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HomeMy WebLinkAbout19901107.docx Minutes of Decision Meeting November 7, 1990 - 1:30 p.m. In attendance: Commissioners Joe Miller, Perry Swisher and Ralph Nelson; staff members Scott Woodbury, Tom Faull, Marsha Smith, Don Oliason, Gary Richardson, Stephanie Miller and Myrna Walters. Topics from the November 7, 1990 Agenda were discussed at this time. Commissioner MIller said Commissioners first need to know what tilting is and what we decided.  Central thing in all of the petitions for reconsideration is tilting.  Lets start by having Tom Faull review tilting concept.  (What it is and what Commission did). Tom Faull said tilting is the mathematical, technical term for accounting for the effect that as you delay the need for building a new plant the cost of building that plant increases at some inflation rate (in this case 4.5%).  All Commission did in the order was said that because we have shortened contracts to 20 years and we did that to reduce risk and that is in the estimate of inflation, reasonable way to estimate that is to assume no inflation for construction and that if you assume that it gives you a non-tilting rate. Commissioner Miller said another way of saying it is the problem is that you have 35 years of cost avoidance with surrogate but we have contracts for 20 years and with no tilting, the utility opposition is with the untilted you are using rates based on 35 years of avoidance for 20 year contract. Tom Faull said the underlying assumption is you know for sure 4.5 is the inflation rate and because you have allowed it in... Commissioner Swisher said to find a way for Commission to say that. Commissioner Nelson said so untilted rate is % rate inflation for construction of the SAR? Commissioner Swisher said if you were to reincorporate the inflation factor in calculating 220 year rate the rate would be higher.  That is what is absent from their explanation.   -2- Tom Faull said the way he looked at it is we shorten contracts to reduce risk.  There ought to be some way to quantify the value of the risk we avoided.  The way he looked at it is the reason there is risk out in the future is that we don't know whats going to happen to inflation one way or another.  One way to quantify that risk is to compare cost with inflation to cost without inflation. Commissioner Miller asked  - this inflation in or out wasn't the way we approved it initially? Tom Faull said the initial decision was made on the concept that QFs were being forced to accept shorter contracts and in the name of fairness this is one way to accomplish that.  This is just a gimmy to QFs.  There should be some way to quantify that cost. Commissioner Swisher said (1)  There is some risk to everybody whose major units tend to be cogenerated units.  To assume 35 years of stability in those industries was a factor in these orders.  (2)  There has been a big change from the early days when the banking community just reactively wanted the equivalent of the utility's own amortization period.  Now we have had experience of people who talk to anybody in Commission looking at a contract  saying I am not sure I want to sign up for 35 years.  Those are a couple of factors. Commissioner Miller said when we do it that way the utilities legal argument is that they are paying more than the avoided cost and we don't have legal ability to order the payment of more that avoided cost. Commissioner Swisher said anything any utility has bought that is long term is higher than their avoided cost.  (In exchange agreements or short term, continues) but everything that is around here -  everything is higher than avoided cost. Tom Faull said in a time value over the future that is not true.  It gets fuzzy.  Think Commission did an excellent job of picking the best picture of the future.  Think the avoided cost is exactly what it should be. **Stephanie Miller was in attendance at this time. Commissioner Miller said he didn't think we can let Peter Richardson lead us down a path saying it is fiction. -3- Tom Faull said there is a true cost for signing up for 35 year plant or contract and there should be someway to evaluate it and this may not be as good a way as any.  The utility can say we are paying two prices for the same thing.  Think this is an indefensible position, even though it is not wrong.  Don't think there is anything wrong with it but don't think Commission can win with his defense.   Said his recommendation is that there be reconsideration on tilting.  PP&L only raises the tilting issue. Commissioner Miller said he thinks we are going to have to grant reconsideration for tilting for all three companies, so consolidate on those issues but should go through Idaho Power points on mechanics to see if they can be cleared up or be subject to further proceedings. Commissioner Nelson said in his mind it seems that if we had a tilted rate that accounted for inflation for construction then thought that would give us a higher avoided cost than one that didn't.  Asked if he was wrong? Tom Faull said we are saying we give credit to QF for avoiding. Commissioner Miller explained - you have 20 years of cost avoidance and 35 year SAR.  Out here you have 15 more years of cost avoidance that will be more expensive.  If you use the old 35 year rate but apply that to the contract you are overpaying this guy. Commissioner Swisher said that is the utility's argument. In review: Tom Faull said if we are only talking about an individual 20-year contract and maybe we have contracts pick up but this guy shouldn't get credit for those that came on line then; giving him credit for more than he is doing.  Giving him credit for someone coming on for what someone else is doing.  Then you will accumulate overpayments.  Think what we have done with untilted rate is we have said there is some value to these shorter contracts and consider how we quantify that value.  As he looks at the comparison of 35 and 20, may have jumped to equity and given them more than we should have.  It does present some other administrative problems. Commissioner Nelson said it does appear we have to reconsider tilting.  Guess that means everyone will ask for 35 year if they can come up with engineering certificate. -4- Commissioner Swisher said we have limited that option to just when the Commission thinks it is wise instead of making that an option on the part of the QF.  If we go this route, think you have to revisit that. Tom Faull said he thinks Commission will have to look at contract length also. Commissioner Swisher said their right to 35 year contract may not seem that wonderful to each of these utilities. Commissioner Miller said Idaho Power said to keep it at 20 and give utility options to re-sign the contract for period after the 20 years. Tom Faull said he would be more interested in setting the rates with the 25-30-35 year value and give contract of the length with the utility for offer of 5 year values after 20 years.  Is basically the same as untilted but figures they are determined the same way - the matrix up to 20 years and go in increments.  Utility has off-ramp starting at year 20. Commissioner Miller said that might be a proposal worth making. Tom Faull said he didn't know whether you have to have a hearing or not. Commissioner Swisher said utility is out of the contract at 25 years. Tom Faull said if utility takes option of off-ramp, QF has option to get off.  You are not going to get any thermal years over 25 years at the most.  Only will get the best hydro projects at those lengths.  You might get some solar. Mike Gilmore asked if the length of the contracts should be at issue when you issue the order granting reconsideration? Commissioner Swisher asked about rates in the interim? Tom Faull said you could let the tilted matrix stand with other minor changes. Commissioner Miller asked if that would hurt anyone? -5- Tom Faull said yes - everyone who applied for a contract - will be delayed. Commissioner Miller said there are people out there seeking the untilted 20 year contracts. Tom Faull said Orndorff is and Wissa.  You could allow tilted rate up to 30 years without exceeding the rates you have in here.  Don't think that is very risky.  It would be a major change in position.  Can you call these interim rates? Commissioner Swisher said he thought that would be risky. Commissioner Nelson asked about engineering certificate (does Orndorff have one?) Tom Faull said he thinks he can get one. Commissioner Miller said it would be hard to say these interim are just and reasonable if they are going to be reconsidered. Mike Gilmore said old rates stand while petitions for reconsideration are being acted on. Commissioner Miller said if we let rates go into effect at this level, it would be a windfall rate. Tom Faull said he didn't see an interim solution. Commissioner Miller suggested going through the Idaho Power petition for reconsideration and coming back to discuss interim rates. IDAHO POWER COMPANY PETITION FOR RECONSIDERATION IN IPC-E-89-11. Commissioner Miller said the only other major issue is on Page 6, when does the surplus end? Tom Faull said they are correct - he made a mistake.  1994 would be the right year. Commissioner Miller asked what that would do to rates? Tom Faull said he thought down 3/4 mills. Commissioner Miller said there isn't enough testimony to speak to the Seattle Contract. -6- Tom Faull said it is not a big think and it is not unreasonable. Commissioner Miller asked - how do we handle that procedurally?  Can we just grant reconsideration and change the order?  Will come back to procedural - does look like we have to change that. 7.  Post load/resource balance year. Questioned sentence in the  order. Tom Faull responded.  Said because of the first year inflation of SAR, you cannot defer the first year of construction because the thing already in the model came on a year before you did. Commissioner Swisher said the company is out money for having to buy power on the spot market until you get on line. Tom Faull explained:  Only shows up on untilted.   Commissioner Miller said if it only applies to untilted. do we have to decide it now? Tom Faull said it probably should be clarified now.  It could make a difference in the future. Commissioner Miller asked if we can do something that clarifies that without necessity for further hearings, etc.? Tom Faull said he thought so. Commissioner Miller said if it is just clarification, think there is someway to do that. Tom Faull said Willmorth raised the issue.  He could work with him on this. **Commissioner Miller asked Tom Faull to draft clarifying language and run it by Willmorth to see if that takes care of the problem. 8a.  Colstrip variable cost data.  Reference IPC FERC Form 1. **Clarify it. b.  Computation of twenty year untilted rate. Will be reconsidered., as well as C.  --292 security provision applicability for twenty year untilted rate. -7- Petition for Reconsideration of WWP in WWP-E-89-6. First argument - As a general matter, rates are unreasonable, which seems like nonsense. Commissioner Nelson asked if this isn't due to the large deficit year - but 45 mills and 55 mills? Commissioner Swisher said the Commission has an institutional memory that is jogging. Commissioner Miller asked how to say that? Scott Woodbury said company is saying it is more than just a modest increase.  We can say we found these to be fair, just and reasonable. **Scott Woodbury will work on the language. 2.  Tilting Question - will rehear this. 3.  Will be reheard. 4.  Load resources.  They say we relied on sources outside the record. Commissioner Swisher said this is trying to take away the Commission's discretion.  When we get evidence on load growth and we say in our judgement this is whats happening, we have the right to say that.  That is supported pretty much by the case law.  We have to make those kinds of decisions.  They are saying the record didn't give us that right to make that determination. Mike Gilmore said you can rely on your own intellect to make those decisions. Commissioner Swisher said we use the record to make our decisions. Commissioner Miller said the problem we have to explain in this case is in our order we don't express it as express judgement.  We did it outside the record by looking at their FERC FORM I.  That is a little different than getting evidentiary record in making Commission judgement. Tom Faull said his question is:  does the order have to apply to a specific page of the form?  Testimony does include information from that form.  Said his reaction is:  You would have to stay within the record to make factual finding.  For estimating into the future, for making legislative judgements, seems you should be able to draw on any information you can get. -8- Commissioner Swisher said language on Page 5 is right on. Commissioner Miller asked if Scott Woodbury can bail Commissioners out? Mike Gilmore suggested ask specifically what was wrong with information from FERC FORM I? Commissioner Nelson said he thought our information for WWP was within our short term projection.  Commission looked at last 2 years.  Think record is going to show short term projected growth was at 3%. Mike Gilmore said he thought it would be worth pinning them down on the record. Commissioner Swisher asked who establishes boundaries for normalization. Seattle and WNP3. Tom Faull explained their argument didn't see any justification for that. Commissioner Nelson said he thought when they signed it was 37 mills for 10 year contract and at the time we were all saying why would they sell to Seattle at 37 and buy at Colstrip at 52, 6 months later. Commissioner Miller asked Tom Faull where we are on this? Tom Faull said he thought they were raising issues that should have been presented differently.  Would think form the fact they had a chance and wouldn't take it, deny it. Commissioner Nelson suggested saying there wasn't anything in the record to say that the obligation is anything but on its face. Tom Faull said they told us how the resource acquisition should be and they included these as load that has to be covered by contracts. Scott Woodbury said there is testimony of Bryan saying it is a wash but you have the Company's exhibit where they throw it in.  Are saying Commission should have made an adjustment.  They never moved to have that adjustment made. -9- Tom Faull said he thought context was overall rates are reasonable and SAR is reasonable and '170 rates are reasonable.  He is just saying he wouldn't build a coal-fired plant to meet it.  It never made this case.  The testimony you cite does not support your position. **Staff is to use strong language on this. CONSERVATION. Commissioner Miller asked if we treated conservation inconsistent with the '170 order? Tom Faull said no.  Reviewed language of the order. Commissioner Nelson asked if it would affect the deficit year anyway? Tom Faull said no. TRANSMISSION. Commissioner Swisher said it isn't so much the computer error, how much is it? Tom Faull said from 55 to 50.   Commissioner Swisher said to say yes, error should be corrected, but company characterization as speculative would require the company to find any new transmission project that costs less than our number. Tom Faull said transmission issue is two parts - the 55 to 50 and the 5% adder. Commissioner Swisher said he thought the 5% could be defended as conservation. LEVEL CARRYING CHARGE. Tom Faull explained it. Commissioner Miller asked why we did it our way and not theirs? Tom Faull said because that is the way PPL and IPC did it and it had a 1% adder. Procedural questions. -10- Commissioner Miller said he would do rehearing on tilting and contract lengths and consolidate it for all three companies and if we could have a prehearing conference early in December, would like it cycled by the end of January. Tom Faull said he thought it didn't need a prehearing.  We know what the issues are. Commissioner Miller asked how we should proceed? Scott Woodbury said he agreed a prehearing conference wasn't necessary.  Think on tilting issue, utilities requested briefing but if we are going to be taking up more than that, think we need to convene a hearing.  Concern is what rates are effective rates?   Commissioner Swisher said the 55¢ on transmission should be opened. Mike Gilmore said you could propose recomputation of the costs.  Just say your correction to ABC are DEF and if anyone disagrees you can address it at hearing. Commissioner Swisher said Peter Richardson didn't bring anything in on transmission.  Wants some numbers on the third intertie.  Want some numbers on Montana Power.  Said utilities didn't bring in information on transmission. Commissioner Miller said if we open up transmission other than what the calculation is, that is going to stretch this out for 1/2 mill. Commissioner Swisher said he thinks if they look at their own numbers, they will stipulate out on that issue. Tom Faull said he would like to see us not get into mathematics except for his mistake.  They did argue the 5¢. Commissioner Miller asked how much difference transmission makes. Tom Faull said 1/2%. Commissioner Swisher said he thought those numbers would be available. Commissioner Miller said he has a problem with opening up the transmission question.  It delays the whole process.  Transmission also wasn't that interesting.  Sitting through -11- it again isn't that appealing.  Wonder if there is any merit in doing reconsideration on tilting and asking anyone involved in these cases to have a workshop on trying to improve methodology on pricing of transmission.  Do that on separate basis, with understanding resolution of that would be cranked into the order. Commissioner Swisher said he thought the utilities real numbers would be so high that they would stipulate to lower ones. Commissioner Nelson said he thinks we can support the number but also hate to drag out the process. Commissioner Miller said he didn't want to open the whole transmission thing. Commissioner Swisher said that if he were a utility executive, he would stipulate to that number. Commissioner Nelson said if numbers are brought in at 65, they won't stipulate to 55. Commissioner Miller asked if there was any way to get up to the 55 number? Commissioner Swisher asked if Commission could pose it to WWP saying we are going to open it up, we want hard numbers, if you want to open it up, let us know. Commissioner Nelson said they would probably respond that there number was 48. Commissioner Swisher said lets look at the cost of their hook-up with BC Hydro and use that as a ceiling for imputed costs. Commissioner Nelson said we can say 55 is the number if you don't agree send us the numbers on your BC Hydro line. Tom Faull said problem with that is the math error.  So to stay with the 55, you have to reopen it or say the order was incorrectly written by staff and we didn't catch it. Commissioner Swisher asked Don Oliason about the number?   Don Oliason said he didn't have a feel for it but wondered if we could call someone to find out the number. -12- Scott Woodbury suggested saying Tom Faull set out the formula and it needs to be corrected. Commissioner Nelson said he didn't think it was worth it for 1/2 mill.  Would say 5% is a conservative number. Tom Faull suggested you could open a case on transmission. Commissioner Nelson said we should say we will reconsider tilting on such and such a date.   **Decision was:  make math correction and leave it there. Commissioner Swisher suggested getting the N. W. numbers taken to Congress on transmission. Commissioner Miller said in the future when we have similar cases, in the order setting up the case and filing date, have a strict admonition that we want to see hard data.  When it comes in have staff review it.  If they have not complied with that order, have motion to throw testimony out or challenge it then, instead of getting into the case and say its not what we want. Tom Faull said in the future, by the time this is received and it is not what you want, there isn't time to look for ourselves, then file motion. Meeting was adjourned at 4:00 p.m. Signatures on next page .... -13- Signature page for November 7, 1990 Minutes.         DATED at Boise, Idaho this       day of January, 1991.                           PRESIDENT                           COMMISSIONER                           COMMISSIONER ATTEST:                               Commission Secretary 0007M