20200521Reply Comments.pdf

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An IDACOiP Corfip.ny
LISA D. NORDSTROM
Lead Counsel
[e-mail]
May 21,2020
VIA ELECTRONIC FILING
Diane M. Hanian, Secretary
ldaho Public Utilities Commission
11331 W. Chinden Boulevard
BuiHing 8, Suite 201-A
Boise, ldaho 83714
Re Case No. IPC-E-20-21
2020-2021 Power Cost Adjustment - ldaho Power Company's Reply
Comments
Dear Ms. Hanian:
Aftached for electronic filing in the above matter is ldaho Power Company's Reply
Comments.
lf you have any questions about the enclosed documents, please do not hesitate to
contact me.
Very truly yours,
X* !.4^1.t,.*,
Lisa D. Nordstrom
LDN:sdh
Enclosures
LISA D. NORDSTROM (!SB No. 5733)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
I no rd stro m @ ida hopower. co m
Aftorney for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT POWER
COST ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1,2020
THROUGH MAY 31 ,2021
CASE NO. IPC-E-20-21
IDAHO POWER COMPANY'S
REPLY COMMENTS
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ldaho Power Company ("ldaho Powe/' or "Company") respectfully submits the
following Reply Comments in response to comments filed by the ldaho Public Utilities
Commission ("Commission") Staff ("Staff') on May 14,2020. ln these Reply Comments,
ldaho Power concurs with Staffs conclusion that the proposed Power Cost Adjustment
("PCA') rates should be approved as filed, and addresses Staffs belief that the PCA could
be simplified by removing the forecast component of the mechanism.
I. BACKGROUND
On April 15,2020,1daho Power applied to the Commission for an order approving
an update to Schedule 55 based on the quantification of the 2020-2021 PCA to become
effective June 1 ,2020, for the period June 1 ,2020, through May 31 ,2021. lf approved,
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
the 2020-2021 PCA will result in an overall revenue increase of approximately $58.7
million, or a 5.21percent increase over curent billed revenue.
On May 14, 2020, Staff filed comments in this case detiailing its audit of the
Company's filing. As described in Staffs comments, "Staff reviewed the components that
make up this year's Schedule 55 PCA rates and has concluded that they are fair, just,
and reasonable."l Staff recommended that the Commission approve the Company's
proposed Schedule 55 rates as filed in Attachment 1 to the Company's Application.
Staff also recommended that the Commission order the Company to meet with
Staff to discuss simplification to the PCA methodology.2 Specifically, Straff believes the
Company's PCA could be simplified, while not diminishing its purpose, by removing the
forecast component which has contributed to significant rate fluctuations for customers.3
II. IDAHO POWER'S REPLY
ldaho Power acknowledges Staffs review and agrees with Staffs conclusion that
the filed PCA components appropriately calculate 2020-2021 PCA rates under the
currently approved methodology. With respect to Staffs suggestion to simplify the PCA
mechanism by removing the PCA forecast component, ldaho Power discourages this
methodological change as it is contrary to the intent of the PCA, would send improper
price signals to customers, would cause financial harm to the Company and ultimately
customers, and would likely not achieve Staffs stated intent of increased rate stability.
1 Staff Comments, p
2 Staff comments, p
3 Staff Comments, p
3.
4.
3.
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
A. A Forecast-Based PCA More Closely Matches Revenue Collection to
Actual Power Supply Expenses.
ln 1981 ldaho Power proposed to change from its historic method of median
stream flow normalization for rate setting purposes to normalization of average net power
supply costs under multiple hydro conditions.a Under the proposed normalization
method, ldaho Power's rates were set based on the averages and were not adjusted
annually to account for the difference between actual stream flows and normalized
conditions. At the time, both the Company and the Commission believed that the
normalization system adopted would make the Company whole in the long run and it was
approved.s No party to that proceeding anticipated the severe drought years that
occurred in the following decade. Because ldaho Powe/s generating fleet is
predominately hydro-based, the Company's power supply costs can vary significantly
from year to year as stream flows change. When stream flows are high, the can generate
more energy at its hydro facilities, which are essentially zero-variable cost resources, in
place of other higher cost resources. Additionally, high stream flows increase ldaho
Power's ability to take advantage of surplus sales; a benefit to customers in the form of
lower net power supply expense ("NPSE"). Conversely, when steam flows are low, ldaho
Power relies more heavily on purchased power and thermal resources to serve load and
the ability to make surplus sales is reduced. As modeled in the Company's last general
rate case, NPSE can vary in excess of $200 million from one year to the next based on
changes in stream flow conditions. 6
a ln the Matter of the Application of tdaho Power Company for Authority to lncrease /ts Rafes and Charges for Electic
Service in the State of ldaho. Case No. U-1 006-185.
s ln the Matter of the Application of ldaho Power Company for Authority to lmplement a Power Cost Adjustment Tariff
for Electric Service to Customers in the State of ldaho and for Approval of New Rates for Service Under the FMC
Specra/ Contract. Case No. IPC-E-92-25. Order No. 24806, p. 4 (March 29, 1 993).
6 ln the Matter of the Application of ldaho Power Company for Authoity to lncrease ifs Rafes and Charges for Electric
Service to lfs Cusfomers in the State of ldaho. Case No. IPC-E-11-08. Wright, Dl, Exhibit No. 17, pp. 5, 58.
IDAHO POWER COMPANY'S REPLY COMMENTS.3
To address the variability in NPSE from year to year as stream flows change, ldaho
Power filed an application to implement the PCA in Case No. !PC-E-92-25. The
Commission-adopted PCA mechanism included a forecast @mponent in which Apri!
through July inflows at Brownlee Reservoir are used as the basis for predicting annual
NPSE, as well as a true-up component to account for the difference in forecast NPSE
and actual NPSE. lt was determined that a forecast-based PCA would meet the primary
objective of implementing a mechanism, which is to more closely match revenue
collection to the actual power supply expenses incurred by the Company. Specifically,
the component of a customer's rate which reflects the variable expenses of generating
energy to serve the customer's load would be variable and change as the cost of energy
changes. As a result, proper and understandable price/cost signals would be sent to
customers.
As part of its order adopting the implementation of the PCA, the Commission made
the following statement:
We find that a forecast-based PCA with a true-up is most
appropriate for ldaho Power. A forecast most closely matches
costs to the time period in which they are incuned. This sends
the more appropriate price signals to ratepayers....
Ratepayers in ldaho Power's service territory are aware of
changing stream flow conditions and understand the impact
they have on the cost of generating electricity. A PCA that
adjusts rates to reflect projected stream flows for the coming
year should be understandable to ratepayers and send short-
term price signals to ratepayers more reflective of actual
conditions....
Finally, we find that a forecast-based PCA that trues-up to
actual, as proposed by ldaho Power, eliminates the possibility
of the Company over-recovering its power supply costs. 7
7 Order No. 24806, pp.&9.
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
Staffs suggestion to limit the PCA mechanism to a true-up component, or a strict
deferred accounting approach, is contrary to the purpose of the PCA. Under this
approach, the Company would defer cunent expenses or revenues for recovery or
reimbursement through rates in a future time period. This would send inaccurate price
signals to customers as they would pay for current energy use at rates that reflect
expenses for energy consumed in a prior time. Additionally, this approach could result in
the accumulation of expenses and an associated rate increase just before an abundant
water year, or vice-versa an accumulation of revenues and an associated rate decrease
coincident with a low water year. Ultimately, ldaho Powe/s customer would be receiving
inappropriate price signals.
Alternatively, use of the PCA forecast component allows the Company to adjust
rates to match forecast NPSE to be incurred by the Company. Customers receive a
proper price signal that better reflects the costs of energy at the time the customer is
consuming and paying for the energy. ldaho Power finds this increasingly important as
a significant portion of the forecast NPSE included in the Company's PCA forecast is
known. As noted in the direct testimony of Mr. Tatum, approximately 51 percent of this
year's proposed PCA forecast is related to the recovery of Public Utility Regulatory
Policies Act of 1978 costs - costs that are known today and are under contract.s Deferral
of these costs to a future time period is a direct contradiction of matching revenue
collection with the time expenses are incurred and sends an improper price signa! to
customers.
8 Tatum, Dl, p. 28, lines 11-14.
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
B. A Forecast-Based PCA is Critical to ldaho Power's Financial Healthy
and Cost-Effective Access to Capital.
ln addition to diminishing the primary objective of the PCA, removalof the forecast
component would cause financia! harm to the Company and ultimately result in higher
costs for customers. As Staff noted in its Comments:
Due to its diverse generation portfolio, ldaho Power's actual
power supply costs vary each year depending on changes in
river streamflow, the amount of purchased power, fuel costs,
the market price of power, and other factors. Because of
potentially large differences [emphasis added] in actual
cost as compared to the amount of Net Power Supply
Expense (NPSE) collected through base rates, the PCA
mechanism is designed to true-up these annual differences
so that customers are paying no more and no less than actual
NPSE (minus sharing).e
The Company agrees with Staffs assessment and notes that this is precisely why the
forecast component of the PCA is critical to the financial health of ldaho Power and
beneficia! to customers.
Without the forecast component of the PCA, if actual NPSE were significantly
higher than what is being collected through base rates, ldaho Power would likely have to
borrow money to fund those higher NPSE. For example, this year's PCA forecast is $1 12
million. !f the forecast component of the PCA were removed, the Company would have
to fund this amount and collect it from customers the following year. Removal of the PCA
forecast component could also result in a credit rating downgrade for ldaho Power. Both
or either of these events would result in higher costs to fund Company operations, which
are ultimately passed on to customers through rates. lf the PCA was modified to an
e Staff Comments, p. 3.
IDAHO POWER COMPANY'S REPLY COMMENTS.6
annua! deferred accounting approach, as suggested by Staff, the Company may not be
able to cost-effectively access financial markets to offset lost cash in the near term.
As addressed in the direct testimony of Mr. Tatum, reduced cash from PCA-
related sales would challenge the Company's ability to cost-effectively fund its near-term
operations.lo Reflecting on the decade before the forecast-based PCA was implemented,
the Commission stated:
It is now apparent that while normalization does make the
Company whole over a period of years, during periods of
extended drought the Company suffers significant eamings
instability and cash-flow problems. The Company, for
example, is forced to curtail its plans for maintenance and
expansion of plant and services. Ratepayers do not benefit
from a utility that is financially impaired in this manner.11
While the eamings instability that existed prior to the implementation of the PCA
would not be a concern under the Staffs recommendation, the same cash-flow concerns
previously acknowledged by the Commission would be reintroduced into the mechanism.
C. Removing the PCA Forecast is Unlikely to Result in More Rate
Stability.
Finally, Staff states that since 2011, the Company's PCA rate has varied
considerably from a credit of 0.0629 cents per kWh in 2011 to a surcharge of 1 .2306 cents
per kWh in 2013.12 ldaho Power concurs with Staff that the PCA rate has varied since
2011. However, the intent of the PCA is to allow the Company to adjust rates on an
annual basis to capture the variability in stream flow conditions. Because stream flow
conditions vary from year to year, it is reasonable that NPSE, and thus the PCA rate,
would vary from year to year. As stated in Staffs Comments:
1o Tatum, Dl, p. 30, lines 10-12
rr Order No. 24806, p.4.
12 Staff Comments, p. 13.
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
Due to its diverse generation portfolio, ldaho Power's actual
power supply costs vary each year depending on changes in
river streamflow.... Because of the potentially large
differences in actual cost as compared to the amount of NPSE
collected through base rates, the PCA mechanism is
designed to true-up these annual differences so that
customers are paying no more and no less than actual NPSE
(minus sharing).13
Staff asserts that a PCA mechanism that does not rely on forecasts could create
more rate stability than the cunent method.14 ldaho Power does not agree with Staffs
claim that eliminating the PCA forecast component could create more rate stability. A
review of the variation in actua! NPSE compared to the PCA forecast of NPSE over the
prior 10 years reveals that a defened accounting approach would have resulted in similar,
if not Iarger, variations in annual rate adjustments.
Attachment 1 to these Reply Comments includes the system-level PCA forecast
of NPSE, as approved by the Commission, in ldaho Power's last 10 PCA filings.ls The
attachment shows that year-over-year changes in the PCA forecast of NPSE varies from
negative 5.4 percent to 12.0 percent. The aftachment also includes actual system-level
NPSE incurred by the Company during those same PCA years. The attachment
demonstrates that year-over-year changes in actual NPSE varies from negative 10.6
percent to 57.6 percent. Furthermore, the year-over-year variation in actua! NPSE is
larger than the same year-over-year variation in the PCA forecast of NPSE for 7 out of
the 9 instances. Therefore, removing the PCA forecast and limiting the mechanism to the
13 Staff Comments, p. 3.
14 Staff Comments, p. 14
,u f.fot" f-;;p#[ve purposes, the analysis is limited to the Federal Energy Regulatory Commission (FERC)
accounts that are included in the current PCA forecast methodology. Early PCA years in this analysis included
forecast benefits/expenses associated with the Hoku special contract, Renewable Energy Credits sales, Sulfur
Dioxide sales, etc. These components have been removed from the analysis to perform an apples-to-apples
comparison.
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
true-up of actua! expenses is unlikely to result in more rate stability for customers and
could potentially result in less rate stability.
While Staff suggests that the PCA mechanism could be simplified by removing the
forecast component, Staff ultimately states that it was unable to fully investigate the
matter. Staff plans to conduct a study of the current PCA mechanism's stability prior to
next year's filing and believes it would be beneficial for Staff to meet with the Company
during this process.l6 As such, Staff recommends that the Commission order the
Company to meet with Staff to discuss simplifications to the PCA mechanism. While
Idaho Power believes it has described the reasons why removing the PCA forecast
component is inappropriate, the Company is open to meeting with Staff to further discuss
this issue.
III. CONCLUSION
ldaho Power acknowledges Staffs review and conclusion that the Company's
proposed PCA rates in this case are fair, just, and reasonable and comply with the existing
PCA methodology. ldaho Power disagrees with Staffs suggestion that removal of the
forecast component of the PCA mechanism would result in more rate stability. As more
fully described above, removing the forecast component would send improper price
signals to customers and create undue risk for the Company and ultimately customers.
Furthermore, the Company finds that removal of the PCA forecast would not result in
more rate stability for customers. ldaho Power is open to meeting with Staff to discuss
this topic further.
16 Staff Comments, p. 14.
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
ldaho Power respectfully requests that the Commission approve the 202O-2021
PCA rates as filed in this proceeding.
DATED at Boise, ldaho, this 21st day of May 2020.
X*!-ff^*t"*-,
LISA D. NORDSTROM
Attomey for ldaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS . 10
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 21st day of May 20201 served a true and conect
copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following named
parties by the method indicated below, and addressed to the following:
Gommission Staff
Matt Hunter
Deputy Attomey Genera!
ldaho Public Utilities Commission
11331 W Chinden Blvd, Bldg. 8, Suite 201-A
P.O. Box 83720
Boise, ldaho 83720-007 4
_Hand Delivered
_U.S. Mail
_Overnight Mail
_FAXX Email [e-mail]
/**)JZ*"_
Sandra Holmes, Legal Assistant
IDAHO POWER COMPANY'S REPLY COMMENTS - 11
BEFORE THE
IDAHO PUBLIG UTILITIES COMMISSION
GASE NO. IPC-E-20-21
IDAHO POWER COMPANY
ATTACHMENT 1
IDAHO POWER COMPANY'S REPLY COMMENTS - 12
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