20161214Application.pdf

RE.C -IVED
LISA D. NORDSTROM
Lead Counsel
[e-mail]
7.0lb EC I 4 P 4: 50
December 14, 2016
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-16-32
An IDACORP company
IN THE MATTER OF THE APPL/CATION OF IDAHO POWER COMPANY
FOR A DETERMINATION OF HELLS CANYON COMPLEX RELICENSING
COSTS THROUGH 2015 AS PRUDENTLY INCURRED
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of Idaho Power
Company's Application in the above matter.
In addition, enclosed are an original and eight (8) copies each of the Direct
Testimony of Timothy E. Tatum, the Direct Testimony of Chris Randolph, and the Direct
Testimony of Ken W. Petersen filed in support of the Application. One copy of each of the
aforementioned testimonies has been designated as the "Reporter's Copy." In addition, a
disk containing a Word version of the three testimonies is enclosed for the Reporter.
In Order No. 30722, the Idaho Public Utilities Commission ("Commission") instructed
Idaho Power to file a status report with the Commission by November 15, 2009, regarding
relicensing of the Hells Canyon facilities, including the accumulation of AFUDC. Since
2009, Idaho Power has continued to file a report annually in order to keep the Commission
updated. Because this filing provides an even greater level of detail of relicensing activity
and AFUDC accumulation than that discussed in the annual report, Idaho Power does not
intend to file a report in 2016.
LDN/kkt
Enclosures
Very truly yours,
~~f!_-11~
Lisa D. Nordst"'~
LISA D. NORDSTROM (ISB No. 5733)
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
[e-mail]
Attorney for Idaho Power Company
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A ) CASE NO. IPC-E-16-32
DETERMINATION OF HELLS CANYON )
COMPLEX RELICENSING COSTS ) APPLICATION
THROUGH 2015 AS PRUDENTLY )
INCURRED. )
_______________ )
Idaho Power Company ("Idaho Power" or "Company"), in accordance with Idaho
Code § 61-524 and RP 052 hereby respectfully makes application to the Idaho Public
Utilities Commission ("Commission") for an order designating Idaho Power's
expenditures of $220,845,830 through December 31, 2015, in Hells Canyon Complex
("HCC") relicensing costs as prudently incurred and eligible for inclusion in customer
rates at a later date. The Company is not requesting an adjustment to customer rates
at this time.
In support of this Application, Idaho Power asserts as follows:
APPLICATION - 1
I. BACKGROUND
1. The HCC consists of three hydroelectric projects (dams, reservoirs, and
powerhouses) on the segment of the Snake River forming the border between Idaho
and Oregon. The three projects, Brownlee, Oxbow, and Hells Canyon, lie
approximately 90 miles northwest of Boise. The HCC represents approximately 1, 167
megawatts ("MW") of nameplate generation capacity or 34 percent of the Company's
total generating capacity and is an important source of low cost, clean electric energy
for Idaho Power's customers.
2. Idaho Power is required to obtain a license from the Federal Energy
Regulatory Commission ("FERC") to operate the HCC. The licensing process includes
extensive public review and involves numerous natural resource and environmental
agencies. Idaho Power's previous long-term license was set to expire on July 31, 2005.
In anticipation of that expiration, the Company began its relicensing efforts in 1991 in
preparation for the filing of a new license application, which ultimately occurred in July
2003. Because the Company's relicensing application is still pending, Idaho Power has
been operating under annual licenses issued by FERC since July of 2005 as the
Company and stakeholders work through outstanding issues associated with the
pending license application. Although Idaho Power is unable to predict with certainty
the timing of the issuance of a new license for the HCC, the Company estimates
issuance of the 40-to 50-year license will be delayed until at least 2021.
3. In Order Nos. 30722 and 32426, the Commission authorized Idaho Power
to collect $6,520,122 annually from the Company's Idaho jurisdictional customers for
recovery of Allowance for Funds Used During Construction ("AFUDC") associated with
the HCC relicensing project. AFUDC amounts collected from customers as of
December 31, 2015, are $58,834,892, resulting in a net HCC relicensing Construction
APPLICATION -2
Work in Progress ("CWIP") balance of approximately $162.1 million, on a system basis.
Because customers have already contributed to HCC relicensing costs, Idaho Power's
future request for recovery would be net of those previously collected amounts and
therefore less than the $220,845,830 the Company is requesting as prudently incurred
in this filing.
II. PRUDENCE DETERMINATION REQUEST
4. As explained in the direct testimony of Idaho Power Vice President of
Regulatory Affairs Timothy E. Tatum, Idaho Power is requesting a prudence
determination on $220,845,830 of HCC relicensing costs incurred by Idaho Power
through December 31, 2015, at this time because: (1) the project has spanned nearly
three decades to date and the HCC is currently providing customers with a clean,
reliable generating resource, (2) the transaction data file through year-end 2015
exceeds 186,000 rows of data providing the opportunity for an extensive transaction
review, (3) Idaho Power's subject matter experts and key employees involved in
relicensing efforts to date are nearing retirement, and (4) handling the prudence
determination outside a general rate case will allow the Commission Staff to narrow
their focus to HCC relicensing costs in this request rather than when the Company files
its next general rate case. While the Company is not requesting an adjustment to
customer rates at this time, Idaho Power is requesting the Commission authorize the
costs as prudently incurred and eligible for inclusion in customer rates at a later date.
5. To be eligible for recovery in customer rates, capital costs must be
associated with electric plant-in-service that is used and useful in the near term. Order
Nos. 32585 at 14-15, 32224 at 11-12. As Idaho Power operates under temporary,
annual licenses, the HCC continues to provide Idaho Power's customers a low cost,
clean source of more than 1,100 MW of generating capacity. The costs Idaho Power
APPLICATION - 3
has incurred over the past three decades are directly correlated to the Company's
efforts to license the HCC, both for a temporary, annual license as well as towards a
long-term license.
6. As of September 30, 2016 , Idaho Power has approximately $240 million in
HCC relicensing costs in CWIP. While Idaho Power is unable to predict with certainty
the financial or operational requirements of a new license, the Company estimates that
the annual costs it will incur to obtain the new long-term license, including AFUDC but
excluding costs expected to be incurred for complying with the license after issuance,
are likely to range from $20 million to $30 million until issuance of the new license.
7. If FERC does not issue a new license until 2021 , Idaho Power estimates
HCC relicensing costs to be between $350 million to $400 million. Based on the
Company's expectations, and assuming total HCC relicensing costs of $400 million and
1, 167 MW generating capacity, Idaho Power estimates the HCC cost is $358 per
kilowatt ("kW"). By comparison, the capital-cost estimate used in the 2015 Integrated
Resource Plan for a Combined Cycle Combustion Turbine is $1,145 per kW, far higher
than the estimated cost related to relicensing the HCC once a new license is received.
Ill. HCC RELICENSING OVERVIEW
8. The HCC is one of the largest privately owned hydroelectric projects
licensed under the Federal Power Act. Because it forms the border between Idaho and
Oregon, the HCC is subject to the jurisdiction of both states. Portions of the project are
either within or adjacent to national forest lands, wilderness areas, the Hells Canyon
National Recreation Area and other federal reservations. In all, the relicensing of the
HCC must comply with various provisions of the Wilderness and Wild and Scenic Rivers
Acts, the National Historic Preservation Act, the National Environmental Policy Act
("NEPA"), regulations of the Environmental Protection Agency, the Clean Water Act
APPLICATION - 4
("CWA"), the Endangered Species Act ("ESA"), the Electric Consumers Protection Act,
and various Idaho and Oregon laws and regulations.
9. As described in the direct testimony of Idaho Power Environmental Affairs
Director Chris Randolph, there are two major components of Idaho Power's licensing
process: (1) pre-filing and (2) post-filing. Pre-filing activities include first and second
stage consultation which develop a study package, results from those studies, and
reporting of the study results. The draft license application is developed as a pre-filing
activity. Post-filing includes the filing of the final license application, obtaining the § 401
water quality certification ("§ 401 certification"), ESA consultation, and the final license
issuance by FERG. Despite the Company's efforts towards relicensing HCC over
nearly three decades, there are three issues that must be resolved in advance of a
license issuance: (1) the § 401 certification, (2) ESA consultation, and (3) the potential
for a revised or supplemental NEPA analysis.
10. The following table provides a high-level timeline associated with
Company's relicensing efforts including the corresponding timeline and related costs:
Table 1: HCC Relicensing Timeline and Costs
(including AFUDC)
Description Timing Cost (millions)
Pre-Filing Costs 1997 - 7 /2003 $51.08
Post-Filing Costs / 8/2003 -2015 $169.65
§ 401 Certification
Total1 $220.73
1 The sum of the costs presented is $220.73 million which is approximately $170,000 less than
the Company's December 31, 2015, Construction Work in Progress ("CWIP") balance associated with
HCC relicensing costs. The difference is the result of certain credit amounts within the transaction data
that are described in further detail in the testimony of Company witness Ken W. Petersen.
APPLICATION -5
IV. PRE-FILING EXPENDITURES: 1997-2003
11 . The traditional licensing process generally consists of three stages,
referred to as "consultation stages." The first and second stages typically involve pre­
filing consultation, completion of studies, and preparation of a draft license application.
The third stage of the consultation process is the filing of the final license application
with FERG. Idaho Power's relicensing efforts began in 1991 prior to entering the formal
consultation stages of FERC's traditional licensing process. Following completion of
this preliminary work, in 1996 the Company began the first stage of formal consultation,
followed by the commencement of the second stage in mid-1997. The second stage of
the consultation process was complete in July 2003, when the Company filed its official
license application with FERG.
12. Prior to 1997, relicensing activity was recognized for accounting purposes
as operations and maintenance expenses or "expensed" in the year incurred. In 1997,
the Company determined that costs specific and incremental to relicensing efforts
should be capitalized. At that time, the 1997 HCC relicensing charges were reclassified
to capital and transferred to a specific work order on a going forward basis. In all, Idaho
Power has incurred $51 million associated with relicensing activities between 1997 and
July 2003. The following chart summarizes relicensing costs by year and by resource
category, including AFUDC amounts accrued:
APPLICATION -6
Table 2: HCC Relicensing Costs, 1997 -July 2003
(OOOs)
Jan.Jul
Resource 1997 1998 1999 2000 2001 2002 2003 Total
Aesthetic $2 $3 $2 $283 $182 $12 $0 $484
Aquatic $816 $2,457 $3,904 $4,626 $4,299 $3,461 $2,049 $21 ,612
Archaeological/Cultural $287 $419 $452 $754 $494 $214 $10 $2,630
Recreation $408 $512 $585 $741 $513 $43 $135 $2,937
Admin and Legal $859 $1,140 $1 ,502 $1,298 $1 ,059 $2,044 $1 ,379 $9,281
Terrestrial/Botanical $237 $335 $1 ,089 $1,244 $1,003 $1 ,288 $812 $6,008
Wildlife $289 $394 $125 $0 $0 $0 $0 $808
Subtotal $2 ,898 $5,260 $7,659 $8,946 $7,550 $7,062 $4,385 $43,760
AFUDC $0 $0 $948 $1 ,584 $1 ,038 $1 ,695 $2,059 $7,324
Total Charges $2,898 $5,259 $8,607 $10,530 $8,589 $8,756 $6,444 $51,083
V. THE RELICENSING PROCESS: 2003-2015
13. FERG is expected to issue a 40 to 50-year term license order for the HCC
after completion of three remaining regulatory processes: the yet to be issued § 401
certification, ESA consultation, and a NEPA analysis. Once§ 401 certification has been
achieved, FERG will initiate the ESA consultation process. When Idaho Power submits
the § 401 certification applications to the states of Idaho and Oregon for consideration
and approval, both Idaho and Oregon give notice to the public of the opportunity to
comment on the proposals. The states then render a decision on the § 401 certification
within one year of submittal of the applications, including any measures to be included
in the project license to address water quality impacts. After § 401 certification is
achieved, FERG initiates ESA consultation on the project license. FERC cannot issue a
license for the HCC until both states have issued water quality certifications under§ 401
and ESA consultation on the licensing of the project is completed.
14. The filing of Idaho Power's license application initiated the third stage of
formal consultation under FERC's traditional licensing process and on December 3,
2003, FERC issued a notice accepting Idaho Power's final application and soliciting
motions to intervene and protests. Twenty-seven parties filed formal motions to
APPLICATION -7
intervene in the relicensing proceeding, including four Native American tribes, as well as
numerous federal and state resource agencies and non-governmental organizations.
Various parties also filed protests and comments to the license application with FERC.
A significant number of activities have occurred since that time and can be summarized
in the following categories: Environmental Impact Statements ("EIS"), Additional
Information Requests ("AIRs"), Hells Canyon Water Quality Certification, Site Specific
Water Temperature Standard, Mandatory Conditions under Section 4(e) of the FPA,
Settlement Activities, USFWS Section 18 Fishway Prescription, and Biological Opinions
for Listed Species. As detailed in Mr. Randolph's direct testimony, each of these
categories represent a key component of the relicensing process to be considered by
FERC.
15. Similar to the tracking of costs prior to filing the license application, Idaho
Power tracks the cost of the HCC relicensing efforts on work orders. During the August
2003 to December 2015 period, several issues were being addressed simultaneously
and projects undertaken have broad application to the overall relicensing effort. The
table below summarizes the HCC relicensing costs by detailed cost element as
recorded from August 2003 through 2015 including AFUDC amounts accrued:
Table 3: HCC Relicensing Costs, August 2003 -2015 (OOOs)
Aug 2003 -Dec 2015
Year Total (OOOs)
IPCo Labor $22,974
Materials $1,362
Purch Services $31,933
Acct Entries $1 ,706
Overheads $4
Other Expenses $3,194
Subtotal $61 ,173
AFUDC $108,472
Total Charges $169,646
APPLICATION -8
VI. INDEPENDENT REVIEW OF HELLS CANYON RELICENSING
COST TRANSACTION DATA
16. As described in the testimony of Vice President, Corporate Controller and
Chief Accounting Officer Ken W. Petersen, Idaho Power queried its accounting
transaction data to extract transactions related to work orders associated with HCC
relicensing efforts from 1997 through 2015. The transaction data file, which is over
186,000 records, includes the original transactions from the detail work orders and the
AFUDC that has accrued on the HCC relicensing balances in the work orders. Idaho
Power segmented the transaction data into three categories because the nature of each
of the three segments warranted differing review methodologies. First, Idaho Power
extracted a data file that included all credit transactions. The Company then split the
remaining transactions in the original transaction data file between work order charge
transactions and AFUDC transactions.
17. When conducting its review of the HCC transaction data, Idaho Power
followed the procedures in the Financial Audit Manual published by the U.S.
Government Accountability Office when designing the statistical sample of the
transaction data, specifically guidance related to planning materiality. In addition, the
Company tested credit transactions on their own to gain assurance that the credit
amounts within the transaction data were valid and that there was not a larger,
unreconciled difference. The transaction detail was randomly sampled based on the
sample sizes by year and cost element. The testing of the transaction data included an
examination of both the appropriateness of the documentation and the reasonableness
of the charges for which the documentation applied.
18. Idaho Power's transaction review of the HCC relicensing costs confirmed
that the testing resulted in no material errors individually or in aggregate, and the dollar
APPLICATION -9
amounts reviewed were reasonable with respect to the corresponding documentation.
Based on these results, the Company's transaction review concluded that the
Company's documentation and record keeping was thorough and within reasonable
expectations.
VII. CERTAIN COST COMPONENT CONSIDERATIONS
19. In addition to the review of the transaction data, Idaho Power identified
four specific transactional categories that received additional review and consideration.
Two categories pertained to specific accounting methodological changes that occurred
during the course of the relicensing project. The other two categories reviewed
considered specific cost categories that the Company determined warranted
adjustment. The four specific costs categories are: (1) HCC relicensing costs during
the 1991 -1996 time period, (2) an AFUDC computational methodology change that
occurred in 2007, (3) capitalized employee incentive amounts within the HCC
relicensing CWIP balance, and (4) AFUDC amounts that were inadvertently not accrued
in 1997 and 1998.
20. Prior to 1997 relicensing activity was recognized for accounting purposes
as operations and maintenance expenses or "expensed" in the year incurred. The
Company began capitalizing HCC relicensing costs in 1997. Idaho Power performed an
additional review of the expenses incurred between 1994 and 1996 to confirm whether
or not the amounts expensed could have been capitalized, and if the current HCC CWIP
balance appropriately captures the current accounting methodology that was applied.
In the review, Idaho Power determined that while the Company could have capitalized
costs associated with HCC relicensing activities beginning in 1991, when the Company
made its determination to begin capitalizing costs in 1997, a reclassification of 1994
through 1996 costs that Idaho Power reviewed was not performed. Because these
APPLICATION -10
project costs were treated as expense prior to 1997 and reflected in the Company's
profit and loss statements for those years, the Company has determined it is
appropriate to exclude those amounts from the balance for which it seeks a prudence
determination in this case.
21. Idaho Power made a change to the AFUDC calculation methodology in
2007 to comply with FERC guidance and began using a monthly compounding rate that
equates to a semi-annual compounding rate and applied the rate to the appropriate
construction costs, including overheads. Idaho Power's additional review determined
that FERC's Electric Plant Instructions, along with FERC Order No. 561 issued in 1977,
provides for the semi-annual compounding of AFUDC. Thus, Idaho Power was eligible
to begin compounding AFUDC when the Company first began recording AFUDC. Even
though it would have been acceptable to make a retroactive adjustment, because the
Company in 2007 chose to only apply the compounding methodology on a prospective
basis, the Company is not recommending retroactive application of that methodology in
the case of the HCC project CWIP balances at issue in this case.
22. During the compilation and review of the transaction data, Idaho Power
discovered capitalized employee incentive amounts included in the 1999 through 2002
work order cost charges totaling $681,153. These capitalized employee incentive
amounts are comparable to incentive amounts the Commission removed from the test
year revenue requirement in the Company's 2003 general rate case, Case No. IPC-E-
03-13, Order No. 29505. In recognition and consideration of the regulatory treatment
applied in Order No. 29505, Idaho Power has removed $1,564,618 in capitalized
incentive accrued from 1999 through 2002, including AFUDC, from the HCC relicensing
costs currently in CWIP.
APPLICATION -11
23. When Idaho Power first began capitalizing HCC relicensing costs, the
Company began investigating whether or not AFUDC should accrue on relicensing
costs because the costs were not associated with a project physically under
construction. Based on FERG guidelines, in 1999, Idaho Power determined it was
appropriate to accrue AFUDC on relicensing costs. The Company, however, neglected
to make a correction to the 1997 and 1998 AFUDC amounts. When discovered in the
transaction review, Idaho Power corrected the total HCC relicensing costs included in
CWIP by applying the 1997 and 1998 AFUDC amounts, adding $1,505,013 to the total
HCC relicensing costs in CWIP.
24. Idaho Power's transaction review of the HCC relicensing costs confirmed
that, after the two adjustments were made, the testing resulted in no material errors
individually or in aggregate, and the dollar amounts reviewed were reasonable with
respect to the corresponding documentation thus concluding that the HCC relicensing
costs contained in the CWIP balance appear reasonable. Having reached this
conclusion, Idaho Power's prudence request of $220,845,830 in HCC relicensing
expenses includes the $220,905,435 year-end 2015 HCC relicensing CWIP balance,
less the removal of $1,564,618 associated with capitalized incentive amounts, plus the
$1,505,013 in 1997 and 1998 AFUDC amounts.
VIII. COMMUNICATIONS AND SERVICE OF PLEADINGS
25. Communications and service of pleadings, exhibits, orders, and other
documents relating to this proceeding should be served on the following:
Lisa D. Nordstrom
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
[e-mail]
[e-mail]
APPLICATION -12
Tim Tatum
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
[e-mail]
IX. REQUEST FOR RELIEF
26. Recognizing the logistical challenges inherent in reviewing expenses
incurred in this multi-decade relicensing effort and that Idaho Power continues to
operate the HCC for the benefit of customers on an annual license until a final license is
issued in 2021 or later, Idaho Power respectfully requests that the Commission issue an
order designating Idaho Power's expenditures of $220,845,830 through December 31,
2015, in HCC relicensing costs as prudently incurred.
DATED at Boise, Idaho, this 14th day of December 2016.
APPLICATION -13
LISA D. NORDST
Attorney for Idaho Power Company