20190510Comments.pdf

EDWARD J. JEWELL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10446
RECEIVED
?019 HiY l0 Ptl L: 3h
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Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO INCREASE ITS RATES FOR ELECTRIC
SERVICE TO RECOVER COSTS ASSOCIATED
WITH THE NORTH VALMY POWER PLANT.
CASE NO. IPC.E.19-08
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company' s Application.
BACKGROUND
On March 8,20l9,Idaho Power Company ("Idaho Power" or "Company") filed an
Application for an order allowing it to increase its electric rates by 0.11% to recover costs
associated with the North Valmy Generating Station ("Valmy"). The Company proposes an
effective date of June 1,2019 for the rate increase.
In Case No. IPC-E-16-24, the Commission directed the Company to pursue prudent
and commercially reasonable efforts to end its participation in operating Valmy Unit I by
December 31,2019, and Valmy Unit2 by December 31, 2025. Order No. 33771.
With this Application, the Company requests approval of the North Valmy Framework
Agreement between NV Energy and Idaho Power dated February 22,2019 ("Valmy Framework
Agreement" or "Agreement"). The Valmy Framework Agreement provides a contractual
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1STAFF COMMENTS MAY 10,2019
mechanism for Idaho Power to meet its obligations under Commission Order No. 33771. The
Valmy Framework Agreement also clarifies the roles of the parties regarding ongoing operation,
retirement, and decommissioning of the plant. See Application at 5.
The Company requests the Commission find all actual Valmy investments through
December 31,2018 were prudently incurred.
The Company requests the Commission allow all investments at Valmy forecasted
through December 31,2025 to be included in the levelized revenue requirement mechanism
established by Order No. 33771.
The Company requests permission to adjust customer rates to recover the associated
incremental annual levelized revenue requirement of $ 1 .21 million, which equates to an overall
rate increase of 0.1lo/o. The Company requests an effective date of June 1,2019.
STAFF REVIEW
Introduction
In the Settlement Stipulation ("Stipulation") approved by Order No. 33771, the terms of
the settlement set out a methodology for the recovery of costs associated with Valmy. The
Stipulation included terms that "set a reasonable framework for future prudency reviews." Order
at 7. Item l0 of the Stipulation states that "Idaho Power will conduct ongoing analyses to
evaluate the economics of a Unit 2 retirement and submit the results as part of its Integrated
Resource Plan." In Item 13, the Company agreed to file an application with the Commission
seeking a prudence review of the actions taken to date by the Company in pursuit of the closure
of Units I and2.
Absent an earlier review, the Company will seek a 2020 adjustment to base rates that
includes:
1. Unit I prudence review and forecast-to-actual adjustment of 2017-2019
incremental investments;
2. Unit2 prudence review and potential inclusion of 2017-2019 incremental
investments;
3. Unit I and Unit 2 forecast-to-actual adjustment of 2017-2019 (base v. forecasted)
O&M savings; and
4. Unit2 closure validation study to evaluate a least cost/least risk closure date and
potential inclusion of forecaste d 2020 -2025 incremental investments.
2STAFF COMMENTS MAY 10,2019
The Company's Application requests the Commission approve the new North Valmy
Framework Agreement between Idaho Power and NV Energy; determine the prudency of the
actual investments through December 31,2018; allow the recovery of the forecasted investments
through December 31,2025, and; adjust customer rates to recover the incremental annual
levelized revenue requirement of $1.21 million with an effective date of June 1,2019. The new
Agreement will allow Idaho Power to achieve costs savings benefits for customers of
approximately $17 .2 million when compared to operating both units through2025 under current
agreements. Commission Staff has reviewed the Application, testimony, and production request
responses and addresses each of the Company's requests.
Unit 2 Closure Validation
Provision l0 of the Settlement Stipulation approved by Commission Order No. 33771
requires the Company to "conduct ongoing analysis to evaluate the economics of a Unit2
retirement and submit the results as part of its Integrated Resource Plan." Provision 13 requires
the Company to perform a "Unit 2 closure validation study to evaluate a least cost/least risk
closure date...". 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.
Late in the discovery process, Staff received new information that materially impacts
Staff s analysis. Staff requested the Company to "provide a detailed explanation and supporting
documentation and analysis substantiating the statement . . . [that] it is unlikely that Idaho
Power's exit from Unit2 operations prior to 2025 would result in material savings because the
only payment obligation relief would come from a reduction in certain costs associated with
Idaho Power's capacity reduction in Unit 2 operations." Second Production Request of the
Commission Staff to Idaho Power Company Request No. 9. Staff also asked for "a description
and breakdown of the ocertain costs' that could be reduced and why remaining cost categories
could not be reduced." ./d
In the meeting held between Staff, the Company, and the intervenor in this case on
May 6, 2019 to discuss the Company's Response to Staff s Second Production Request No. 9,
the Company stated that it let its Aurora modeling software select an optimal economic
retirement date for Unit2 between 2019 and December 31,2025. The Company stated that in all
24 resource portfolios, the Aurora model chose to retire Unit 2 in2025 based on economics. On
STAFF COMMENTS MAY t0,20193
May 8, 2019, the Company contacted Staff to clarify its previous comments and stated that it
only conducted a preliminary model run to determine whether there is an earlier economic
retirement date for Unit2, and did not allow the model to select an earlier retirement date in
subsequent full model runs. Further, the Company stated that it had omitted fixed costs and exit
fees associated with exiting Unit2 from the preliminary model inputs when conducting the
preliminary model run.
To provide Staff and interested parties the opportunity to fully review the Company's
statement that there is no material economic benefit associated with closing Unit 2 prior to
December 31,2025, Staff recommends the Commission order Idaho Power to file a new
Application within 2l days of the service date of the Commission's Order in this case. This
proposed forthcoming Application would clearly state the information and processes used by
Idaho Power to determine the economic retirement date of Unit 2. This Application would also
contain all necessary documentation and analysis completed by the Company that Staff and other
parties would need to verify the Company's submitted economic retirement date of Unit 2.
If the incremental annual levelized revenue requirement of $1.21 million requested by the
Company and recommended by Staff in this case is impacted by the findings in the proposed
forthcoming case, the balancing account established in Order No. 33771 allows customers to be
protected. Any corresponding adjustments recommended by parties can be reviewed by the
Commission in the proposed forthcoming case, with rates changed in a subsequent proceeding.
Staff notes that this process is similar to an alternative process suggested by the Company on
page 9 of its Application. This timeline would also give Idaho Power the opportunity to
reevaluate the proposed retirement date of Unit 2 in its 20l9Integrated Resource Plan ("IRP"), if
necessary.
North Valmy Framework Agreement
Staff has reviewed the North Valmy Project Framework Agreement dated February 22,
2019 and believes that it meets the requirements of Provision I 1 under the Settlement Stipulation
approved in Commission Order No. 33771. This new Agreement effectively amends the North
Valmy Ownership and Operating Agreement that defines the rights and responsibilities between
NV Energy and Idaho Power. The main provisions of the new agreement:
1. Provide a structure for either party to exit its operational involvement in both
units while laying out the cost obligations and exit fees between the two parties;
4STAFF COMMENTS MAY 10,2019
2. Define the process that will be used between both parties to address plant
decommissioning as well as a mechanism to resolve disputes; and
3. Delineate a process to address grievances and claims of default.
Staff believes the new agreement signed by both parties allows Idaho Power to exit its
involvement in Unit I in 2019 and Unit 2 by December 3l ,2025, while maintaining and possibly
increasing the amount of estimated cost savings reflected in Idaho Power's retirement analysis
that was conducted in the IPC-E-16-24 case.
As a result of the new agreement, and because Idaho Power will no longer be receiving
generation from Unit 1 past December 31,2019, the Company will be obligated to pay an annual
Unit 1 exit fee for as long as NV Energy continues to operate Unit l, or until the end of 2025.
These fees were determined by the parties to be fixed O&M costs. Staff agrees these obligations
are a responsibility of an exiting party and are therefore appropriate. With the exception of
decommissioning costs, the Agreement ensures Idaho Power will not be obligated to pay any
operating expenses, fuel-related costs, capital investments, administrative and general expenses,
or any newly identified fixed, variable, annual, or one-time expenses related to Unit I beyond
2019.
The annual exit fees that Idaho Power negotiated are approximately one third less than
the amount the Company anticipated in the IPC-E-16-24 case. However, Idaho Power has
assumed that NV Energy will be operating Unit 1 through the end of 2021and will only be
compensating NV Energy for two years-worth of exit fees for Unit 1. Staff believes this is a
reasonable assumption since the Nevada Public Utilities Commission adopted NV Energy's most
recent Integrated Resource Plan, Action Plan, and Energy Supply Plan in December 2018, all of
which reflect a2021 retirement date for Unit l. Larkin, Di at 9. If the Company's assumption is
not realized and NV Energy continues to operate Unit 1 past year 202l,Idaho Power's estimated
net savings could be reduced between 5 and 30%, depending on how long NV Energy continues
to operate Unit l.
Idaho Power is required to continually evaluate the economics and need for Unit 2
operation per Commission Order No. 33771. If the Company determines that it should stop
receiving generation from Unit 2 prior to 2025, the Agreement allows it to exit Unit2, but will
incur annual exit fees similar to those assessed for Unit 1. This provides cost certainty for the
amount that Idaho Power would be obligated to pay NV Energy, thereby increasing the accuracy
of its evaluations and reducing the risk of its resource decision.
5STAFF COMMENTS MAY 10,2019
Staff believes the terms and provisions related to the governance and processes used to
manage decommissioning of the facility are reasonable and fair. The execution of the agreement
should result in better information earlier in the process and more certainty regarding
decommissioning cost impacts to both utilities.
Finally, the provisions in the agreement regarding the resolution of grievances and
processes to address defaults should allow for fair and rapid resolution of any issues.
Balancing Account
The balancing account approved in Case No. IPC-E-16-24 is designed to smooth the
revenue requirement impacts associated with the early withdrawal by Idaho Power and closure of
North Valmy. The mechanism calculates the levelized annual revenue requirement associated
with accelerated depreciation, a return on undepreciated capital investments, non-fuel O&M
savings, and decommissioning costs. The levelized annual revenue requirement recovers
estimated costs which will be trued up to include prudently incurred actual expenses. Order No.
33771approved a revenue requirement collection through 2028, three years longer than the
proposed 2025 shutdown of the Valmy plant.
The levelized annual revenue requirement includes four components, as well as a true-up
for load variance, and are shown in Company Exhibit No. l Component A is the revenue
requirement associated with the actual existing investment at May 31,2017. Component B is the
revenue requirement associated with incremental investments after May 31,2017 . Component C
is the revenue requirement associated with future decommissioning costs. Component D is the
revenue requirement associated with O&M savings, including non-fuel O&M reductions and the
costs updated by the new Valmy Framework Agreement. At this time, the total incremental
change to the Idaho jurisdictional levelized revenue requirement from the Valmy plant is
51,213,643. Staff recommends this amount be included in rates effective June 1 ,2019.
Staff recommends the Commission order the Company to file annual reports detailing
amounts booked to the Valmy balancing account to keep the Commission informed. In Order
No. 32457 approving the early closure of the Boardman power plant, the Commission ordered
the Company to file annual reports detailing all amounts booked to the Boardman balancing
account. These reports include exhibits and schedules and a narrative description of the actual
investments at Boardman during the prior year and the reason for any changes in forecast
investments. Staff recommends a similar report be filed for Valmy. Staff requests the report
6STAFF COMMENTS MAY 10,2019
also include any major changes to the forecasted capital expenditures and be separated by unit.
This report will assist Staff in reviewing changes to the actual and forecasted amounts in the
Valmy balancing account and help ensure costs are appropriate and prudent so that the revenue
requirement associated with Valmy can be adjusted as needed for major changes after regular
reviews. Staff will work informally with the Company to develop this report and discuss
available documentation.
In addition to annual reports, Staff also recommends the Company submit a filing to true-
up the balancing account no later than February 15,2022, with rates to become effective
June I ,2022. The filing should include the following: (1) a true-up of prudently incurred actual
cost, through the end of year 2021; (2) an update of forecasted investments including
decommissioning costs; and (3) results validating the Unit 2 retirement date from an analysis
conducted in the 2021 IRP. The main benefit of this filing would be to ensure enough time to
accomplish recovery of updated costs and benefits in base rates that can be identihed given
updated circumstances known at that time. For example, if either utility changes their timing to
exit the facility, it will change the actual dollar amount of annual exit fees and the amount of
incremental investment currently being assumed in the balancing account. By February 15,
2022, the Company will know if its assumption for a2021Unit I NV Energy retirement date is
valid, and both partners should have better information regarding the final retirement date for
Unit2.
Prudence of Actual Investments
The Company is requesting approval of $6,242,175 of actual capital investments made in
the Valmy facility from August l, 2016 through December 31,2018 (Exhibit No. 3). This
accounts for approximately $85,000 of the levelized annual revenue requirement increase
proposed in this case. Through Staff s review of these investments, Staff believes the
expenditures were prudently incurred and should be included in rates for recovery by the
Company. Staff audited a sample of actual Valmy capital investment invoices. In addition to
reviewing the invoices, Staff reviewed Idaho Power's internal audit reports and Sarbanes Oxley
reports relevant to the Valmy Plant. Staff is satisfied that the amounts recorded to the Valmy
Plant accounts are reasonable.
Given that the facility is approaching its end of life, it is important that the Company
carefully scrutinize all of its incremental investments. Staff realizes that not only does the
7STAFF COMMENTS MAY t0,2019
Company need to maintain reliable operation for its own purposes, but its operating partner, NV
Energy, requires Unit I to operate reliably for at least another two years. Because of these
competing concerns, Staff balanced its review between maintaining reliable operation over the
facility's remaining life with minimizing the cost of the Company's investments.
The Company incurred approximately $6.2 million in capital expenditures in the North
Valmy facility over the time period in question. About $3.7 million was invested in Unit I while
1.7 million, less than half of Unit 1 investments, was invested in Unit 2. The remaining $0.9
million was invested in common plant. Although the larger total investments in Unit 1 in
comparison to Unit 2 was initially a Staff concern given the Company plans to exit Unit I at the
end of this year, Staff believes the Company adequately addressed these concerns. The
Company explained that during this period, Unit I received a major planned maintenance outage
while the major outage for Unit 2 occurred in 2015. These 2015 investments were previously
declared prudent in Case No. IPC-E-76-24, which made the cost of the Unit 1 investments in this
case appear larger by comparison.
Taking all these factors into consideration, Staff took a multi-prong approach in
reviewing the Company's investments, while concentrating on investments over $100,000.
According to the Company, actual capital investments over $100,000 were all based on the need
for environmental compliance, safe and economic operation of the plant, and plant reliability.
Harvey, Di at25.
First, Staff identified and reviewed the top four investments, all of which Staff believes
are prudent. The largest single investment of $602,997 was made to meet the Mercury and Air
Toxics Standards ("MATS") for Unit 1. Without it, Unit 1 boiler operation could not continue.
The second largest investment was $596,131 used for Unit 1 ARC flash mitigation. This
investment was required to prevent plant operator risk of injury or death from a high-voltage
ARC flash. The third and fourth largest investments were for the Unit 1 and Unit 2 clarifrer
recirculation drives. Each of these were approximately $540,000 apiece. These investments
were necessary to rebuild the equipment that conditions water for reliable boiler operation.
Second, Staff reviewed actual investments by project against budgeted amounts and
identified any projects with large deviations. In correlating the budget amounts by year(s) to
actual investment, significant differences were identified for the following three projects shown
below.
STAFF COMMENTS MAY t0,20198
Project
No.
Description Budget ID Budget
Year
Budget
Amount
Date in
Service
Actual
Investment
Percent
Difference
27467689 Valmy Unit I - TWIP Install VLMYI TOOO9 $24, l 8s $274,822 1.136%
27430166
Valmy Unit I - Clarifier Recirculation
Drives
VLMYI5OO2O
VLMYl60007
2015
20t6 $265,075 $s4t,t77 I 88%
2750tlL6 Valmy Unit I - Pulverizer Rebuild VLMYI5OO2T
2016
2018 $250,053 201 8 $3 l 9,s65 r28%
The Company explained that the additional amounts above the budgeted figures were
identified once actual work began. After reviewing the Company's detailed explanation and the
age of the units, Staff believes these additional costs were justified.
Staff discovered several smaller investments made without a budget estimate. Staff was
concerned that NV Energy could be performing work without Idaho Power oversight. Because
of the approaching retirement of the facility and the need to scrutinize further capital investment,
Idaho Power has changed its practices requiring a review of all new capital investment in the
facility prior to future expenditures being made by NV Energy. Staff believes this change in its
capital expense review procedure was a prudent move by the Company.
f,'orecasted Investments and Decommissioning Costs
As noted above, the Company includes forecasted capital investments and projected
decommissioning costs in the balancing account in order to facilitate rate stability by including
these costs and levelizing their impact. In this filing, the Company has updated the cost of
forecasted capital investments for Valmy Unit I through the end of 2019, and has forecasted
investments for Valmy Unit 2 and common plant through the end of year 2025. The Company
did not adjust the forecasted decommissioning costs included in the balancing account authorized
by the Commission in Order No. 33771. Staff has reviewed any adjusted amounts and believes
the costs are within the bounds of the new Framework Agreement and are reasonable given the
Company's early exit plan. Staff recommends these adjusted costs be included in the balancing
account, knowing that actual investments will be later reviewed for prudency and trued-up to
actual amounts for recovery in rates.
The Company is requesting Commission approval to include the Idaho jurisdictional
revenue requirement of $1.31 million for investments projected through December 31,2025.
9STAFF COMMENTS MAY 10,2019
20t7 2017
2016
The Company has characteized these investments as necessary and routine capital expenditures
needed to safely and reliably operate the facility through the end of its life. Harvey, Di at27 .
Unit I expenditures are tied to standard annual maintenance and repairs that occur prior
to 2020. According to the North Valmy Framework Agreement, there would be no new planned
Unit I capital investments past the December 2019 exit date. Larkin, Di at 16. As mentioned
above, per the Framework Agreement, the Company is not obligated to pay for any capital
investments required for the continued operation of Unit 1 past 2019.
Currently, Idaho Power is planning to receive generation from Unit 2 until the end of
2025. Staff verified that the Company's investments include expenditures for future plant
maintenance outages as well as equipment replacement and upgrades for Unit 2 and common
facilities to ensure reliable operation through the end of its life. However, given the possibility
of an earlier exit from Unit2, Staff reviewed and will continue to review any planned
investments that could be avoided given the facility's end of life. As stated above, Staff has
recommended that the Company provide annual forecast-to-actual reports of the balancing
account. To ensure that any unnecessary future expenditures are minimized, Staff further
recommends the Company include any updates to forecasted expenditures in the report as
circumstances change.
Forecasted decommissioning costs were not adjusted from the amounts included in the
balancing account from the IPC-E-16-24 case. Staff continues to support the amount knowing
that the amounts will be trued-up to prudently incurred actual costs when the facility is closed.
New Rate Calculations and Tariff Sheets
To spread the rate increase to customer classes, the Company proposes a uniform
percentage increase to all base rate components except for the monthly customer service charge.
This is consistent with the rate spread authorized by the Commission in Case No. IPC-E-16-24.
Staff continues to believe that this method is fair and reasonable because it spreads the increase
equally across both energy and demand components and it approximates how the types of costs
included in the balancing account are allocated in base rates. Staff verified that the calculation of
the revenue impact is correct, and that the overall increase of 0.110% was properly spread to the
appropriate rate schedules.
STAFF COMMENTS 10 MAY 10,2019
Customer Notice and Press Release
The Company's press release and customer notice were included with its Application.
Staff reviewed the documents and determined that both meet the requirements of Rule 125 of the
Commission's Rules of Procedure. IDAPA 31.01.01.125. The notice was included with bills
mailed to customers beginning March 25 and ending April23,2019, providing customers with a
reasonable opportunity to file timely comments with the Commission by the May 10,2019
deadline.
Public Comments
As of May 9,2019, the Commission had received two comments, which were both
opposed to the proposed rate increase.
STAF'F RECOMMENDATIONS
Staff recommends:
o the Commission order the Company to file an Application within 21 days of the
service date of its Order validating the 2025 closure for Unit 2, or provide a
revised economic closing date;
o the Commission approve the North Valmy Framework Agreement between NV
Energy and Idaho Power dated February 22,2019;
o the Commission find all actual investments through December 31,2018 as
prudent;
o the forecasted investments through December 31,2025 at Valmy be included in
the levelized revenue requirement mechanism;
o the customer rates be adjusted to recover the incremental annual levelized revenue
requirement of $1.21 million effective June 1 ,2019;
o the Company file annual reports detailing all amounts booked to the Valmy
balancing account, including known changes to forecasted investments and
decommissioning costs;
o the Company work with Staff to develop available documentation for actual
expenses for audit and prudence review; and
STAFF COMMENTS 11 MAY t0,2079
the Commission require a filing no later than February 15, 2022, with rates
effective on June 1,2022 that will include (l) a true-up of all 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 the 2021 IRP.
Respectfully submitted this ty day of May 2019
J
Deputy General
Technical Staff: Kathy Stockton
Rachelle Farnsworth
Johan Kalala-Kasanda
Rick Keller
Curtis Thaden
i : umisc/comments/ipce I 9. 8ejr{fklsjkrk comments
STAFF COMMENTS t2 MAY 10,2019
a
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS l0th DAY OF MAY 2079, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF,IN CASE NO.
IPC-E-19-08, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
JULIA A HILTON
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail : i [e-mail]
dockets@ idahopower.com
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH ST
BOISE ID 83702
E-MAIL: [e-mail]
MATT LARKIN
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail : [e-mail]
SECRETARY
CERTIFICATE OF SERVICE
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