20161230Decision Memo.pdf

'
DECISION MEMORANDUM
TO: COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM: CAMILLE CHRISTEN
BRANDON KARPEN
DEPUTY ATTORNEYS GENERAL
DATE: DECEMBER 29, 2016
SUBJECT: THE APPLICATION OF IDAHO POWER COMPANY FOR A
DETERMINATION OF HELLS CANYON COMPLEX RELICENSING COSTS
THROUGH 2015 AS PRUDENTLY INCURRED, CASE NO. IPC-E-16-32
On December 14, 2016, Idaho Power Company filed a prudency Application for
expenditures of $220,845,830 in Hells Canyon Complex (HCC) relicensing costs for inclusion in
customer rates at a later date. The Company is not requesting an adjustment to customer rates at this
time and has not requested a particular effective date.
THE APPLICATION
The Company explains that the HCC consists of three hydroelectric projects-Brownlee,
Oxbow, and Hells Canyon-on the segment of the Snake River that forms the border between Oregon
and Idaho. Application at 2. The HCC provides 34 percent of the Company's total generating capacity.
Id. The Company 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 resources and environmental agencies. Id. The Company's previous long-term
license expired on July 31, 2005; the Company began its relicensing efforts in 1991 in anticipation of
that expiration. Id. The Company filed its new license application with FERC in 2003. Id. FERC has
not yet issued a new long-term license and the Company has been operating the HCC under annual
licenses issued by FERC since July 2005. Id. The Company cannot predict with certainty the timing of
the issuance of a new long-term license, but estimates it will be delayed until at least 2021. Id.
The Company states that the Commission authorized Idaho Power to collect $6,520,122
annually from Idaho customers for recovery of allowance for funds used during construction (AFUDC)
associated with the HCC relicensing project. Id. (citing Order Nos. 30722 and 32426). As of December
31, 2015, AFUDC amounts collected from customers total $58,834,892. Id. This results in a net HCC
DECISION MEMORANDUM
relicensing construction work in progress (CWIP) balance of approximately $162.1 million on a system
basis. Id. at 2-3. The Company explains that because customers have already contributed to HCC
relicensing costs, its future request for recovery would be net of the previously collected amounts and
would be less than the $220,845,830 the Company is requesting as prudently incurred in this
Application. Id. at 3.
The Company 1s requesting a prudency determination on the $220,845,830 of HCC
relicensing costs through December 31, 2015, at this time for four reasons. Id. First, the project has
spanned nearly three decades to date and the HCC is currently providing customers with clean, reliable
generating resource. Id. Second, the transaction data file through the end of 2015 exceeds 186,000
rows of data, providing the opportunity for an extensive transaction review. Id. Third, Idaho Power's
subject matter experts and key employees involved in relicensing efforts to date are nearing retirement.
Id. Finally, handling the prudence determination outside a general rate case will allow Commission
Staff to narrow their focus to HCC relicensing costs in this request rather than when the Company files
its next general rate case. Id.
The Company acknowledges that 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. Id. (citing
Order Nos. 32585 and 32224). The Company explains that the HCC continues to provide Idaho
Power's customers a low cost, clean source of more than 1,100 MW of generating capacity. Id. The
costs the Company has incurred over the past three decades are directly correlated to the Company's
efforts to license the HCC (both for temporary annual licenses and for a long-term license). Id. at 3-4.
The Company estimates that the annual costs it will incur to obtain a new long-term license
range from $20 million to $30 million until the new license is issued. Id. at 4. If FERC does not issue a
new license until 2021, the Company estimates HCC relicensing costs to be between $350 and $400
million. Id. Assuming relicensing costs of $400 million and 1,167 MW of generating capacity, the
HCC cost is less than a third of the estimated capital costs of a combined-cycle combustion turbine
($359 per kilowatt (kW) for HCC versus $1,145 per kW for a combined-cycle combustion turbine;
estimate from the 2015 Integrated Resource Plan). See id.
The Company provides an overview of the relicensing process. Id. In brief, the Company's
expenditures for the prefiling stage of the relicensing process, which occurred from 1997 to July 2003,
were approximately $51.08 million. Id. at 5 (table 1 ). Its expenditures for the post-filing stage, which
the Company defines as occurring from August 2003 through 2015, were approximately $169.65
million. Id.
DECISION MEMORANDUM 2
'
The Company also describes its review of the transaction data and the additional review that
it performed on certain transactional or cost categories. Id. at 9-10. The Company reviewed the
transaction data for HCC relicensing costs to test the appropriateness of the documentation supporting
the costs and the reasonableness of the charges themselves. Id. at 9. Based on its review, the Company
concluded that its documentation and record keeping was thorough and within reasonable expectations.
Id. at 9-10.
The Company further reviewed in greater detail certain transactional or cost categories. Id.
at 10. Based on accounting method changes that occurred during the course of the relicensing project,
the Company reviewed HCC relicensing costs from the 1991-I 996 time period and also considered an
AFUDC computational method change that occurred in 1996. Id. In addition, the Company reviewed
capitalized employee incentive amounts within the HCC relicensing CWIP balance and reviewed
AFUDC amounts that were inadvertently not accrued in 1997 and 1998. The Application describes the
Company's review and its determinations, including that certain adjustments were appropriate. Id. at 9-
12.
As a result of its reviews, the Company concludes that the HCC relicensing costs in the
CWIP balance, after identified adjustments, appear reasonable. Id. at 11 . The Company thus requests
an Order designating its expenditures, after adjustments and through December 31, 2015, of
$220,845,830 in HCC relicensing costs as prudently incurred. Id. at 13.
STAFF RECOMMENDATION
Staff recommends the Commission issue an Order providing notice of the Application and
setting a deadline for interventions of 21 days from the service date of the Order.
COMMISSION DECISION
Does the Commission wish to issue a Notice of Application and set a deadline for
intervention of 21 days from the service date of the Order?
~tffe0:t~
Camille Christen
Deputy Attorney General
M:IPC-E-16-32 cc
DECISION MEMORANDUM 3