20170518Comments.pdf

DAPHNE HUANG
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8370
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO INCREASE RATES FOR ELECTRIC
SERVICE TO RECOVER COSTS ASSOCIATED
WITH THE NORTH VALMY PLANT.
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CASE NO. IPC.E.I6-24
COMMENTS OF THE
COMMISSION STAFF ON
PROPOSED SETTLEMENT
i) l,,l
Street Address for Express Mail:
472W, WASHINGTON
BOISE, IDAHO 83702.5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Daphne Huang, Deputy Attorney General, and, submits the following
comments in support of the Settlement.
BACKGROUND
On October 2l,20l6,Idaho Power Company filed an Application requesting
Commission authorization to "(l) 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 l, 2017 ." Application at 1 . The Company concurrently filed Case No. IPC-E- 16-23 to
1STAFF COMMENTS MAY t8,2017
adopt revised depreciation rates for its electric plant-in-service, but carving out treatment of
Valmy-related depreciation to be handled in this case.
The Company's end-of-life date for Valmy Unit I and Unit 2 is currently 2031 and 2035,
respectively. However, NV Energy, co-owners of the Valmy plant with Idaho Power, have an
authorized 2025 end-of-life date for both units, which the Nevada Commission has required NV
Energy to re-evaluate.l This, in conjunction with Idaho Power's preferred portfolio in the 2015
IRP reflecting the closure of Valmy at the end of 2025, formed the basis for the Company's
Application.
Because of the accelerated end-of-life date, Idaho Power recognized the need to begin
recovery through amortization of accelerated depreciation of remaining Valmy plant-in service
currently in base rates. The Company also requested amortized recovery for:
1. Capital investments in Valmy made since the last general rate case (Case No. IPC-E-
1 1-08) not yet included in base rates;
2. Future incremental capital investments planned from June 2017 through Valmy end-
of-life in2025; and
3. Decommissioning cost net of salvage after the facility is closed.
The sum total in the Company's original Application request was an overall increase of 2.5lYo.
Errata to Application (Case No. IPC-E-16-24).
The parties conferred and agreed to process the Applications via Modified Procedure
with agreed comment deadlines, which the Commission adopted. Order No. 33690. The parties
also met twice to discuss settlement.
On May 3,2017, all parties agreed or did not object to Settlement Stipulations that they
assert fully resolve the issues in each case. The Company filed the Settlement Stipulations and
Agreed Motions to Approve the Settlement Stipulations.
STAFF COMMENTS SUPPORTING SETTLEMENT STIPULATION
Stafffully supports the Settlement Stipulation resolving Case No. IPC-E-16-24, cost
recovery associated with the North Valmy Plant. Staff believes the agreement represents afair,
just, and reasonable compromise that provides the Company with Valmy capital recovery given
that the economics of keeping the facility open until its current planned retirement date is no
t NV Energy was ordered by the Nevada Commission to conduct and submit a Valmy Life Span Analysis Process
study by December, 2017. See Public Utilities Commission of Nevada, Docket No. l6-07001, at62-63,86,
2STAFF COMMENTS MAY 18,2017
longer favorable. In addition, Staff believes that provisions of the agreement strike the right
balance between rate stability, intergenerational equity2, and total cost borne by ratepayers.
The Settlement Stipulation (paragraph 6), if approved, would provide the Company with
an Idaho jurisdictional revenue increase of $ 13,285,285 which is an overall increase of 1 .17% -
less than half of the original request. The increase would be recovered from customer classes
through a uniform percentage increase to all base rate components except the service charge.
The Settlement Stipulation (paragraph 6) requests an effective date of June 1,2017.
At the core of the case are the assumed retirement dates of the two Valmy generation
units for which the Company seeks recovery. To an extent, the closure dates affect (1) the lenglh
of time the Company has to recover capital cost and to continue to earn a return; (2) the
incremental capital cost needed to keep the facility in operation while still open; and (3) the
amount of savings customers will realize by closing a plant that has shown to be no longer
economic. In addition, the retirement dates also establish when Valmy capacity is no longer
needed to reliably and cost-effectively meet load. Given uncertainty in fuel prices,
environmental regulations, customer loads, etc., Staff believes that flexibility - allowing
adjustments as circumstances change - will help ensure Valmy is retired at least-cost and least-
risk to ratepayers. As a complicating factor, the facility is jointly owned between Idaho Power
and NV Energy requiring both companies to agree on when the facility should be closed.
Staff believes the four sets of Settlement provisions outlined in the Stipulation (at I )
achieve the flexibility that can help ensure the least-cost, least-risk outcome. First, Staff supports
the establishment of a balancing account that allows rates to be established now based on
forecasted expenses and benefits with true-ups to actual prudently incurred amounts for
adjustment in rates later. Second, Staff supports an iterative process to review Valmy retirement
and investment plans relative to the most up-to-date circumstances at key points in time,
determine prudency of past and future investments, and make adjustments in the balancing
account and to rates as required. Third, Staffsupports the creation ofregulatory accounts and
assets needed to comply with Generally Accepted Accounting Principles. Finally, Staff supports
the Company's need to resolve and settle all issues in this case concurrently with Idaho Power's
Depreciation case, Case No. IPC-E-16-23.
2 Definition of Intergenerational Equity: the idea that one generation of customers should not incur costs to pay for
facilities that benefit another generation of customers.
JSTAFF COMMENTS MAY 18,2017
Valm:t Unit Closure Dates
Idaho Power's Application originally requested recovery associated with retiring both
Valmy Units in2025. In selecting these closure dates, the Company relied on two studies: (1)
the 2015 IRP Preferred Portfolio; and (2) an updated 2016 study comparing a2025 shutdown
date to the original203112035 shutdown dates submitted as part of the Application. Upon its
review, Staff believed the 2015 IRP study and updated 2016 study warranted investigation into
an earlier shutdown date.
In the 20 I 5 IRP Preferred Portfolio, which included a 2025 retirement date for both units,
the preferred portfolio was not the least-cost/least-risk portfolio. Rather, the 2015 IRP
quantitative analysis showed that the least-cost/least-risk portfolio included retiring Unit 1 in
2019 andUnit 2 in 2025. The 2025 retirement date for both units, as selected by the Company,
was based on qualitative risk factors, including uncertainty regarding PURPA contract power
delivery, Boardman to Hemingway's online date, the Clean Power Plan, and aligning Valmy
retirement dates with NV Energy. Staff noted that the Company's Preferred Portfolio had a $75
million higher Net Present Value than the least-cosVleast-risk portfolio.
As to the Company's updated 2016 study, Staff noted the results showed that customers
benefited from early retirement (2025 for both units, as compared to 2031 for Unit I and 2035
for Unit 2). However, the study did not analyze the possible benefits of retiring the plant earlier
than2025.
Based on the 2015 IRP and updated2016 studies, Staff was concerned that the Company
had not fully assessed the economic viability of continued Valmy operation. In order to
determine the shutdown date that minimized costs to customers without compromising
reliability, Staff asked the Company (through a discovery request) to quantify the cost savings of
retiring Unit I earlier than2025.
In response, the Company conducted a supplemental study that confirmed the cost
savings associated with the 201912025 retirement dates and stated that the qualitative risks
identified in its 2015 IRP had been largely resolved. In particular, the Company specified that
retirement of Unit I in 2019 does not create capacity or energy deficits. Based on the robust
2015 IRP analysis and confirmed in the Company's Supplemental study, Staff and the Company
now believe that 2019 is the appropriate retirement year on which to base Unit I cost recovery.
As reflected in the Settlement Stipulation, the Company and Staff now recommend - and no
4STAFF COMMENTS MAY 18,2017
party opposes - that Unit I costs be forecasted and recovered from customers in the balancing
account.
The Company's supplemental study also showed that Unit 2 becomes significantly less
economic after Unit I is retired because the common costs are spread over fewer generating
kilowatt hours. Consequently, Staff believes it may be economical for Unit 2 to be retired earlier
than2025. Staff believes that future circumstances characterized by continued low gas prices
and regulatory pressure to reduce carbon emissions will require the Company to regularly assess
the economics of continued investment and operation of its coal plants. Without periodic
analysis, Staff believes the Company could operate Unit 2 beyond its economically viable life
and on that basis make unnecessary capital investments in the plant for later recovery from
customers.
In light of the Company's supplemental study, Staff supports a revenue requirement
increase that does not include any Unit 2 future investment (Stipulation, paragraph 6) until after
the proposed retirement of Unit I in 2019 and additional economic analysis is conducted that
properly evaluates the economics of continued Unit 2 operation. Staff also supports the
Stipulation provision that states, "Idaho Power will conduct ongoing analyses to evaluate the
economics of Unit 2 retirement and submit the results as part of its Integrated Resource Plan."
(Stipulation, paragraph I 0).
Staff recognizes that regardless of additional economic analysis, the Company's 50/50
ownership position in Valmy with NV Energy may require a compromise on retirement dates.
Consequently, Staff supports the Company's good faith efforts to negotiate closure dates with
NV Energy as outlined in the Stipulation (paragraph 11); and to keep all parties to this
Settlement informed of the results of the negotiations (Stipulation, paragraph 12).
Balancine Account
Staff supports using a balancing account for the full cost recovery of the Valmy plant.
The balancing account methodology is beneficial in that it allows an accelerated
depreciation/amortization schedule to match the recommended cost recovery. The initial
recovery established in the Settlement will mitigate future rate impacts associated with the earlier
shutdown of the facility. Waiting to increase rates will ultimately result in a larger increase in
the future.
5STAFF COMMENTS MAY 18,2017
The balancing account model calculates the levelized revenue requirement associated
with accelerated depreciation, future incremental investments, O&M savings, and
decommissioning costs. Staff is satisfied that the inputs are correct and that the output from the
model reasonably calculates a levelized incremental annual revenue requirement needed to
accelerate the depreciation of the Valmy facility. Staff has thoroughly reviewed the
methodology and believes the output from the model can be relied upon to calculate the levelized
revenue requirement for the Valmy Plant.
It is assumed that the Company will continue to use the same methods as those used with
the Boardman balancing account. The balancing account methodology is used to track the
monthly deviations between forecasted revenue collection and actual revenue collection, and the
deviations between existing levelized revenue requirement calculations and updated levelized
revenue requirement calculations. These two tracked components are reviewed annually to
determine whether or not arate adjustment is needed. Under this approach, customers will pay
the actual capital-related costs of the plant until 2028.
Staff supports using a9.5o/o Return on Equity (ROE) to calculate the levelized revenue
requirement for Valmy for two reasons. First, it is the same ROE currently applied to the
Accumulated Deferred Investment Tax Credit trigger approved by Order No.32424 (Case No.
IPC-E-l l-22). Second, it is the same ROE used in the Boardman coal plant amortization and
deferral account.
Staff also supports levelizing the revenue requirement through 2028. Staff believes a
3-year extension beyond plant closure provides added rate stability without sacrificing
intergenerational equity or significantly increasing total cost to customers.
Staff supports derivation of the levelized revenue requirement that includes: (l) all
current Valmy capital investments including $70 million in investments made in the facility
since the last general rate case through July 31,2016 (Application at 6); (2) projected Valmy
Unit I capital additions from2017 through 2019; (3) current and future non-fuel operations and
maintenance savings beginning June 1 ,2017 until Valmy operations are no longer reflected in
base rates; and (4) projected decommissioning costs (excluding contingency estimates)
(Stipulation, paragraph 6).
Staff also supports a true-up to actual prudently incurred costs in the balancing account
(excluding existing Valmy investments) as stated in the Stipulation (paragraph l5). Staff
6STAFF COMMENTS MAY t8,2017
performed a thorough review of current capital investments not yet in base rates and found them
to be prudently incurred.
Iterative Process Aporoach to Cost Recoverv
Staff supports the use of an iterative approach to accomplish the full and fair recovery of
Valmy's revenue requirement (Stipulation, paragraphs l3a, l3b, and 13c). The approach uses a
minimum of three separate filings: (1) the current filing (Case No. IPC-E-16-24) which includes
$13.3 million increase in the Company's annual revenue requirement; (2) a future filing on or
before the end of 2019 after Unit I is closed, which could potentially increase the annual revenue
requirement for Unit 2 incremental investment; and (3) a filing after Unit 2 is closed on or before
the end of 2025, to make adjustments to rates based on a true-up to prudently incurred actual cost
and benefits. Restating what is written in the Stipulation, future filings will allow the following:
2020 Adjustment to Base Rates
o Unit 1 prudency review and forecast-to-actual adjustment of 2017-2019
incremental investment.
o Unit 2 prudency review and potential inclusion of 2017-2019 incremental
investment.
r Unit 1 and Unit 2 forecast-to-actual adjustment of 2017-2019 (Base vs.
Forecasted) O&M savings.
o Unit 2 closure validation study and potential inclusion of forecasted2020-2025
incremental investment.
2026 Adjustment to Base Rates and Refund or Surcharge of Balance
o Unit 2 prudency review and forecast-to-actual adjustment of 2020-2025
incremental investment.
o Unit I and Unit 2 forecast-to-actual adjustment of 2020-2025 (Base vs.
Forecasted) O&M savings.
o Unit I and Unit 2 prudency review and forecast-to-actual adjustment of
decommissioning cost.
The cost recovery plan and incremental revenue requirements is based on the assumption
that Unit I will be closed at the end of 2019 and Unit 2 will be closed in2025 per the Company's
Valmy Unit Closure Study. Because the study indicates different unit closure dates, and because
7STAFF COMMENTS MAY 18,2017
it provides indications that Unit 2 could potentially be closed earlier than2025, Staff believes the
Stipulation appropriately delays recovery of Unit 2 incremental investments but provides an
opportunity for future recovery when/if the need and amount of additional investments become
more certain. In addition, these periodic filings will provide an opportunity for true-up to actual
cost, rate adjustments, and inclusion of incremental costs in the balancing account.
Requlatory) Accounts and Assets
Staff supports an accounting order that allows Idaho Power to establish all regulatory
accounts, including regulatory assets, and make all needed accounting entries required to comply
with Generally Accepted Accounting Principles (Stipulation, paragraphs 7, 9). This also
includes estimated accumulated deferred income taxes (ADIT) the Company used to determine
the revenue requirement and adjustments needed to separate Valmy from ADIT to be used in
future rate proceeding for other thermal plants (Stipulation, paragraph 8). Staff agrees that an
accounting order with periodic adjustments are needed in order to align unit closure dates of
201912025 with a cost recovery period of 2017 through 2028.
STAFF RECOMMENDATIONS
Staff recommends that the Commission approve the Settlement Stipulation as proposed.
Respectfully submitted this l# O^, of May 2017
Huang
Deputy Attorney
Technical Staff: Mike Louis
i : umisc:comments/ipce I 6.24djhdkklsrkyysd comments
8STAFF COMMENTS MAY t8,2017
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS l8th DAY OF MAY 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF ON
PROPOSED SETTLEMENT, IN CASE NO. IPC-E-16.24, BY MAILING A COPY
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
LISA D NORDSTROM
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-mail : [e-mail]
[e-mail]
ERIC L OLSEN
ECHO HAWK & OLSEN PLLC
PO BOX 6t l9
POCATELLO ID 83205
E-mail: [e-mail]
BEN OTTO
ENERGY ASSOCIATE
ID CONSERVATION LEAGUE
7IO N 6TH ST
BOISE TD 83702
E-mail : [e-mail]
THORVALD A NELSON
ET AL
HOLLAND & HART LLP
6380 S FIDDLERS GREEN CIR
STE 5OO
GREENWOOD VILLIAGE CO 8OI I I
E-mail : [e-mail]
fschmidt@hollandhart. com
[e-mail]
bthansen@hollandhart. com
MATTHEW T. LARKIN
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail: [e-mail]
ANTHONY YANKEL
I27OO LAKE AVE
LINIT 2505
LAKEWOOD OH 44107
E-mail: [e-mail]
PETE BENNETT
MICRON TECHNOLOGY INC
8OOO S FEDERAL WAY
BOISE ID 83707
E-mail: [e-mail]
E.MAIL ONLY
[e-mail]
klhal l@hollandhart. com
kmtrease@hol landhart. com
CERTIFICATE OF SERVICE
TRAVIS RITCHIE
ASSOCIATE ATTORNEY
SIERRA CLUB
2IOI WEBSTER ST STE I3OO
OAKLAND CA946I2
E-mail: [e-mail]
STEVEN PORTER
US DEPT OF ENERGY
1OOO INDEPENDENCE AVE SW
ROOM 6D-033
WASHINGTON DC 20585
E-mail : [e-mail]. gov
CERTIFICATE OF SERVICE