20170106Reply Comments.pdf

JULIA A. HILTON
Senior Counsel
[e-mail]
January 5, 2017
VIA HAND DELIVERY
Diane M. Hanian, Secretary
Idaho Public Utilities Commission
4 72 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-16-19
An IDACORP Company
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Deferral and Recovery of Costs Associated with Participation in Energy
Imbalance Market -Idaho Power Company's Reply Comments
Dear Ms. Hanian:
Enclosed for filing in the above matter please find an original and seven (7)
copies of Idaho Power Company's Reply Comments.
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Enclosures
Julia A. Hilton
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
JULIA A. HILTON (ISB No. 7740)
Idaho Power Company ,.._, 1221 West Idaho Street (83702) :=:,
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )
DEFERRAL AND RECOVERY COSTS )
ASSOCIATED WITH PARTICIPATION IN )
AN ENERGY IMBALANCE MARKET )
)
CASE NO. IPC-E-16-19
IDAHO POWER COMPANY'S
REPLY COMMENTS
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Idaho Power Company ("Idaho Power" or "Company") respectfully submits the
following Reply Comments in response to comments filed by the Idaho Public Utilities
Commission ("Commission") Staff ("Staff'), the Industrial Customers of Idaho Power
("ICIP"), the Idaho Conservation League ("ICL"), and the Snake River Alliance ("SRA")
on December 15, 2016.
I. BACKGROUND
Idaho Power welcomes the comments provided by Commission Staff, ICIP, ICL,
and SRA in this case, particularly the general support for the Company to join the
energy imbalance market ("EIM"). Idaho Power also appreciates that no party opposes
the Company's request to defer incremental costs associated with EIM participation .
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
Both ICL and SRA recommend approval of the Company's Application. Staff's
Comments recommend approval of:
• An accounting order authorizing the deferral of incremental costs
associated with participation in the EIM and for the deferrals to cease
by December 2018.
• The Company's proposed accounting.
• An amortization period of 10 years.
• No carrying charge during the deferral period .
• During the amortization period, a carrying charge on the capital
portion of the unamortized deferral balance at the Company's current
rate of return (''ROR").
• Allowing recovery of costs in a future rate proceeding only after
prudence has been determined.
ICIP does not oppose the Commission's issuance of an order authorizing the
deferral of costs associated with participation in the western EIM or the
acknowledgement of the expected benefits resulting from Idaho Power's participation in
the western EIM, but opposes Commission authorization of rate recovery prior to a
prudence determination in a future proceeding.
II. IDAHO POWER'S REPLY
Idaho Power acknowledges and appreciates the extensive review of the
Company's request by the parties throughout the course of this case . Idaho Power also
values and supports Staff's comments, as well as its conclusion that "the overall
potential long-term benefits to customers will likely outweigh the incremental costs of
joining the EIM." Staff Comments at 3.
In these Reply Comments, the Company respectfully seeks to add context and
clarification to three items contained in Staff's Comments, in the event that the
Commission issues an order adopting Staff's proposed modifications to the Company's
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
filing. The three items are as follows: (1) should the Commission require a
demonstration of actual western EIM benefits as part of any future prudence review of
EIM-related costs, that such prudence determination will rely upon the California
Independent System Operator's ("CAISO") quarterly reporting of Idaho Power's share of
western EIM participation benefits, (2) the deferral of incremental costs associated with
participation in the western EIM is to include operation and maintenance ("O&M")
expenses only, and (3) that the Commission interpret Staff's proposal regarding when
the Company would cease recording costs to the deferral account to be at the earlier of
when (i) the Company begins recovery of EIM costs and the deferral balance or (ii) the
end of 2018, not at the time the Company requests recovery through an application with
the Commission.
A. Quantification of Benefits When Participation in the Western EIM
Commences.
Idaho Power contracted with Energy and Environmental Economics, Inc. ("E3") to
perform a comprehensive study that estimated the potential for reduced net power
supply costs that may exist with the Company's participation in the western EIM. E3
used a production simulation model that compared the Company's real-time generation
costs as an EIM participant, as well as any power supply related revenues or costs from
the transactions with other EIM participants, against a scenario in which Idaho Power
was not a participant in the western EIM . Staff performed an extensive review of the
benefits study that was completed by E3 and detailed its findings in comments,
concluding that "Staff understands the uncertainty and limitations of estimating benefits
derived through modeling but ultimately agrees that the Company's approach to
calculating potential benefits is conservative and reasonable under the circumstances."
Staff Comments at 3.
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
Idaho Power recognizes the thorough review by Staff of the benefits study
performed by E3. In these Reply Comments, however, the Company requests that if
the Commission approves Staff's recommendation , it acknowledges in its order that the
quantification of actual benefits derived once participation in the western EIM
commences will be based on reports released by CAISO on a quarterly basis,
Quantifying EIM Benefits. CAISO's quarterly report quantifies the estimated gross
benefits achieved by western EIM participants for the previous calendar quarter.
CAISO determines the total EIM benefit by calculating the cost savings of the EIM
dispatch as compared to a counterfactual without EIM dispatch and includes the
estimated gross benefits by EIM participant and quarter. Given the cost of contracting
with E3 to perform the study, and because this function is already performed by CAISO
as a component of EIM participation , the Company and stakeholders should use these
quarterly quantifications as the basis for benefit determinations. Therefore, if the
Commission approves the Company's Application, Idaho Power requests the
Commission include language in its order acknowledging that the CAISO quarterly
reports will be used as the basis for determination of benefits associated with EIM
participation.
B. The Deferral of Incremental Costs Associated with Participation in the
Western EIM.
As discussed in the Company's initial filing, Idaho Power will incur up-front start­
up expenses in preparation of participation in the western EIM, and once participation
begins in 2018, the majority of the resulting cost savings benefits will automatically flow
directly to customers through the Power Cost Adjustment (PCA) mechanism. Absent
the ability to recover these start-up expenses, Idaho Power would suffer significant
negative financial impacts. The Company is requesting approval to defer the Idaho
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
jurisdictional share of these expenses to a regulatory asset until they can be amortized
into customer rates after participation in the western EIM commences, appropriately
matching the costs and benefits of participation .
On page 12 of its Comments, Staff recommends "the Commission authorize a
deferral of the start-up and incremental costs associated with joining the western EIM"
and that "a deferral account is the appropriate mechanism to capture the initial costs
until such time as the benefits begin to flow to customers." If the Commission approves
Staff's recommendation , Idaho Power requests that it clarify in its order that the
Company should only record O&M start-up expenses to the deferral account, not
capitalized incremental costs. Idaho Power's proposal in this proceeding is to treat
capitalized investments required for participation in the western EIM in the same
manner as any other capital investment and use the methodology prescribed by the
Federal Energy Regulatory Commission's Uniform System of Accounts ; these amounts
would first be recorded in Construction Work in Progress until participation begins, at
which time the costs would be closed to Electric Plant in Service. If the Company were
to record capital costs to a regulatory asset account with no carrying charge, it would
result in a negative financial impact to the Company relative to the standard treatment of
other capital investment. Consequently, the Company respectfully requests that in the
event the Commission approves Staff's recommendation, it include language in its order
specifying that the deferral treatment only applies to the O&M expense portion of start­
up costs.
C. Clarification of Staff's Proposal to Cease Deferral of Western EIM Start-up
Costs.
On page 12 of Staffs Comments, it recommends that the Commission direct the
Company to "cease booking costs to the deferral balance at the earlier of when the
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
Company requests recovery of EIM costs and the deferral balance, or the end of 2018."
The Company believes the meaning of the first qualifier in Staff's recommendation could
be interpreted in two different ways. That is, the Company would either cease recording
costs to the deferral account at the time the Company requests recovery through an
application with the Commission or, in the alternative, at the time the Company begins
recovery of EIM costs and the deferral balance. Should the Commission accept the
Staff's proposal in this regard, the Company believes that it is appropriate to allow for
the deferral of EIM start-up costs until at least the earlier of when the Company begins
recovery of EIM costs and the deferral balance or the end of 2018. Ceasing the deferral
of costs any earlier would not provide the Company a reasonable opportunity to recover
its prudently incurred costs due to length of time necessary for the regulatory review
process prior to recovery through rates. Therefore, if Staff's proposal is accepted, the
Company requests that the Commission include language in its order stating that the
Company would cease recording costs to the deferral account at the earlier of when the
Company begins recovery of EIM costs and the deferral balance or the end of 2018.
Ill. CONCLUSION
Idaho Power would like to reiterate its appreciation of the review by Commission
Staff and other parties as they considered the Company's Application. Idaho Power
also appreciates the opportunity to respond to comments filed in this case, and
respectfully requests that in the event the Commission issues an order adopting Staff's
proposed modifications to the Company's filing, the order language clarify: (1) any
future demonstration of actual western EIM benefits will rely upon CAISO's quarterly
reporting of Idaho Power's share of western EIM participation benefits, (2) the deferral
of incremental costs associated with participation in the western EIM is to include O&M
expenses only, and (3) that the Commission interpret Staff's proposal regarding when
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
the Company would cease booking costs to the deferral account to be at the earlier of
when the Company begins recovery of EIM costs and the deferral balance or the end of
2018, and not at the time the Company requests recovery through an application with
the Commission.
DATED at Boise, Idaho, this 5th day of January 2017.
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 5th day of January 2017 I served a true and
correct copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following
named parties by the method indicated below, and addressed to the following :
Commission Staff
Brandon Karpen
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-007 4
Industrial Customers of Idaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 2]1h Street (83702)
P.O. Box 7218
Boise, Idaho 83707
Dr. Don Reading
6070 Hill Road
Boise, Idaho 83703
Snake River Alliance
Ken Miller, Energy Program Director
Snake River Alliance
223 North Sixth Street, Suite 317
P.O. Box 1731
Boise, Idaho 83701
Idaho Conservation League
Benjamin J. Otto
Idaho Conservation League
710 North 5th Street
Boise, Idaho 83702
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