20150827Comments.pdf

Peter J. Richardson ISB # 3195
Gregory M. Adams ISB # 7454
RICHARDSON ADAMS, PLLC
515 N. 27th Street
Boise, Idatro 83702
Telephone: [phone]
Fax: [phone]
peter@richardsonadams. com
gre g@richardsonadams. com
Attorneys for the Industrial Customers of Idaho Power
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR AN ORDER
AUTHORIZING THE APPROVAL OF A
LONG TERM PROGRAM CONTRACT
WITH SIEMENS ENERGY, INC., AND
DEFERRAL OF ASSOCIATED COSTS.
ir: l7
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
) CASE NO. rPC-E-rs-r7
)) COMMENTS OF THE INDUSTRIAL) cusToMERS OF rDAHO POWER
)
)
)
COMES NOW, the Industrial Customers of Idaho Power ("ICIP") pursuant to that
Notice of Application and Notice of Modified Procedure issued by the Idaho Public Utilities
Commission ("Commission") on July 21,2015, and hereby provides the following comments on
Idaho Power Company's ("ldaho Power" or the "Company") application for (l) long-term
program contract with Siemens Energy for maintenance of the Company's gas plants; (2) sale
and transfer to Siemens of $21.9 million in spare parts for the Company's gas plants; and (3)
proposed accounting treatment for the transaction. Idaho Power is not, at this time, asking the
Commission for a rate change.
The Company currently self-manages maintenance on its three natural gas plants. It
typically buys parts from Siemens before a scheduled maintenance outage. Idaho Power
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
IPC-E-15-17
PAGE 1
capitalizes the parts and, after the older parts are replaced, they are retired from the Company's
books and sent to Siemens where they are inspected and repaired. After repair, the parts are
returned to Idaho Power, capitalized, and held for future use. However, with the construction of
the Langley Gulch plant, the Company states that its employees do not have the necessary
technical skills to maintain the three gas plants at the same level of quality as could be provided
by Siemens.
Idaho Power and Siemens have entered into a Long Term Program ("LTP") pursuant to
which Siemens will provide scheduled maintenance on the three plants, including parts and
repairs, shipping, service, labor, engineering services, and program management for a period of
20 years. According to the Company, the LTP will provide savings over the life of the contract
when compared to continuing to self mange the maintenance on its Danskin, Bennett Mountain,
and Langley Gulch natural gas plants. The Company proposed to compensate Siemens for the
maintenance work performed with the sale and transfer of $21.9 million in spare parts held for
the gas plants. The proposed accounting treatment would create a regulatory asset that will earn
at the Company's last authorizedrate of return.
ICIP SUPPORT WITH MODIFICATION
The ICIP believes the maintenance agreement between Idaho Power and Siemens is in
the best interest of the Company and its rate payers for the reasons outlined below. However, the
ICIP urges the Commission to reject the carrying charge on the regulatory assets proposed by the
Company at its overall rate of return as determined in its last general rate case. If the
Commission insists that a carrying charge should be recovered on this proposed regulatory asset,
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
IPC-E-15-17
PAGE 2
be at the Company's current cost of debt and not its overall rate of retum.
BACKGROUND
Idaho Power's rationale for entering into the Long Term Program for maintenance
of their three natural gas plants is that:
During construction of the Langley Gulch plant, Idaho Power began looking at other
maintenance options for its gas /leet. The Langley Gulch plant is the Company's only
CCCT and employs some of the newest, most technologically advanced parts on the
market. Idaho Power recognized that its employees did not have oll of the necessory
technical skills to maintain all three plants to the level offered by Siemens and reached
out to multiple third-party providers of gas plant maintenance as part of aformal request
for informitio, protrtt.'
When Idaho Power was contemplating the construction of Langley Gulch, the Company believed
it would be able to self manage the maintenance of that facility based on its experience and
knowhow from operating its existing natural gas plants. Idaho Power stated that it would:
[BJe able to operate and maintain this combined cycle power plant. Idaho Power has
been operating natural gas combustion turbines since Evonder Andrews Unit Nos. 2 and
3 were constructed in 2001. The Company added Bennett Mountain in 2005, and
Evander Andrews Unit No. I in 2008. Idaho Power's operations and maintenance staff is
familiar with gas operations and has developed extensive expertise with Siemens F-Class
gas turbines. In addition, the combined cycle power plant will be controlled by the
Siemen's T-3000 system, which is the control system cutently used to operate the
Company's existing gas turbines.2
' Idaho Power Application, IPC-E-15-17, p.3.
2 Direct Testimony of Vernon Porter, Idaho Power Company, IPC-E-09-03, p.23.
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
IPC-E-15-17
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The eventual turbine class selected for installation at Langley Gulch was not the older
Siemen's T-3000, but rather the latest and more technologically advanced Siemens
sGT6-5000F.
Langley Gulch is the Company's only CCCT and uses some of the newest, most
technologically advanced parts on the market. Idaho Power recognized that its
employees do not have oIl of the necessary technical skills to maintain the plants to the
level offered by Siemens.3
This new turbine contains many new technologically advanced components that Siemens, as the
manufacturer, is more familiar with than Idaho Power personnel. Because Siemens was the best
choice for maintenance at Langley Gulch, it also made sense for the Company to have all three
of ldaho Power's gas facilities maintained by the same O&M vendor.
In essence, Idaho Power is proposing the transfer and sale of the Company's inventory of
spare parts, which have been capitalized or put into service since Idaho Power's last general rate
case for the cost of maintenance of its three natural gas plants over the next 20 years. The value
of these spare part assets is $21.9 million on an tdaho jurisdictional basis.a
During negotiations with Siemens regarding the LTP Contract pricing, Siemens agreed
to take back ownership of the initial spare parts in exchange for reduced contract pricing
based on the net book value of those parts. As of December 3l, 2014, the net book value
of the assets that will be transferred to Siemens is approximately $21.9 million on an
Idaho j ur i s di ct io nal b as iss .
3 Direct Testimony of Trevor Mahlum, Idaho Power Company, IPC-E-15-17, p.6.
' Approximately $2.9 million in initial spare parts Idaho Power is proposing to transfer to Siemens is included in the
Company's ldaho rate base approved under Order Nos. 32426 and32585,Idaho Power's last general rate case (Case
No. IPC-E-l l-08) and ldaho Power's request for inclusion of the Langley Gulch power plant in rates (Case
No. IPC-E-72-14) . The remaining initial spare parts are located at the Bennett Mountain and Danskin plants with
vintage years of 2072 and 2013, having been placed in-service after the Company's last general rate case. [Direct
Testimony of Courtney Waites, Idaho Power Company, IPC-E-15-17, p. 5.]
' Idaho Power Application, IPC-E- l5- 17, p.6.
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF TDAHO POWER
IPC-E-15-17
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This means the Company is exchanging a rate base asset that is eligible to earn a return of- and
on- its investment for the cost of maintenance which is merely an expense item for ratemaking
purposes. The Company is proposing the value of the sold and transferred spare parts be booked
as a regulatory asset with a carrying charge at the Company's overall rate of return.
Idaho Power requests approval of (l) the deferual of the initiationfees to a regulatory
asset, (2) the transfer of the net bookvalue of the initial- spare parts andassociatednet
tax expense to the regulatory asset, and (3) a caruying charge on a portion of the
regulatory asset balance.6
BENEFITS OF THE LTP
There are numerous other benefits that reduce risk to Idaho Power, and its rate payers,
as a result of the proposed LTP maintenance contract with Siemens. These benefits include
warranty coverage for the parts installed by Siemens for Danskin and Bennett Mountain, as well
as Langley Gulch.T In addition, Siemens will provide, under the proposed LPT, a scheduled
outage duration guaranty along with a post-term parts warranty after the end of the contract.s A
significant discount off the listed price of parts with the latest technology will be available for
maintenance and repair.
Program parts consist of the major combustion turbine parts provided by Siemens,
including the locking hardware used to ffix the parts, the parts installed in the
combustion turbine upon the ffictive date, all-initial spare parts, and all parts changed
during the length of the contract ("Program Parts"). Some of these Program Parts are
the latest technologt ldaho Power would not otherwise have access to and their
superiority eliminates the needfor two combustor inspection outages at Langley Gulch.e
Under the current self-managed maintenance program, Siemens' liability is limited to the
total price paid under the purchase order given rise to any given claim. Under the proposed LTP,
6 Testimony of Courtney Waites, tdaho Power Company, IPC-E- l5- 17, p. 6.
7 Direct Testimony of Trevor Mahlum, Idaho Power Company, IPC-E- I 5- I 7, p. I I .
8 Direct Testimony of Trevor Mahlum, Idaho Power Company, IPC-E-15-17, p. 10.
e Direct Testimony of Trevor Mahlum, Idaho Power Company, IPC-E-15-17, pgs. 8,9.
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
IPC-E-15-17
PAGE 5
there is a lifetime cap equal to 100 percent of all amounts paid to Siemens under the contract.lo
When unscheduled maintenance occurs the LTP provides that Siemens performs the repairs.
Siemens will also perfor* unscheduled maintenance on all three combustion turbines to
the extent such work is not covered by Siemens' other waruanties under the contract.
Leveraging Siemens'pool of regional inventory, outage resources, and technical-
expertise will result in lower overall costs to ldaho Power and its customers.tt
Idaho Power will be transferring its inventory of older spare parts and will have newer more
technological advanced parts available for maintenance and repair supplied by Siemens. Some of
the spare parts that will be transferred over the next 20 years, would no longer be used and in
some cases are obsolete.
Andfinally, in addition to the financial benefit of reduced costs over the life of the
agreement, the transfer and sale of the initial spare parts will allow for the return of
spare parts ldaho Power would otherwise no longer use. The demandfor these specific
parts is limited as the parts are no longer the latest technologt and have a limited buyer
pool, limiting their market value, or, in some cases, the parts are obsolete.l2
This would relieve rate payers from compensating the Company for assets that would not be
used and useful.
ACCOUNTING TREATMENT
Idaho Power's last general rate case (IPC-E-l1-08) was filed with an adjusted 20ll test
year based on actual 2010 data. This means expense items that may have increased, other than
net power supply cost or single case filings for items such as pension expenses, are not currently
included in rates. The cost of maintenance is an expense item that, no doubt, has increased since
20ll -- especially with the addition of Langley Gulch in 2012. In the normal course of regular
r0 Direct Testimony of Trevor Mahlum, Idaho Power Company, IPC-E-15-17, p 10.rr Direct Testimony of Trevor Mahlum, Idaho Power Company, IPC-E-15-17, p 9.
'' Response to the First Production Request of the ICIP, Response No. 6.
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
IPC-E-15-17
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rate case filings, the cost of expense items, such as maintenance, are updated and included in
rates on a regular basis per the Commission's Order at the conclusion of a rate case. Idaho Power
has not filed a general rate case since IPC-E-I1-08. However, as stated above, the Company now
proposes to swap its currently rate based spare parts, that are for the most part already in rates,
for a 20 year contract and proposes to earn a rate of return on maintenance costs that in the
normal course of rate cases would be expensed.
As described above, the LTP with Siemens would have important benefits for both the
Company and its rate payers over the next 20 years. The critical question is; Should Idaho Power
be allowed on earn a return of and on an expense that is essentially the Company's maintenance
expense? It is true, if Idaho Power were to continue to self manage maintenance on its three gas
plants, which the Company admits Siemens could do a better job, the spare parts would remain
in rate base and continue to earn a rate of return. However, under the proposed LTP they will be
removed from rate base.
The ICIP believes Idaho Power has made its case that the Siemens LTP is a ratepayer
benefit over the next 20 years; however, prudence requires that maintenance costs be expensed.
Therefore, the ICIP supports putting the value of the spare parts into a regulatory asset. However,
the Company should only receive relief for that regulatory asset when it decides to file its next
general rate case. Hence, the preferred regulatory treatment for this regulatory asset is not to
apply any carrying charge. Idaho Power can always file a general rate case to recover its
maintenance expenses.
If the Commission is not comfortable with the Company not earning any return on this
regulatory asset, it should only allow a carrying charge that is less than a full rate of return. The
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
rPC-E-15-17
PAGE 7
Commission, in past cases, has set a carrying charge at less than overall rate of retum. For
example, in case IPC-E-97-12, a case dealing with the lenglh of amortization of DSM
expenditures, the Commission set a carrying charge at the Company's cost of debt. The
Commission reasoned;
By the same token, we find that it would be consistent and reqsonable for us to consider
the reduction in risk attributable to a shorter DSM recovery period in selecting a
carrying charge. Because we have decided to allow the Company to shorten DSM
recovery to l2 years, we find that a caruying charge of 7.25% based on utility bond rates
would be appropriote.t 3
The same rationale applies here. As pointed out above, tdaho Power will have significantly lower
risk with the warranties and guaranties provided in the LTP and the Company is being relieved
from carrying spare parts that may lose value over time or become obsolete. Accordingly, the
same logic applies here. Rate of return is allowed for a utility for the risks the shareholders take
for investing in the utility. The LTP reduces the Company's risk in maintaining its three gas
facilities over the next 20 years. For these reasons the ICIP recommends the Commission should
set the carrying charge at Idaho Power's cost of debt. According to the Company's 2014 10K
the combined overall effective cost of tdaho Power's outstanding debt was 5.19 percent.la
Therefore; should the Commission allow any carrying charge, it should be set at 5.2 percent, thus
allowing ratepayers to share in the savings along with the Company.
" Idaho Public Commission Order No. 27660, IPC-E-97-12.
'n IDACORP & Idaho Power 2014 l0K Report to the SEC, p. 99.
COMMENTS OF THE TNDUSTRIAL CUSTOMERS OF IDAHO POWER
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CONCLUSION
The ICIP recommends the Commission approve ldaho Power's application in this docket
with the modifications noted herein.
RESPECTFULLY SUBMITTED this 2Tthday of August 12015.
RICHARDSON ADAMS, PLLC
By
Peter J. Richardson on behalf of
the Industrial Customers of Idaho Power
CERTIFICATE OF SERVICE
I hereby certify that on the2Tth day of August 2015, copies of the foregoing Comments
of the Industrial Customers of ldaho Power were hand delivered to:
Lisa Nordstrom
Idaho Power Company
1221 West ldaho
Boise, Idaho 83702
lnordstrom@ idahopower.com
dockets@.idahonower. com
Tim Tatum
Idaho Power Company
1221 West Idaho
Boise,Idaho 83702
ttatum(Eidahooower. com
Jean D. Jewell
Commission Secretary
Idaho Public Utilities Commission
472W. Washington
Boise,Idaho 83702
f t rr6t- Lt tfr&r:
Nina Curtis
Administrative Assistant
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
rPC-E-15-17
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CONCLUSION
The ICIP recommends the Commission approve Idaho Power's application in this docket
with the modifications noted herein.
RESPECTFULLY SUBMITTED this 27thday of August 12015.
the tndustrial Customers of ldaho Power
CERTIFICATE OF SERVICE
I hereby certify that on the2Tth day of August 2015, copies of the foregoing Comments
of the Industrial Customers of Idaho Power were hand delivered to:
LisaNordstrom
Idaho Power Company
1221 West Idatro
Boise,Idaho 83702
lnordstrom@idahopower. com
dockets@ idahopower. com
Tim Tatum
Idaho Power Company
1221 West Idaho
Boise,Idaho 83702
ttatum@ idahopower.com
Jean D. Jewell
Commission Secretary
Idaho Public Utilities Commission
472W. Washington
Boise,Idaho 83702
COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
IPC-E-15-17
PAGE 9
Administrative Assistant