20150422Comments.pdf

Peter J. Richardson (ISB # 3195)
Gregory M. Adams (ISB # 7454)
RICHARDSON ADAMS, PLLC
515 N. 27th Street
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
Attorneys for the Industrial Customers of Idaho Power
IN THE MATTER OF THE
APPLICATION OF PACIFICORP DBA
ROCKY MOLTNTAIN POWER AND
IDAHO POWER COMPANY FOR AN
ORDER AUTHORIZING THE
EXCHANGE OF CERTAIN
TRANSMISSION ASSETS
?c l11
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
na(- (-.1. tl{_- 1"_\+
CASE NOS. IPC.E.14.41
PAC-E-I4-ll
COMMENTS OF THE INDUSTIAL
CUSTOMERS OF IDAHO POWER
I. INTRODUCTION AND SUMMARY
Pursuant to the Idaho Public Utilities Commission's ("IPUC" or "Commission") Order
No. 33231, the Industrial Customers of Idaho Power ("ICIP") hereby submit these comments on
the Joint Application of PacifiCorp and Idaho Power Company ("Idaho Power") in this docket.
Idaho law requires the Commission to reject the Joint Application if the Commission cannot find
that the transaction will leave Idaho Power's ratepayers unharmed. Given the complexity of the
transaction, the [ClP has concerns with the transaction's potential to result in increased retail
rates for Idaho Power's ratepayers without providing any countervailing benefit that Idaho Power
and its shareholders are willing to acknowledge and/or share with ratepayers.
Based upon the state of the record at this time, the ICIP makes two altemative
recommendations. First, the ICIP recommends that the Commission defer ruling on the Joint
Application until after the Federal Energy Regulatory Commission ("FERC") issues its order on
the transmission asset exchange. Because there is significant opposition to the transaction in the
parallel FERC proceeding, any determination by the IPUC prior to the issuance of FERC's order
would be an advisory determination on a hypothetical transaction that has a high likelihood of
being altered by the outcome of the FERC proceeding. Alternatively, if the Commission
determines to address the transaction at this time, the ICIP submits that the Commission should
require ldaho Power to share the economic benefits of the transaction with ratepayers at this
time. In view of the downside risks to retail ratepayers posed by the transaction, the Commission
should condition approval of the transaction on an immediate reduction to Idaho Power's retail
rates to account for the near-term benefits of Idaho Power's increased transmission revenues
associated with the kansaction.
II. COMMENTS
A. The Commission May Only Approve the Joint Application If It Finds that the Joint
Applicants Have Proven that the Transaction Will Not Increase Retail Rates.
Idaho law requires the Joint Applicants to prove that the proposed asset exchange will not
increase retail rates. Specifrcally, ldaho Code section6l-328 provides:
Before authorizing the transaction, the public utilities commission shall find:
(a) That the transaction is consistent with the public interest;
(b) That the cost of and rates for supplying service will not be increased by
reason of such transaction; and
(c) That the applicant for such acquisition or transfer has the bona fide intent and
financial ability to operate and maintain said property in the public service.
The applicant shall bear the burden of showing that standards listed above have
been satisfied.
I.C. $ 6l-328(3) (emphasis added). Additionally, "The commission may attach to its
authorization and order such other terms and conditions as in its judgment the public
convenience and necessity may require." I.C. $ 6l-328(4). In this case, where both parties to
CASE NOS. IPC-E-14-41, PAC-E-14-I I
ICIP COMMENTS
PAGE 2
the transaction are under the Commission's jurisdiction, the Commission must determine that the
transaction at issue will not increase either utility's retail rates.
While the Joint Application suggests that such a finding can easily be made because the
net book value of the exchanged assets will be equal, or equalized through a cash payment at
closing, the actual impact on retail ratepayers will be far more complex. The net book value is
not necessarily the most significant aspect of the transaction to the utility's native load retail
ratepayers. Other aspects of the transaction could also have far-reaching impacts on ldaho
Power's ratepayers. The transaction will result in different transmission revenues paid by
PacifiCorp and other transmission customers, and if the overall transmission revenues increase
that should result in a reduction to native load retail rates. However, the transaction will also
result in increased costs of transmission upgrades associated with Idaho Power's newly owned
assets, which could result in increased rates for native load customers. Additionally, if structured
properly, the transaction could work to decrease Idaho Power's retail rates by deferring the need
for future transmission expenditures through acquisition of new transmission rights. Thus,
focusing on net book value of the assets exchanged completely misses the mark and fails to
satisfu the Joint Applicants' burden to demonstrate the transaction will not increase retail rates.
The Commission and its Staffhave the unenviable task of attempting to work through the
likely end result of this complex transaction. But two points are clear - (1) the Commission
should defer action until after the FERC proceeding is complete, and (2) if the Commission
approves the transaction it should condition such approval on Idaho Power's sharing the near-
term benefits of the transaction with ratepayers at this time.
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ICIP COMMENTS
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B. The Commission Should Defer Action Until After Resolution of the FERC
Proceeding Is Known.
In parallel proceedings before FERC, the Joint Applicants must prove that the transaction
will meet FERC's rules barring discrimination and preferential treatment in the provision of
interstate transmission services. See FERC Docket Nos. EC15-54, ERl5-680, ERl5-681, ERl5-
682, and ERl5-683. Yet transmission customers and other interested parties have voiced
significant opposition to the proposed transaction and argued that FERC should reject or
significantly modify the transaction. The concerns voiced at FERC include, among other issues,
that the transaction will significantly increase ldaho Power's transmission formula rates without
a transmission rate case and that the transaction provides the utilities with preferential
transmission access rights. See, e.g., Motion to Intervene Out-of-Time and Comments of Seattle
City Light, FERC Docket Nos. ECl5-54, ERl5-680, ERl5-681, ERl5-682, and ERl5-683, at pp.
4-7 (filed Feb.24,2015). Any change to the transaction - especially those aspects that affect
Idaho Power's transmission formula rate increase and the resulting economic benefits accruing to
native load retail customers - will necessarily impact this Commission's analysis of whether the
overall transaction will meet the statutory requirements in ldaho Code section 6l-328.
Thus, a ruling on the transaction prior to issuance of FERC's determination on the
protests and objections to it will necessarily be an advisory opinion on a hypothetical transaction.
The Commission should preserve its scarce resources until after FERC has imposed any
conditions or restrictions on the transaction. Should FERC impose any conditions, the
Commission should allow the parties to this proceeding to update their comments after a
reasonable period of time to evaluate the impact of the FERC proceeding.
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ICIP COMMENTS
PAGE 4
C. The Commission Should Require Idaho Power to Share the Near-Term Benefits of
the Transaction At the Present Time.
If the Commission is inclined to issue an advisory opinion on the proposed transaction
prior to the time that FERC determines whether and in what form the transaction may move
forward, the Commission should unequivocally condition approval on immediate inclusion of the
near-term benefits of the transaction in Idaho Power's retail rates. Idaho Power acknowledges
that the increase in its transmission formula rates will result in immediate increases to its
transmission revenues. These benefits must be shared with customers immediately to ensure that
the transaction does not work to increase retail rates over the long term.
Specifically, Idaho Power asserts that by entering into the Legacy Replacement, the
Company's Idaho jurisdictional retail revenue requirement would be reduced on a present value
basis by approximately $55.9 million over a 10-year period from 2015 through 2024. See L.
Grow, Idaho Power Direct Test. at 18. Idaho Power steadfastly maintained in discovery
responses that it did not structure the transaction in a manner that would allow it to defer
construction of the Boardman to Hemingway line. Thus, the $55.9 million reduction to ldaho
Power's revenue requirement is the only significant economic benefit of the transaction
identified by Idaho Power.
The reduction in retail rates associated with the increased formula rate could cause the
Commission to overlook other aspects of the transaction that are likely to increase tdaho Power's
retail rates. Idaho Power and PacifiCorp have acknowledged that the transaction will alter the
utilities' respective cost responsibilities for transmission upgrades on the lines in question. Yet
Idaho Power admitted in discovery that the "costs associated with future upgrades were not
included in the revenue requirement analysis provided as Exhibit No. I to Lisa Grow's
CASE NOS. TPC-E-I4-4I, PAC-E-I4-I 1
ICIP COMMENTS
PAGE 5
testimony." Idaho Power's Response to the ICIP Prod. Req. No. l9(d).t In other words, Idaho
Power ignored a major financial impact of the transaction in the revenue requirement analysis
that Idaho Power relies upon to meet its statutory burden of proving the transaction will not
increase rates. Additionally, PacifiCorp asserts in discovery that its transmission payments to
Idaho Power associated with the Jim Bridger system will decrease after closing of the
transaction, notwithstanding the increase to Idaho Power's transmission formula rates. See
PacifiCorp's Response to IPUC Staff Prod. Req. No. 31.
Thus, without the near-term benefits of the increased revenues from transmission formula
rates, the record does not demonstrate that the transaction will leave Idaho Power's native load
retail ratepayers harmless. Astonishingly, however, Idaho Power proposes not to pass the near-
term benefits of the increased transmission revenues onto its retail ratepayers. lnstead, Idaho
Power proposes to keep the increased transmission revenues solely for its shareholders to boost
earnings until ldaho Power proposes to update its revenue requirement in the next general rate
case. Idaho Power does not explain when the next general rate case will occur. But it is possible
that, given the current ADITC sharing mechanism that ensures Idaho Power's earnings level, the
Company will not file another general rate case for five years or more. During that time, Idaho
Power's shareholders alone will obtain the near-term benefits of Idaho Power's increased
transmission revenues identified in the Joint Application.
Moreover, unlike the longer-term transmission upgrade costs that are planned to be
incurred in future years (and presumably passed onto retail ratepayers at that time), Idaho Power
will immediately recognize increased revenues from its increased formula rates if FERC
' The confidential cost estimates for the upgrades provided by Idaho Power's Response to ICIP
Req. No. l9 and PacifiCorp's Response to ICIP's Req. No. 6 demonstrate the significance of the upgrade
costs that were completely ignored in Idaho Power's revenue requirement analysis.
CASE NOS. IPC-E-I4-4I, PAC-E.I 4-1 I
ICIP COMMENTS
PAGE 6
approves the transaction. The purpose of FERC's formula rates is to allow for such immediate
rate changes to account for annually updated data in the FERC Form l, without a transmission
rate case. The record provides no basis to believe that the costs and benefits will even out for
native load customers in the long run if the near-term economic benefits of the increased
transmission revenues are withheld from retail ratepayers.
If the Commission approves the transaction at this time, it should therefore require that
the revenue requirement associated with ldaho Power's transmission rate revenues be updated to
immediately pass the savings onto Idaho Power's retail ratepayers. There is ample precedent for
updating revenue requirement components outside of a general rate case. Idaho Power has
obtained the IPUC's authority to do so on the following occasions since the last general rate case
in 201 l:
Case No. IPC-E-12-06: $2 million rate increase to recover transmission costs
associated with the FERC's transmission rate case, FERC Docket No. ER06-787;
Case No. IPC-E-12-09: $1.5 million rate increase to implement the Boardman end
of life recovery adjustment;
Case No. IPC-E-12-14: $58.1 million rate increase to include Langley Gulch in
rate base;
Case No. IPC-E-13-20: $99.3 million rate increase to update net power supply
experses.'
2 These data are available in Idaho Power's financial presentation, available online at
http://www.idacorpinc.com/pdfs/presentations/IR_Outreach_Minneapolis_2014.pdf. The ICIP
acknowledges that there have also been revenue requirement reductions made outside of a general rate
case, but these reductions have not offset the significant rate increases since the last general rate case. ,See
id.
CASE NOS. TPC-E.I4-41, PAC.E-14-1 1
ICIP COMMENTS
PAGE 7
Notably, in the directly analogous circumstance in Case No. IPC-E-12-06, a change in
transmission rates associated with FERC's treatment of the Legacy Agreements in the
transmission formula rate increased Idaho Power's native load retail revenue requirement. The
Commission allowed Idaho Power to defer and then fully recover that increased revenue
requirement without the necessity of waiting for the next general rate case. See IPUC Order No.
32540. The same treatment must be applied here if the proposed transaction is approved and
results in a decrease to the retail revenue requirement associated with a change in Idaho Power's
transmission rates.
III. CONCLUSION
For the reasons set forth above, the Commission should defer ruling on the Joint
Application until after FERC issues its order on the transmission asset exchange. If the
Commission determines to address the transaction at this time, the Commission should require
Idaho Power to share the near-terrn economic benefits of the transaction with ratepayers at this
time.
DATED this 22nd day of April,2015.
RICHARDSON ADAMS, PLLC
By:
M. Adams
Of Attomeys for the
Customers of ldaho
Industrial
Power
CASE NOS. IPC-E-I4-41, PAC-E-I4-I I
ICTP COMMENTS
PAGE 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY, that on the22nd day of April, 2015, a true and correct copy of
the within and foregoing COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO
POWER was served as follows:
Jean D. Jewell, Secretary X Hand Delivery
Idaho Public Utilities Commission _U.S. Mail, postage pre-paid4T2WestWashington _ Facsimile
Boise, tdaho 83702 Electronic Mail
jeanj [e-mail]. gov
Lisa Nordstrom
Idaho Power Company
1221 West Idatro Street
Boise, tdaho 83702
lnordstrom@ idahopower. com
[e-mail]
Timothy E. Tatum
Gregory W. Said
Idaho Power Company
l22l West ldatro Street
Boise, Idaho 83702
ttatum@ idahopower. com
[e-mail]
_ Hand Delivery
X U.S. Mail, postage pre-paid
_ Facsimile
X Electronic Mail
_ Hand Delivery
XU.S. Mail, postage pre-paid
_ Facsimile
X Electronic Mail
MNinaM. Curtis