations resulting from the facility arein the public interest and wiLl not be detrimental to theprovision of adequate and reliable electric service;(iii) The public utility has demonstrated that it has considered
other sources for long-term el-ectric supply or transmission;(iv) The addition of the facility is reasonable when compared toenergy efficiency, demand-side management and other feasiblealternative sources of supply or transmission; and(v) The public utility participates in a regional transmissionplanning process.(b) The commission shaLl use its best efforts to issue the ordersetting forth the applicable ratemaking treatments prior to the dateof the proposed lease, acquisition or commencement of construction ofthe facility.(c) The ratemaking treatments specified in the order issued underthis section shall be binding in any subsequent commission proceedingsregarding the proposed facility that is the subject of the order,except as may otherwise be established by 1aw.(5) The commission may not reguire a public utility to apply for an
order under this section,(6) The commission may promulgate rules or issue procedural ordersfor the purpose of administering this section"
History:
[61-54]-, added 2009, ch. !45t sec. L, p. 436.1
The Idaho Code is the property of the state of ldaho dnd is made available an the Internet as a public
service, Any person who reproduces or distributes the ldaho Code for commercial purposes is in
violation of the provisions of ldaho law and shall be deemed to be an infringer of the state of Idaho's
copyright.
EXHIBIT A
Page 4 of4
SIATEMENT OF PI]RPOSE
RS18716
At at time when financial markets are risk-averse and utilities are embarking on major transmission
and generation projects to serve growing loads, this legislation helps provide the stability necessary
to attract investors at a more reasonable cost-of-capital.
This bill establishes an additional process for consideration of utility capital expenditures by the
Idatro Public Utilities Commission. It expands the Commission's ability to shape the resources
in a utility's portfolio before construction of or commitment to such a resource. It also provides
additional surety to capital markets that utility expenditures are prudent and pose less risk of
financial loss. When this voluntary process is used, it will benefit utility customers through lower
financing costs and create amore transparent system of resource selection.
FrscAI-, NOTE
There is no impact to the General Fund.
Contact:
Name: Senator Curt McKenzie
Office:
Phone: [phone]
Statement of Purpose / Fiscal Note s 1123
EXHIBIT B
Page 1 ofl
DATE:
TIME:
PLAGE:
MEMBERS
PRESENT:
MEMBERS
ABSENT/
EXCUSED:
NOTE:
CONVENE:
s{123
MINUTES
SENATE STATE AFFAIRS COMMITTEE
March 4,2009
8:00 a.m.
Room 204
Chalrman McKenzie, Vlce Chalrman Pearce, Senators Darrington,
Geddes, Davis, Stegner, Fulcher, Stennett (Thorson), and Kelly
None
The slgn-ln sheet, testlmonles, and other related materlals willbe retalned
wlth the mlnutes ln the commlttee's offlce untll the end of thE sesslon and
willthen be located on file with the mlnutes ln the Legislative Servlces
Llbrary.
Ghalrman McKenzle called the meeting to order at 8:00 a.m.
Paul KJellander from the ldaho Office of EnErgy Resources presented
Sll23 to the Commiftee. Mr. KJellander stated ln the energys6ctorwe
are ln a tlme and place ln history where there ls an abundance of rlsk and
a lack of trust That comblnatlon makes lt very dlfficult for lnvestor utilitles
to try and ffnd the flnanclng that ls needed to help bulld the crltlcal
lnfrastructures needed to keep the lights on. That sih.ration ls even more
critical as the utility compariies have been downgraded by WallStreet
analysts, and ln some lnstances the ratlng ls so lor that lt ls Just an lnch
above junk status. That means that access to investment dollars are
tougher to come by and the cost of capital ls much hlgher as a result. Mr.
Klellander said that lnterest rates are higherfor prolects and the
customers end up paying more for energy to cover those costs. The
reasons for lowering a utilitles credit raling Is due to concerns over
regulatory rlsk as a f;actor. The conc€rn ls that regulators eould disallow
the uttllty's oost after the capttal lnvestment has been made. The potential
to recover the lnvestment ls jeopardized and lt represents more riskfor
the lnvestment community than lt ls wilting to take.
Mr. KJellander sald thls proposal will provldo an opportunity to provlde an
addltlonal layer of certalnty ln today's economy that ls neoessary to attract
lnvestment capltal. At the samo time ltrvill provlde a benefit to the
customers. Thls billwlll not dimlnlsh the Gommlsslon's authorlty, lnstead
It supplements thelr authorlty with an optlonal regulatory process. Thls
procoss has been used successfully ln other states to facllltate and
challenge the utlllty's proposal for generatlon ard transmlsslon. Ttp blll
also creates a regulatory process that ls ontlrely voluntary for the utllity
and the Commlsslon. Both have the option not to us e the process. The
billwlll not change the authority the Commlsslon has to detormlne the
reasonableness and prudence of the utillty's lnvestmeril ln generatlon and
SEMTE STATE AFFAIRS
March 4,2009.- Mlnutes - Fage 1
EXHIBIT C
Page I of6
transmlssion. lt slmply onsures that the Commlsslon doesn't have to walt
untll the utlllty has already made the lnvestment to make that
determlnation. Brent Gale from Mid AmErican authored the leglslallon ln
lowa, and there are approximatelyfifteen states that have adopted thls
process and uslng it.
Sanator Stegner sald lt has been suggested that Mr. Klellander was not
a fan of thls leglslatlon whon he was a commlssloner. Mr. Klallander
replled that he fi rst heard of thls concept about three years ago and at the
tlme most of the utilities were ln good shape and had acoess to capi tal.
Hls feellng at that time was why now. lt has now become apparent that
we need to build both transmlsslon and generatlon, whloh ls very oostly.
Atthe same tlme the utllltles have been downgraded, Prevlously the
utlllty companles were percelved as gold and they were ln everyone's
retirement porffolios. Now the lnvestor owned utilitles are teetering on the
edge of bankruptcy, so steps need to be taken to lmprove access to
capltal markets. Mr. KJellander stated that havlng remembered thls he
declded to take another look at lt. lt does make good sense and lt doesn't
take away the authority of the commissloners.
Senator Thorson commented that lt appears wlth the lncreased access
to capital markets that the cost for the lmprovements will go down and
that lt should be passed on to the custom er of that power. He asked Mr.
KJellander lf thatwas conecl Mr. KJellander responded yes, they hope
that ls conect
Ghalrman McKenzle asked Jlm Kempton ff he wouldn't mlnd glvlng the
Commlttee the Public Utlllty Gommlsslon's (PUG) perspectlve on thls
leglslation.
Mr. Kempton, a Commlssloner for the PUC stated that when the PUC
first looked at thls, they dld not have a lot of background that went lnto the
developmant of thls. Wlth communlcatlons between the P UC and the
Offie of Energy Resources (OER) they dld acqulre the model legislation.
lnltlally the PUC had ooncerns that there wasn't a headng process, and
the dlrection for the responslbllity of responding to tha legislation made
the PUC fully responslble for the provlslons. Thero wasn't a common tle
between the Commlsslon and the utility responslblllty wlth regard to the
flnanclng. A number of pleces needed to be worked out before the P UC
came on board. Brent Gale from MidAmerlcan, talked to the PUC about
the process and over time the Commisslon became more comfortable
with the language and the purpos e of the leglslatlon. Thls ls lmportant
due to the flnanclal sltuatlon ln the market right now.
Mr. Kempton sald that seventy-five pereent of the utllitles have a ratlng of
trlple B. So the lssues of how a utility wlll lnvest ln capital, and how they
vulll establlsh negotlatlons ln purchases dlrect from wholesale marketers,
needs to be addressed. There are two problems, the eost of bonds and
whether or not thsre wlll be lnterest for becomlng a shareholder ln ldaho
power. The questlon ls can some of these cosls be deferred to the rate
payer, where the rate pay6r assumes rnore rlsk. The hearing process
establishes the mechanlsm where an order ls lssued for a set of
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clrcumstances by whlch the generatlng faclll$ could be bullt. The
guarantee would be passed on to the company and those costs would be
passed to the rate payer, when the gerterator goes on line. Thls wlll not
afiectthe rate payer untilthe power ls avallable, and lt assures Wall
Street that tho stipulatlon ln the order wlll meet the finanolal needs of the
company.
Senator Darrlngton asked Mr. Kempton what ls differont ln thls
process? Mr. Kempton responded thls leglslation will prohiblt the PUC
from dolng advanca funding to the util lties or guaranteelng lt. The PUC
lssues orders based on used and useful crlterla, but wtth a Constructlon
Work ln Progress (CWIP) Program they can move forward. The
forecasted cost of the plant can be lncorporated lnto the cost ahead of the
time when lt ls used and useful. This leglslatlon wllltake lt one step
further. The PUC does not have the authorlty to do thls wlthout thls
leglslatlon.
Vlce Chalrman Pearce asked what has happened to the ratlngs for the
utility eompanies? Mr. Kempton replied the same thlng that ls troubling
Wall Street. There was an excesslve promlse of monetrary proffts to
lnvestors rather than lnvesting ln a utllity. Gradually ther6 was pressure to
lnvest ln hlgher rcturn lnvestments and the utilltles fell by the way slde.
ln 2000, ldaho Power had a lowA ratlng and only abouttwenty-flve
percent of the utility companles ln the United States were at that level.
With the energy erlsls lt has steadily ehanged, except for how the
lnvestment market works. Mr. Kempton sald so lt was the market,
actfulty and some regulatory aspec{s thatwere lmpactlng the utility. Thls
leglslatlon wlll provlde greater commltment to the utlllties that thelr
lnvestmentwlll not be wasted ln the process, and atthe same tlme try to
protect the rate payers. Vlce Ghalrman Pearce asked Mr, Kempton lf
the leglslation wlll lmpact the rate of retum on lnvestment? Mr. Kempton
sald that the PUC belleves thls process wlll help move the regulatory lag
aspact on a rate case allowance, and there wlll be oonslstency as to how
lssues wlll be held and worked lf somethlng unusual happens ln the
process.
Senator Kelly asked Mr. Kempton if there ls an unforeseen
clrcumstrance once the process starts, will lt lmpact the rate payer Instead
of tha utility? Mr. Kempton responded there would be an equal balanc e
bstween the rate payer and the utilitfs responslbility. Hypothetically lf
there was a hearlng, an order was lssued to construct a utlllty and the
utillty lnvesb moneyr they would expect a return to eover the process. lf
the proJect had to be termlnated the utllity should be allowed to recover
thelr lnvestment. The utility cannot however recover antlclpated returns.
Thore would be ramps lnstalled ln the order and then there would be a
second revlew. lt does not shlft rlsk to the rate payer, but lt does provlde
for the company to recover thelr lnvestment. Senator Kelly sald there
are terms ln thls leglslation that states the rate maklng keatment ln the
order "shallbe blnding on any subsequent commlsslon proceedlng,
except as otherwlse provlded by lant.' She asked what does that mean?
Mr. Kempton replled that lt means once the ordor ls lssuad, tho terms are
blndlng. lf the Commlsslon has lncluded ln thelr declslon a condltlon that
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March 4, 2009 - Mlnutes - Fage 3
EXHIBIT C
Page3 of6
ls prohiblted by law, than the statutory provislon wlll be consldered to
ovenlde the provlslon.
Senator Geddes sald lt appears that the utilitles wlll balance the
lnfrastruclure wlth the ablllty of the rate payers to pay. lt could potentlally
force a burden on the rate payers where they cannot afford to pay the
rates. He asked Ma Kempton lf there would be ramps so that the rate
payer wlll not have to pay before they actually recelve the benefit from the
proJect. Mr. Kempton answered that the rates are not asslgned to the
rate payer untll the facltlty ls used and useful. The return on the
lnvestment to the utllity may be lncorporated lnto the rate, even though
the rate payerwould not have recelved any power from the faclllty.
Senator Geddes asked Mr. Kempton ls there some effort by the utility to
come to the Commlsslon and provlde lustlflcatlon regardlng the
lnftastructure they are golng to develop? Mr. Kempton sald that Brent
Gale can befter explain how thls proc€ss really works. The hearing
process wlll bring allthe lntervening parties togetherto address the
proposal and through that process a falr, lust, and reasonable declslon
willbe made.
Senator Davls asked Mr. Kempton to walk through the process for
nuclear transmlsslon and how ltwould lmpactthe rate payers. Mr.
Kempton responded lt M{l be the same pro@ss as he prevlously stated.
The lnvestment that the company has put lnto the profect ls falr, lust, and
reasonable if they get a return on the lnvestment. lt ls not reasonable for
the utility to assume they will recelve a rate return based on an unfulfilled
promlse to generate power. Senator Davls sald lf the expenditure ls
substantially different from wlut was approved at the hearlng, will it be
protected by thls. Mr. Kempton answered lt would be protected by the
order and off ramps could be added to take another look during the
process. Senator Davls saidthe prolection to the consumer ls that the
utlllty can only come back and ask for conslderatlon based on the terms
of the lnltlal order. The order wlil provlde the parameters wlthln the
money. Mn Kempton said there ls protection for both the utility and the
consumer ln the order that the Commlsslon writes.
Senator Kelly asked Mr. Kempton to explaln the CWIP process. Mr.
Kempton responded ln the CWP pr,cess rates are put into the account
ahead of the com pletion of constructlon. ln thls leglslatlon the rates are
not assessed untll the proJect ls used and useful, Senator Kelly asked
why doesnt the CWP program address the lack of eapltal lssue. Mr.
Kempton replied because the way the le$lslatlon ls constructed, ltworks
for short term proJects where the Commisslon can forecast what the
project ls golng to be at the end. ln CW !P the risk to the rate payers ls not
worth lncorporatlng somethlng lnto rates ahead of tlme. Senator Kelly
sald then thls ls effectlvely lncorporated lnto the rates booause of the lack
of the ablllty to go back. Mr. Kempton said they can go back as long as lt
ls lncorporated ln rates ahead of tlme. ThE used and usef ul ooncept to
the utility ls the foundation when declslons are made. CWIP moves the
Commlsslon out of the comfort zone, and the benefit has to be
demonstnated to move away from used and useful.
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Senator Davls asked Brent Gale to comment on some of the parameters
that are built lnto the blll for the benefit of the consumer.
Brent Gale, SeniorVice Presldent of MldAmerican Energy Holdlngs
Gompany, stated that the com $any owns a number of regulated utllitles,
lncludlng Rocky Mountaln Powet Pacific Power, and PaciffCorp. Through
the hotding company they oonstruot and operate merchant generation and
merchanttransmisslon. Mr. Gale sald that utilities, consumers and
regulators are faced with some very difflcult declslons today regardlng the
types of generation and slze, as well as the type and sizo of transmlsslon.
A modesl slzed generatlon plant will cost one blllion dollars or more. Five
hundred mlles of transmlsslon line will also cost about that. The
traditional regulatory process that existed ln lowa before 2001, and that
exists here today ls for the utlltty to make the declsion of what to add. lt
could bewlnd generatlon, geothermal, coal, gas or transrnlsslon. There ls
some regulatory prcoess prlor to the utility maklng that determlnation, but
It ls not a blnding process. The regulators do not look at a speclfic
investment and determlne lf lt ls the right slze, type or cost. That revlew
does not occur until after the utllity has already spent the money.
Mr. Gale stated that thls blll wlll not supercede that process. Thls blll will
provide an optional process that ls voluntary. The process will be the
same except lt moves the revlew process to the front before the spending
ever occurs. The utlllty can proposs Il, the Commlsslon uses the process,
and ths blll requlres a hearlng where all partles ean partlclpate. ln the
end tha Commlssion will make the determlnation for the utility to move
fonlrard or not.
Senator Davls sald there ls another alternatlve. The Gommlsslon would
not preJudge the proposal and would make the declslon later. ltwould be
added lnto the rate base after completion of the project. Mr. Gale
responded that is exactly rlght. There are three optlons speclfically ln the
bill. The Commlsslon can authorize or grantthe utility rate making
princlples, they can deny all of them, or ths Commission can modify it. lf
denled, they are baslcatly telllng the utillty lf you want to bulld thls go
ahead, but you are fully at rlsk. They will review lt after construction ls
completed four orfive years down the road.
Senator Kelly sald under ihe conditions setforth ln the blll, if the
Commlsslon chooses to deny the proposal they would have to lustlfu h. A
record for denlal would be needed. They cant deny lt wlthout belng
subJect to challenge from the utllity. Mr. Gale stated that ls true for all
actions taken bythe Commlsslon. The Commlsslon's dealslon must be
based on the record. tf the proceeding does not require a record then the
declslon ls looked at somewhat differently. Thls blllwill not change that
process at all.
Mr. Gale sald this blll wlll not change rates. The Commlsslon wlll lssue an
order under thls blll, whlch wllt approvo or modlff rate maklng prlnclples
that are proposed by the utility. Sec.tion 4(b) uryes the Commlsslon to
lssue the decislon before the utillty starts spending money and that ls the
purpose for this whole process. The rcgulators and the consumers will
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Page 5 of 6
MOTION:
have a say ln what the utlllty ls dolng before they spend any money. The
order needs to be lssued before the utility starts construction. lt does not
mandate lt and the rates will not change until there is a rato case. Mr.
Gale said he belleves thls ls a good regulatory process and a good toolto
have ln todat's economy.
Senator Darlngton sald as he understands the process lt wlll be
revlevrted by the PUC, and at the same tlme the financlal applications wlll
be made to fund lt. The hope ls that it would have a successful conclusion
ln a timely way to have the funding and a competitive lnterest rate. He
asked Mr. Gale lf that ls conect. Mr. Gale answered ln lowa the utility
goes to the regulator firstfor a declslon, then they get ihe flnanclng, They
do have to do certaln thlngs first, such as determlnlng the costs.
Afterthat determlnation ls made they go back to the regulator for final
approval and then flnatlze the terms and conditions. Mr. Gale said lf they
bring the plant under the actual cost, that ls the costthat goes lnto the
rates. lf they go over, then the utility has to prove ln a rate case that the
additlonal cost was prudent and reasonable. lf the cost overrun ls not
prudent, the utlllty does not recover lt.
Senator Kelly asked Mr. Gale if MidAmerican has any projects currently
where they would use thls process? Mr. Gale replied not currently. They
are bullding renewables at PaclflCorp. MidAmerican will not be golng
forward wtth a gas plant ln ldaho. lt ls Just too expens lve at thls time. lf
they were to bulld a coal plant they would deflnltely use thls process and
any plant that would have a construction cycle of flve years or more would
use thls, Senator Kelly asked Mr. Gale what ls the benefitto the public
when the decislon maklng risk ls shifted from the utility to the consumer?
Mr. Gale responded even though M ldAmerican has aocess to funding
they use this process because lt ls lust good publlc pollcy. The customer
does not make the lnvestment, the shareholders do. Mr. Gale stated that
thls process does not shlfl rlsk to the customers. The process ls the
same whether or not the Commlsslon uses lt. The only thlng that ls
shtfted ls the timlng and the customers are at less risk as a result of the
process. The regulators are ln controlof this process and if there is a
shifi ln rlsk, they will deal wlth lt through the rate making process.
Senator Stegner made the motion to send Sl{23 ts the floor with a do
pass recommendatlon. Vice Chalrman Pearce seconded the mstion.
Senator Kelly stated that she opposes the motlon. They are belng asked
to put a lot of trust ln the PUC to put ln place parameters thatwlll protect
rate payers ln the future. The prooess shifts the risk from the declslon
makers and the utillties who should be assumlng that rlsk. lt ls not a
voluntary process for the PUC. The leglslatlon prescrlbes very clearly that
they need to respond to these appHcatlons.
Senator Stegner sald he views thls as an assurance for the utillty
eompanles to have an opportunlty to have some commltment from the
PUC. When thlngs change down the road the PUC eant slmply say we
disagree. They are more lnvolved ln the process whlch has tremendous
value for everyone who benefits from the effort sf the utilities.
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