20161104Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: CAMILLE CHRISTEN
DEPUTY ATTORNEY GENERAL

DATE: NOVEMBER 3, 2016

SUBJECT: THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY
TO INCREASE ITS RATES FOR ELECTRIC SERVICE TO RECOVER
COSTS ASSOCIATED WITH THE NORTH VALMY PLANT, CASE NO.
IPC-E-16-24

On October 21, 2016, Idaho Power Company filed an Application requesting
Commission authorization to “(1) accelerate the depreciation schedule for the North Valmy
power plant (“Valmy”) to allow the plant to be fully depreciated by December 31, 2025; (2)
establish a balancing account to track the incremental costs and benefits associated with the
accelerated Valmy end-of-life date, and (3) adjust customer rates to recover the associated
incremental annual levelized revenue requirement of $28.50 million with an effective date of
June 1, 2017.” Application at 1. The result is an overall increase of 2.51 percent.1 The
Company concurrently filed this Application with a request to adopt revised depreciation rates
for its electric plant-in-service and correspondingly adjust Idaho jurisdictional base rates (Case
No. IPC-E-16-23). With the filings, the Company intends to facilitate a single rate change for
customers, and asks the Commission to enter final Orders in both matters by April 1, 2017, to
allow it to incorporate any associated rate impacts in its April 14, 2017 Power Cost Adjustment
(PCA) filing.

1 Application Attachment 1. Staff counsel contacted Idaho Power about discrepancies in the Company’s filing
papers. According to Idaho Power, the 2.51 percent figure identified in Attachment No. 1 is correct and reflects the
impact of the Valmy Application, Case No. IPC-E-16-24. The 3.10 percent figure in the Application at 10 was not
intended to be used in that sentence; it reflects the combined impact of the Applications in both Case Nos. IPC-E-
16-23 and IPC-E-16-24.
DECISION MEMORANDUM 2
THE APPLICATION
The Company’s most recent Commission-approved depreciation study, which went
into effect on June 1, 2012, reflects retirement of the Valmy plant’s two units in 2031 (Unit 1)
and 2035 (Unit 2). Id. at 2. (Idaho Power co-owns these units with NV Energy, with each
owning 50 percent, and NV Energy operates the plant. Id. at 3.) The Company explains that in
preparing to file a new depreciation study, which it filed concurrently to this Application in Case
No. IPC-E-16-23, it identified that significant changes had occurred with regard to the life of the
Valmy plant which warrant a specific review. Id. at 2.
The Company explains that in 2013 the Public Utilities Commission of Nevada
approved a 2025 end-of-life date for both units for NV Energy, and that NV Energy used that
date for both units in its most recent depreciation study, filed with the Nevada Commission in
June 2016. Id. This “provides an indication that the Valmy plant will not be operational beyond
2025.” Id. at 3.
The Company explains its treatment of Valmy’s retirement dates in recent past
studies and analyses: in its 2013 Coal Unit Environmental Investment Analysis for the Jim
Bridger and North Valmy Coal-Fired Power Plants (2013 Coal Study), and in its two most recent
Integrated Resource Plans (IRP). Id. at 3-4. The 2013 Coal Study used end-of-life dates of 2031
for Unit 1 and 2035 for Unit 2 in analysis of future investments for environmental compliance.
Id. at 4. The 2013 IRP’s preferred portfolio included continued operations at the plant, in full
environmental compliance, through the 2013-2032 planning period. Id. However, the 2015
IRP’s preferred portfolio for the 2015-2034 planning horizon contained the Boardman to
Hemingway transmission line and retirement of Valmy in 2025, both of which showed favorable
economics in the Company’s IRP analysis. Id.
The Company also states that significant changes in Valmy operations have occurred
since 2010. Id. at 5. Prices for off-system sales have declined significantly since 2010, as have
the number of hours in which Valmy operates economically. Id. The dispatch cost is now
typically higher than the market price. Id. Instead of using Valmy to generate off-system sales,
the Company relies on Valmy to meet peak energy needs (for example, in extreme cold or hot
weather) and that it will continue to do so as load increases and until new resources are available
during peak hours or can provide additional transmission capacity. Id.
DECISION MEMORANDUM 3
The Company states that accelerating the depreciation of Valmy will (1) result in the
appropriate matching of cost recovery with the remaining operating life of the plant; and (2)
mitigate future rate impacts associated with earlier shutdown of the plant. Id. at 7. The
Company is requesting establishment of a balancing account to track costs and recovery of the
levelized revenue requirement that includes the costs of accelerating the depreciation of Valmy,
the return associated with the Valmy capital investments net of accumulated depreciation
forecasted through the remaining life of the plant, and the decommissioning costs associated with
a 2025 end-of-life. Id. at 8, 9. The Idaho jurisdictional incremental annual levelized revenue
requirement that the Company is requesting to recover is $28,497,934, to be recovered from all
customer classes through a uniform percentage increase to all base rate components except the
service charge. Id. at 10.
The Company has filed one set of tariff sheets specifying the proposed rates including
the proposed changes from both this Application and the related one in Case No. IPC-E-16-23
and asserts that filing individual tariff sheets with each Application would be administratively
complex and would not aid in the review of the proposed adjustments. Id. at 10.
STAFF RECOMMENDATION
Staff recommends that the Commission issue an Order providing notice of
Application and setting an intervention deadline of 21 days from the service date of the Order.
The Order should also direct Staff to confer with the parties about a proposed schedule, and to
report the proposed schedule to the Commission.
COMMISSION DECISION
Does the Commission wish to issue an Order providing notice of the Application,
setting an intervention deadline of 21 days from the service date of the Order, and directing Staff
to confer with the parties about a proposed schedule and to report the proposed schedule to the
Commission?

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Camille Christen
Deputy Attorney General