20190219Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-007 4
[phone]
IDAHO BAR NO. 5156
iiTI F !\,/E[J
i,rr* f [$ i9 P]l 2: l+9
SS .t,{U
Street Address for Express Mail
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAIIO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )IDAHO POWER COMPANY TO INCREASE
THE SUBSTATION ALLOWANCE IN
SCHEDULE 19, LARGE POWER SERVICE.
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company's Application.
BACKGROUND
On December 28,20l8,Idaho Power Company filed Tariff Advice No. 18-04. The
Company's Tariff Advice proposed to update the Substation Allowance amount in Schedule 19,
Large Power Service, by I2.7%. The changes were to take effect February I,2019.
At the Commission's January 22,2019 meeting, the Commission Staff questioned
whether the Tariff Advice proposed only "minor changes to existing schedules," as allowed by
Commission Rule 134.01 (IDAPA 31.01.01.134.01). Staff recommended the Commission allow
further investigation by treating the Company's Tariff Advice as an Application, suspending the
proposed effective date, and processing the case by Modified Procedure.
Under Company Schedule 19, if a customer asks for service that requires the Company to
add or upgrade transformer capacity in Substation Facilities, the customer must initially pay the
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CASE NO. IPC.E-19-02
1STAFF COMMENTS FEBRUARY I9,2OI9
associated costs but is eligible for a one-time Substation Allowance based on the customer's
subsequent sustained usage of capacity. Commission Order Nos. 32893 and32914 require the
Company to update the Substation Allowance each year.
The Company explains the maximum Substation Allowance is determined by multiplying
the customer's actual increase in load by $64,386 per megawatt (MW), with the Substation
Allowance not to exceed the actual cost of the Substation Facilities. With this Application, the
Company would increase the $/MW multiplier by $8,173 to $72,559, which is a 12.7%o increase.
The Company primarily attributes the increased Substation Allowance to increased
material costs, including an lSoh increase in the cost of a 30MVA transformer and a24Yo
increase of a 4-unit metalclad. The Company noted the overall increase in material costs was
offset by a decrease in the general overhead rate from 11.48%to 9.81o/o.
STAFF REVIEW
StafPs review focused on three areas to determine the reasonableness of the Company's
proposed allowance amount: (1) the calculation method; (2) changes in direct material cost; and
(3) an audit of the overhead rate. Based on its review, Staff believes the Company's calculation
method complied with Commission Orders and that the overhead rate was accurate. However,
Staff believes the Company's standard allowance overestimated transformer costs. Using Staff s
proposed estimate of transformer costs, the Substation Allowance would be $69,397lMW versus
the Company's proposed allowance of $72,559. If the Commission approves Staff s proposal,
the allowance amount would increase 7.8Yo above the current amount instead of by l2-7%o as
requested by the Company. Staff s proposal is detailed in CONFIDENTIAL - Affachment B.
Methodology
Staff confirmed the Company's calculations follow the methodology approved by
Commission Order Nos. 32893 and329l4. This methodology for annually updating the standard
Substation Allowance amount has been in place since 2013. Staff continues to support it as long
as the costs included as inputs accurately reflect current actual costs, otherwise cross-subsidies
are more likely to occur between existing customers and customers requesting new terminal
facilities.
2STAFF COMMENTS FEBRUARY I9,2OI9
Direct Material Costs
After examining the cost of all direct material included in the Company's proposed
allowance amount, Staff believes that an lSYo increase in the cost of the 30 MVA transformer is
unreasonable given the method the Company used to make the estimate, and that the cost should
only increase 5oh over the amount approved in last year's filing. Staffls proposed increase is
based on the inflation rate of actual Company purchases of a similar transformer.
The transformer is a major component in the calculation of the allowance because the
direct cost of the 30 MVA transformer is approximately 45%o of all direct material cost and is
approximately 34% of the cost of the total Substation Allowance.
To substantiate transformer pricing, the Company relied on vendor "budgetary" pricing
from a single source. The quotation reflected an 18%o increase in price + l5yo from the price in
the current allowance. Staff believes a budgetary quote from a single source does not constitute
a competitive price that the Company would actually pay.
By comparison, Staff reviewed the Company procurement of six comparable 44.8 MVA
transformers purchased and placed into service between April of 2017 and June of 2018. These
actual purchases indicate an average annual increase of approximately 5oZ (see
CONFIDENTIAL - Attachment A). Staff believes that a 5Yo inflationary increase better exhibits
what the Company would actually pay for a transformer.
Staff believes all other direct material costs in the standard allowance either reflected a
reasonable rate of inflation or had a sound basis for the increase. For example, the 24o/o increase
in the 4-unit metalclad (switchgear) was based on actual purchases obtained through the
Company's bidding process.
When asked by Staff, the Company could not supply actual pricing for 30 MVA
transformers purchased over the last five years. Without actual purchases, there is no sound
basis for estimating accurate material cost. Because of the absence of actual purchases, Staff is
concerned that some materials, specifically the transformer, are no longer standard for customer
requested substation upgrades. Staff recommends that the Company and Staff meet before the
next annual filing to discuss potential changes to the materials used to calculate the Schedule l9
allowance.
STAFF COMMENTS FEBRUARY 19,2019J
Overhead Rate
General Overheads are capital costs that cannot be directly assigned to a specific asset or
individual project. The Schedule 19 general overhead rate is applied to all vehicle, labor, and
direct material costs. The actual general overhead rate for the 12 months ended October 31,
2018 was 931% and decreased from last year's rate of 11.48%. Staff verified the Company's
inputs for the calculation of general overheads for Substations and confirmed the calculation of
the general overhead rate. The reduction in the overhead rate partially offsets the increase in the
Substation Allowance.
RECOMMENDATION
Staff recommends that the Commission approve Staffls proposed Substation Allowance
of $69,397 per MW as outlined in CONFIDENTIAL - Attachment B. Staff also recommends
that the Company and Staff meet to discuss materials and the basis used to estimate cost in the
Substation Allowance.
Respecttully submitted this I4+L day of Febrwry 2019
lu//
Karl T. Klein
Deputy Attorney General
Technical Staff: Rick Keller
Kathy Stockton
I:\umisc/comments\ipce I 9.2kkrkkls comments
4STAFF COMMENTS FEBRUARY 19,2019
ATTACHMENTA
IS CONFIDENTIAL
AND PROTECTET)
TINDER THE
PROTECTIVE
AGREEMENT
ATTACHMENT B
IS CONFIDENTIAL
AND PROTECTED
T]NDER THE
PROTECTIVE
AGREEME,NT
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS lgth DAY OF FEBRUARY 2019,
SERVED THE FOREGOING NON-CONFIDENTIAL COMMENTS OF THE
COMMISSION STAFF TO IDAHO POWER COMPANY,IN CASE, NO. IPC-E.19-02,
BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
LISA D NORDSTROM
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail : lnordstrom@idahopower. com
[e-mail]
(Confi dential Information)
PETER J. RICHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH STREET
PO BOX 7218
BOISE ID 83702
E-mail : peter@richardsonadams. com
(Non-Confi dential Information)
GRANT ANDERSON
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail: [e-mail]
(Confi dential Informati on)
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-mail: [e-mail]
(Non-Confi dential Information)
Y
CERTIFICATE OF SERVICE