20190517Reply Comments.pdf

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An IDACORP Company
JULIA A. HILTON
Senior Counsel
[e-mail]
May 17,2019
VIA HAND DELIVERY
Diane M. Hanian, Secretary
!daho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Case No. IPC-E-19-08
Recovery of Costs Associated with North Valmy Power Plant - ldaho Power
Company's Reply Comments
Dear Ms. Hanian
Enclosed forfiling in the above matterare an originaland seven (7) copies of ldaho
Power Company's Reply Comments.
Very truly you
Julia A
JAH:csb
Enclosures
1221 W. ldaho St. (83702)
P.O. Box 70
Boise, lD 83707
Re
JULIA A. HILTON (lSB No. 7740)
LISA D. NORDSTROM (lSB No. 5733)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
ihilton@ idahopower. com
I n ordstrom @ ida hopower. com
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORIry TO INCREASE lTS RATES
FOR ELECTRIC SERVICE TO RECOVER
COSTS ASSOCIATED WITH THE NORTH
VALMY POWER PLANT
REC EIVED
i0l9 HAY l7 Pil 3: E9
IIAiiiJ PUBLIC]TII.ii S COMMISSION
CASE NO. rPC-E-19-08
IDAHO POWER COMPANY'S
REPLY COMMENTS
Attorneys for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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ldaho Power Company ("ldaho Power" or "Company") respectfully submits these
Reply Comments in response to the Comments filed by the ldaho Public Utilities
Commission ("Commission") Staff ("Staff') and the ldaho Conservation League ("lCL") on
May 10,2019. ldaho Power acknowledges and appreciates both parties extensive review
of the Company's relatively expedited request in this case. ldaho Power welcomes the
comments provided in this case, particularly in support of approval of the North Valmy
Project Framework Agreement between NV Energy and ldaho Power dated February 22,
2019 ("Framework Agreement") and the finding that the actual capital investments made
at the North Valmy power plant ("Valmy") from August 1, 2016, through December 31,
2018, were prudent.
IDAHO POWER COMPANY'S REPLY COMMENTS. 1
I. BACKGROUND
Currently, the ownership and operation of Valmy is dictated by three agreements:
(1) the Agreement for the Ownership of the North Valmy Power Plant Project; (2) the
Agreement for the Operation of the North Valmy Power Plant Project, both of which are
dated December 12, 1978; and (3) the North Valmy Station Operating Procedures
Criteria, dated as of February 11, 1993, between ldaho Power Company and Sierra
Pacific Power Company, as amended by Amendment No. 1 to the Operating Procedure
Criteria for Valmy Coal Diversion Procedures and Usage, dated as of January 1, 2012
(collectively, the "Existing North Valmy Agreements"). The Existing North Valmy
Agreements have provided Idaho Power and NV Energy ("Party" or, collectively, the
"Parties") the basis for owning and operating the Valmy plant for over 40 years. ln this
filing, ldaho Power is requesting that the Commission approve the Framework Agreement
that allows for the Company's planned exit from Unit 1 in 2019 and Unit 2 in 2025 and to
update rates to reflect actual and expected costs through Valmy's end of life.
II. IDAHO POWER'S REPLY
ln its Reply Comments, ldaho Power will respond to (1) Staffs request that Idaho
Power file annual reports detailing amounts recorded in the Valmy balancing account as
well as the recommendation that the Company submit a filing to true-up the balancing
account with rates effective June 1, 2022, and (2) the process for evaluating a Unit 2
closure date.
A. ldaho Power Supports Staffs Recommendation to File an Annual Report
Detailino Amounts Recorded the Valmv Balancinq Account.
The balancing account approach approved in Case No. IPC-E-16-24 replaced the
base rate revenue recovery associated with ldaho Power's existing investment in Valmy
with a levelized revenue requirement which is determined by calculating the present value
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
of the revenue requirement converted into a level payment stream from customers over
the remaining recovery period, or through 2028. There are four types of costs recorded
in the balancing account: (1) the accelerated depreciation associated with existing Valmy
plant investments; (2) the return on undepreciated capital investments at Valmy; (3) non-
fuel operations and maintenance ("O&M") reductions; and (4) decommissioning costs
related to the Valmy shutdown. The Company's request in this case included an
incremental levelized revenue requirement change of $1.2 million on an ldaho
jurisdictional basis. Staff recommends the Commission order ldaho Power to file annual
reports detailing amounts booked to the Valmy balancing account to keep the
Commission informed, similar to the annual report detailing all amounts recorded to the
Boardman power plant balancing account. Staff Comments at 6. ldaho Power supports
Staffs request and commits to work informally with Staff to develop the report and discuss
available documentation if this recommendation is adopted. Like the cost recovery
methodology approved by Order No.32457 in Case No. IPC-E-11-18, the annual
reporting process would facilitate the annual monitoring of the balancing account and
provide the ability for the Company to request a change to customer rates prior to June
1, 2022, if it is determined that amounts within the balancing account warrant an
adjustment.
B. The Companv Supports Staffls Recommendation to File for a True-Up to
Rates EffectiveJuneL2l022.
On page 7 of its Comments, Staff requests ldaho Power submit a filing to true-up
the balancing account no later than February 15, 2022, with rates to become effective
June 1,2022, and include: (1) a true-up of prudently incurred actual costs through
December 31,2021; (2) an update of forecasted investments, including decommissioning
costs; and (3) results validating the Unit 2 retirement date from an analysis conducted in
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
the 2021 lntegrated Resource Plan ("!RP"). The main benefit of the filing would be to
ensure enough time to accomplish recovery of updated costs and benefits in base rates
that can be identified given updated circumstances known at that time. Staff Comments
at 7. ldaho Power supports a balancing account true-up filing with rates to become
effective June 1,2022. However, the Company recommends a slight change to the timing
of the filing. Staff has recommended the filing be made no later than February 15,2022.
Idaho Power requests the true-up filing occur no later than February 28,2022, to ensure
the Company's 2021 linancial records have been fully audited and closed and earnings
have been reported publicly, which typically occurs the third week of February. A filing
no later than February 28, 2022, will reduce the case processing workload, likely
eliminating the need to mark financial data confidential.
c.ldaho Power's Unit 2 Closure Analvses Support a Shutdown in 2025.
Order No. 33771 issued in Case No. IPC-E-16-24 requires the Company continue
to conduct Unit 2 closure analyses as part of Idaho Power's 2019lRP and also perform
a Unit 2 closure validation study to evaluate a least cosUleast risk closure date. Because
the 2019 IRP was in the development phase at the time this case was filed, ldaho Power
pointed to the Framework Agreement and associated fee schedules as an indication that
there is likely no economic benefit associated with the exit of Unit 2 prior to December 31,
2025. ln addition, in response to a production request from Staff, ldaho Power provided
the annua! estimated variable O&M and capital savings that may be realized if ldaho
Power exited Unit 2 operations prior to 2025 whib NV Energy continued to operate the
unit through 2025. ln another production response, the Company detailed the work
performed in conjunction with the development of the 2019lRP; ldaho Power developed
24 resource portfolios using the long-term capacity expansion capability of the AURORA
model, including cost, operating, and savings data, to analyze whether or not exiting Unit
IDAHO POWER COMPANY'S REPLY COMMENTS.4
2 prior to 2025 would benefit customers. The following summarizes the iterations of the
analyses performed to validate the Unit 2 shutdown date of 2025:
o The logic of the capacity expansion model allowed Unit 2 to retire in
2025 or earlier in preliminary IRP capacity expansion runs. In all24 scenarios, Unit 2 did
not shut down prior to 2025. ln these runs, the final costs and benefits of the Framework
Agreement were not included.
o Based upon initial results, during final capacity expansion runs, ldaho
Power left the Unit 2 shutdown date static a|2025 to reduce model runtime. Although the
preliminary runs did not include the fixed costs required to keep the plant in operation or
the exit fees associated with the Framework Agreement, ldaho Power did not believe the
inclusion of the Framework Agreement costs and savings would result in any material
impact to the modeling results.
o Next, to further validate the Company's conclusion, ldaho Power reran
the capacity expansion mode! under the planning gas, planning carbon scenario, with the
full costs and savings of the FrameworkAgreement modeled, allowing Unit 2 to shut down
prior to 2025. This run did not result in a change to the shutdown date of Unit 2 in 2025.
. ldaho Power then ran an analysis with the full costs and savings of the
Framework Agreement included but this time forced Unit 2 to shut down in 2019 under
planning natural gas and carbon assumptions. The Company compared this portfolio
cost to that of its proposed preferred portfolio from the 2019lRP process, which includes
a2019 and 2025 shutdown for Units 1 and 2, respectively. This resulted in higher portfolio
costs of approximately $95 million, supporting the conclusion that the net cost savings
associated with an early retirement of Unit 2 would not have impacted the modeling
results.
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
. Lastly, to further validate its Unit 2 shutdown analysis, ldaho Power is
currently running the capacity expansion model for the remaining 23 portfolio scenarios
with the fu!! costs and savings of the Framework Agreement modeled. As of May 17,
2019, 15 of the 24 portfolios are complete, and further validate a Unit 2 closure of 2025
as each of the 15 completed scenarios shut down Unit 2 in 2025. lt is important to note
that one of the completed model runs reflects the least favorable coal scenario that is
most likely to result in early coal closure (i.e., high carbon, planning gas) and, under these
least favorable economic circumstances, the capacity expansion model did not retire Unit
2 prior to 2025.
1. The Gompanv Supports Staffs Recommendation to File the
Completed Unit 2 Closure Analvses Followinq the Conclusion of thls
Case.
Staff has "reviewed the Company's analysis conducted in this case and does not
have adequate information from the Company at this time to determine whether the
Company has completed a thorough review of a unit withdrawal date of December 31,
2025." Staff Comments at 3. Further, Staff "recommends the Commission order ldaho
Power to file a new Application within 21 days of the service date of the Commission's
Order in this case." Staff Comments at 4. ldaho Power appreciates and understands
Staffs request for an opportunity to fully review the results of the Company's analyses
performed to determine the Unit 2 shutdown date of 2025 and supports Staff's proposal
that the Company file an application requesting confirmation that, based on the results of
the analyses performed as part of the 2019 lRP, a Unit 2 closure date of 2025 is
appropriate. Because 21 days from the service date of the Commission's order in this
case will fall during the time period in which ldaho Power is finalizing the 2019 IRP for
fifing on June 28,2019, the Company's only request is that the Commission direct ldaho
Power to make its best efforts to file the new application within 21 days.
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
2. The Commission Does Not Need to Defer lts Decision on the lnclusion
of Unit 2 lnvestments in Customer Rates
ln its Comments on page 6, ICL recommends the Commission defer including the
forecasted expenses in rates unti! ldaho Power submits a completed validation study on
the optimal date to exit Unit 2. ICL further indicates the analysis included in the
Company's request is inadequate to support imposing a rate increase on customers and
that ldaho Power's supplemental response to Staffs production request explaining the
analyses that support that there is no economic benefit associated with the exit of Unit 2
prior to December 31, 2025, raises additional questions. The Company understands
ICL's concern, which is similar to the concerns expressed by Staff with respect to the Unit
2 closure analysis, and recognizes the need for more time to evaluate the most recent
analysis results that further validate a Unit 2 closure of 2025.
While ldaho Power, Staff, and ICL have held several discussions regarding the
portfolio modeling being performed as part of the 2019 IRP and summarized above, the
Company acknowledges that Staff and ICL have not had sufficient time to review the
comprehensive supplemental analysis results. However, given the nature of the Valmy
balancing account and the analysis completed to date, the Company does not believe
ICL's recommendation that the Commission defer the inclusion of Unit 2 investments in
customer rates is necessary. ICL Comments at 7. Even absent the results of the
supplemental analysis, all evaluations performed to date indicate there is no economic
benefit associated with a shutdown of Unit 2 prior to 2025. ln addition, if the Commission
approves Staffs recommendation that the Company file an application requesting
confirmation that a Unit 2 closure date of 2025 is appropriate, ICL will have ample time to
review, evaluate, and continue to comment on Idaho Power's analysis results in that case.
Finally, the balancing account mechanism established in Case No. IPC-E-16-24, which
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
converts revenue requirement amounts into a level payment stream over the recovery
period, ensures customers pay no more or no less than actual Valmy-related costs. As
Staff pointed out on page 4 of its Comments, the balancing account mechanism
guarantees customers are protected from variations in actualand forecasted investments.
lf, in this case, the Commission approves forecasted investments associated with Unit 2
and the Company validates an earlier closure of Unit 2 at a later date, any differences in
investment amounts can be trued-up with an update to Valmy-related base rates. In the
alternative, if the Commission were to defer its decision on forecasted investments in this
case, and the existing results of the Unit 2 shutdown analyses are validated in a future
filing, rates would require an additional adjustment to include amounts that are already
supported by these existing analyses. While ldaho Power appreciates and understands
Staffs and ICL's desire to perform a more extensive review of the Unit 2 shutdown
analysis, it does not believe delaying a decision on the forecasted investments is
necessary or appropriate in this case.
III. CONCLUSION
ldaho Power would like to reiterate its appreciation of the timely and extensive
review by both Staff and ICL of the Company's request in this case. Idaho Power also
appreciates the opportunity to respond to comments filed in this case and respectfully
requests that the Commission issue an order (1) approving the Framework Agreement,
(2) finding that al! actual Valmy investments through December 31,2018, were prudently
incurred, (3) allowing investments forecasted through December 31,2025, at Valmy to
be included in the levelized revenue requirement mechanism, and (4) adjusting customer
rates to recover the associated incremental annual levelized revenue requirement of
$1.21 million with an effective date of June 1,2019. The Company also supports Staffs
recommendation that Idaho Power file annua! update reports, make best efforts to file an
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
application further detailing support for the appropriate Unit 2 shutdown date within 21
days of the service date of the Commission's order in this case, and file a request for a
rate true-up by February 28,2022, with an effective date of June 1,2022.
DATED at Boise, ldaho, this 17th day of May 2019.
!AA LTON
Attorney for ldaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 17th day of May 2019 I served a true and correct
copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Edward Jewell
Deputy Attorney General
ldaho Public Utilities Commission
47 2 W est Wash ington Street (837 02)
P.O. Box 83720
Boise, ldaho 83720-007 4
ldaho Conservation Leag ue
Benjamin J. Otto
ldaho Conservation Leag ue
710 North 6th Street
Boise, ldaho 83702
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_FAXX Email edwar=diewell ouc.idaho.oov
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IDAHO POWER COMPANY'S REPLY COMMENTS - 1O