20220622Comments.pdf

CHRIS BURDIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTTLITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-007 4
[phone]
IDAHO BAR NO. 9810
Street Address for Express Mail:
1I33I W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE, ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
DETERMINATION VALIDATING THE
NORTH VALMY POWER PLANT
BALANCING ACCOUNT TRUE-UP
CASE NO.IPC.E-22-05
COMMENTS OF THE
COMMISSION STAFF
COMES NOW, the Staff the Idaho Public Utilities Commission ("Staff'), by and through
its Attorney of record, Chris Burdin, Deputy Attorney General, and submits the following
comments.
BACKGROUND
On February 28,2022,Idaho Power Company ("Company") applied to the ldaho Public
Utilities Commission ("Commission") for an order: (l) finding that all actual North Valmy Power
Plant ("Valmy") investments from January 1,2019, through December 31,2021, were prudently
incurred; (2) validating that the Company has accurately quantified the Valmy balancing account
true-up as a result of the inclusion of actual costs through December 31, 2021, and updated
forecasted investments through December 31,2025; and (3) conf,rrming its request satisfies the
annual reporting required by Commission Order No. 34349.
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1STAFF COMMENTS JUNE 22,2022
Valmy is a coal-fired power plant that consists of two units and is located near
Winnemucca, Nevada. NV Energy co-owns the plant with the Company and is Valmy's operator.
The Company exited coal-fired operations of Unit No. I on December 31,20I9.t The Company
anticipates that it will exit from Valmy Unit No. 2 by the end of 2025.2
In Order No. 33771, and updated in Order No. 34349, the Commission approved a
balancing account mechanism associated with the shutdown of Valmy which allows for full
recovery of Valmy-related costs near the plant's end-of-life. The Commission also approved
Valmy-related investments forecasted through December 31,2025, to be included in the levelized
revenue requirement mechanism. Order No. 34349 directed the Company to file annual reports
detailing the amounts recorded to the Valmy balancing account, and to submit a filing to true-up
the balancing account with forecast-to-actuals no later than February 28,2022.
STAFF REVIEW
Staffhas reviewed the Application, testimony, and responses to production requests. Based
on its review, Staff recommends the amounts for the investments made between January 1,2019,
through December 31,2021, as shown in Company Exhibit No. 2, be maintained in the balancing
account, but without a determination of prudence at this time. Staff believes the Company
accurately quantified the Valmy balancing account true-up, that the Company's filing satisfies the
annual reporting requirement, and that a change in customer rates is not necessary.
The Valmy balancing account true-up with plant investment balances, actual Operation and
Maintenance ("O&M") savings through December 31,2021, as well as future investments and
O&M savings through December 31,2025, results in an annual levelized revenue requirement of
$31.68 million on an Idaho jurisdictional level as shown in Table No. I below.
Table No. l: Valmy Levelized Revenue Requirement
Existing Capital Investments as of Dec.3l,202l s 32.282.687
Incremental Capital Investments through 2025 $ 2.859.968
Decommissioning Costs $ 1,095,534
Non-Fuel O&M Savings $ (4,4s4,106)
Load Variance Overcollection $(l0l I 8)
Total Levelized Revenue Requirement $ 31,682,765
rOrderNo.33983.
2 Case No. IPC-E-21-43
2STAFF COMMENTS JUNE 22,2022
The $31.68 million levelized revenue requirement is an increase of $l.78 million over the levelized
revenue requirement approved in Order No. 34349.
A. Balancing Account
The balancing account approved in Order No. 33771, is designed to smooth the revenue
requirement impacts associated with the Company's early withdrawal from 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. In Order No. 33771, the
Commission approved a revenue requirement collection through 2028, three years longer than the
proposed 2025 shutdown of the Valmy plant.
B. Levelized Annual Revenue Requirement
The levelized annual revenue requirement includes four components, as well as a true-up
for load variance, which are shown in Company Exhibit No. 1 - Levelized Revenue Requirement
for the Valmy Plant 2021 Annual Update. Component A is the revenue requirement associated
with actual existing investment as of May 31, 2017 . Component B is the revenue requirement of
incremental investments after May 31,2017. Component B consists of two subcomponents: l)
the revenue requirement of incremental investments at Unit No. I from June 1,2017, through
2019, and 2) the revenue requirement of Valmy incremental investments beginning January l,
2020. Component C is the revenue requirement associated with future decommissioning costs.
Component D is the revenue requirement associated with O&M savings.
The Company is requesting that the Commission validate its quantification of the Valmy
balancing account true-up and proposes that the difference in the annual revenue requirement
remain in the balancing account to offset potential future differences. The Company will continue
to file annual reports keeping the Commission appraised of changes to the Valmy levelized
revenue requirement as actual investment and expenses become known.
Staff recommends that the $1.78 million difference in the annual revenue requirement
remain in the balancing account. An adjustment to customer rates to recover the incremental
annual levelized revenue requirement resulting from the true-up is not necessary. Staff believes
the Application satisfies the annual reporting required by Commission Order No. 34349.
3STAFF COMMENTS JLINE 22,2022
Although OrderNo. 34349 requires the Company's filing to include a rate change effective
June 1, 2022, the Company is not requesting to adjust customer rates at this time. However, if the
Commission determines that a rate change is appropriate, the Company's filing includes the
necessary quantifications for the Commission to calculate arate change resulting from the annual
levelized revenue requirement. Were the Commission to authorize current rate recovery of the
incremental amount of $1,784,343, rates would increase approximately 0.14 percent.
1. Prudence of Actual Investments
The Company requested approval for $4,657,437 of capital investments made to the North
Valmy plant during the period from January 1,2019, through December 31,2021, as shown in
Exhibit No. 2 of the Application. The amount represents the Company's share of capital
investments made to the plant over this timeframe. The breakdown of capital investment includes
$4l6,860forUnitNo. l,$2,707,651forUnitNo.2,and$|,532,927 fortheValmycommonplant.
To determine prudence needed for the Company to begin recovery for its capital
investments, Staff analyzedtwo types of prudence: decisional prudence and operational prudence.
Decisional prudence of an investment is based on need, while operational prudence is based on
whether the Company implemented the investment in a least-cost manner. As a result of its review,
Staff concludes that the investments made at the North Valmy Plant during the 2019 through 2021
timeframe as shown in Exhibit No. 2, were needed to continue safe and reliable operation of the
facility. As such, Staffrecommends that the amounts for these investments be maintained in the
balancing account. However, Staff cannot recommend that the investments were operationally
prudent due to a lack of sufficient evidence documenting that the projects were done in a least-
cost way. Staff further recommends the Company provide additional information needed by Staff
within six months after the Commission's order in this case through a compliance filing. Staff
recommends the Company meet with Staff prior to the Compliance filing to determine the
information needs required to determine prudence of its capital investments. This is consistent
with Order No. 35423: the Company meet with Staff to identiff the "process by which the
Company documents the decision-making aspect of its capital investments...[and] to develop a
more comprehensive fufure documentation process."
To perform its analysis in this case, Staff first reviewed the Company's process with its
operating partner, NV Energy, used to approve and manage projects between the two utilities. This
allowed Staff to draw general conclusions about the prudence of the overall investment amount
4STAFF COMMENTS JUNE 22,2022
but lacks details sufficient for determining prudence of individual investments. As such, Staff
performed a detailed analysis of ten projects that were either the highest cost projects or projects
that had unusual circumstances. Detailed below are three of these projects, including the two
highest cost projects.
a. 27574743 -VALMY 98482392 V2 Replace Turbine High
Pressure/Intermediate Pressure SheII ("HP/IP Shell")
Valmy Unit 2 required major repairs to its HP/IP Shell at an approximate cost of 51.24
million to the Company. It was the highest cost investment made in the Valmy facility during the
2019 through202l timeframe. From a decisional prudence perspective, Staff determined that the
project was needed because without the repair of the Unit No. 2 HPIIP Shell, the unit could not
maintain safe and reliable operation.
Staff also analyzed the operational prudence of the project to determine if it was done at
least cost. NV Energy approached the manufacturer of the steam turbine and requested several
alternatives to repair the steam leaks that had developed in the HP/IP Shell. See Response to Staff
Production Request No. 28. NV Energy performed a cost/benefit analysis on five different
alternatives provided by the manufacturer and selected the option that would provide the most
reliable operation and allow maintenance of the unit to prevent future similar repairs. Staff also
requested information regarding budget cost ovemrns for the project. Based on the voluminous
information provided, Staff was able to determine that there was one change in scope to the project
that cost an additional $191,536. However, Staff was not able to determine how the actual cost of
the overall project tracked to the original budget. At a minimum, Staff expected to receive a line-
item budget and how actual costs tracked to the line items. Without this information, Staff was
not able to determine how the overall project was either under or over budget and to determine if
cost overages for individual line items were justified.
b. 27514784 - VALMY 98438396 VC Freeze Protection Heaters ("Freeze
Protection")
During winter periods when the plant is not required to operate to meet load, the facility
requires supplemental heating to keep the plant from freeze-related damage. Traditionally, NV
Energy rented space heaters to prevent this type of damage. NV Energy determined that it was
less expensive to purchase heaters instead of renting them for the remaining life of the plant. See
Response to Staff Production Request No. 17. Based on the analysis provided, Staff believes that
the decisiorz to purchase the heaters was justified and it was a prudent investment.
5STAFF COMMENTS JUNE 22,2022
The Company did provide budget-to-actual performance for this investment. The original
budget for the project was $450,000. However, the actual project cost was over budget by
$300,000, and the Company did not provide any detailed justification for the over budget amount.
c. 27545751- VALMY 98466935 Vl PulverizerD Roller Wheel Assembly
("Pulverizer Roller")
NV Energy needed to replace a defective roller in a Unit No. 1 coal pulverizer, which was
discovered in April of 2019. See Responses to Staff Production Requests No. 18, 19, 20, and2l.
Although Idaho Power was exiting Unit No. I at the end of the 2019 calendar year, because the
defect was discovered and repair was required to maintain reliable service before exiting the plant,
the Company was required to pay its share ofthe cost based on the Framework Agreement between
the Company and NV Energy.3 The Company is obligated to the provisions within the Framework
Agreement, which was authorized by the Commission. Order No. 34349 at 4. Because of these
reasons, Staffbelieves that the Company's decision to make the investment was prudent.
Relative to operational prudence, the Company did not provide budget-to-actual
performance or any evidence that the project was conducted in a least-cost way. Staff recommends
that this information be provided as part of the Company's applications when seeking prudence
determinations of its capital investments.
2. Forecasted Investments and Decommissioning Costs
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 No. 2 and corlmon plant for the years 2022 through the end of year
2025. The Company did not adjust the forecasted decommissioning costs.
Staff reviewed the Company's forecast and believes the costs are within the bounds of the
Framework Agreement and are reasonable given the Company's early exit plan. Staff
recommends these adjusted costs be included in the balancing account, and the actual investments
be reviewed for prudency and trued-up prior to being recovered in rates.
The Company is requesting Commission approval to include the incremental Idaho
jurisdictional revenue requirement of $1,556,651 for actual and forecasted investments projected
3 The Framework Agreement defines the cost and operational responsibilities between the Company and NV Energy
reconciling exit dates scenarios between the two parties. See Response to Staff Production Request No. 1.
6STAFF COMMENTS JUNE 22,2022
through December 31,2025 in the balancing account. The Company has characterized these
investments as necessary and routine capital expenditures needed to operate the facility safely and
reliably through the end of its life.
Although the Valmy plant is nearing its end-of-life, investments are necessary to ensure
that the plant remains operational. Under the Framework Agreement, because [daho Power has
exited participation in Unit No. I operations, the Company is no longer responsible for capital
costs related to Unit l. However, the Company is still responsible for cortmon facility investments
and UnitNo. 2 investments until the last unit is exited. The latest forecast includes projects starting
in2022 through 2025 at a cost of $9.44 million, which is approximately $7.57 million higher than
previously anticipated. Included in the estimate are projects associated with a server update,
replacement of Unit No. 2 pulverizer roll wheels and other components due to normal wear and
tear, and another production well replacement. The remaining investments are associated with the
annual blanket projects for pumps, valves and motors, and routine infrastructure to maintain
operations of the plant.
Staff verified that the Company's investments include expenditures for future plant
maintenance outages as well as equipment replacement and upgrades for Unit No. 2 and common
facilities to ensure reliable operation through the end of its life. Staff reviewed and will continue
to review any planned investments that could be avoided given the facility's end of life. To ensure
that any unnecessary future expenditures are minimized, Staff recommends the Company include
any updates to forecasted expenditures as part of the annual reporting 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.
3. O&M Savings
Idaho Power has updated the revenue requirement associated with O&M savings to include
actual Valmy-related non-fuel O&M savings from January 7,2019, through December 31,2021,
and updated the forecast for non-fuel O&M savings from January I , 2022, through December 3 1 ,
2025 as shown in Exhibit No. 1, Component D. O&M savings are $342,000 less than originally
estimated. The updated Idaho jurisdictional revenue requirement for O&M savings is $4.45
million.
7STAFF COMMENTS JUNE 22,2022
Staff audited a sample of Valmy O&M expenses. Based on the audit, Staff believes the
update to actual O&M expenses is accurate. Staff believes the forecast of the O&M expenses
through December 31,2025, is reasonable.
4. Load Variance True-Up
The Load Variance true-up, as shown on Company Exhibit No. 1, is a result of comparing
the forecasted load to the actual ldaho Jurisdictional Load. The Idaho Forecast Sales in kilowatt-
hours is used to calculate the Levelized Revenue Requirement, and is trued up to the Idaho Actual
Sales. The Company has computed the true-up from the collection of the levelized revenue
requirement amount for the January | , 2019, through December 3l , 2021 , period. Actual Idaho
jurisdictional sales volumes were higher than forecasted sales, resulting in a total over collection,
of $703,749. This produced an incremental $1 10,501 change in the amount, which is a benefit to
customers. This over collection will be added to the load variance true up of $9,183 from June 1,
2019, resulting in a benefit to customers of $101,318 associated with the load variance true-up of
the levelized revenue mechanism.
STAFF RECOMMENDATIONS
Staff recommends:
the Commission find the amounts for the investments made between January 1,2019,
through December 31,2021, as shown in Company Exhibit No. 2, be maintained in the
balancing account, but without a determination of prudence at this time;
the Commission validate that Idaho Power has accurately quantified the Valmy
balancing account true-up as a result of the inclusion of actuals through December 3 1,
2021, and updated forecasted investment through December 31,2025;
the Commission confirm the Company's Application satisfies the annual reporting
required by Commission Order No. 34349;
the Commission confirm that although Order No. 34349 requires the Company's filing
to include a rate change effective June l, 2022, that customer rates not be adjusted at
this time;
the Company work with Staff to develop available documentation for actual expenses
for audit and prudence review prior to a compliance f,rling; and
the Commission direct the Company to provide the information needed by Staff within
six months after the Commission's order in this case through a compliance filing after
meeting with Staff to determine the information needs required to determine prudence
of its capital investments.
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8STAFF COMMENTS JUNE 22,2022
Respectfirllysubmittedthis tZ day of June 2022.
0*tJ
Cbris Burdin
Deputy Attorney General
Technical Staff: Kathy Stockton
RickKeller
Robin Maupin
i:umisc"/oommput/ipce2. ScbHsdcrm coiiumnb
9STAFF COMMENTS JUNE 22,2022
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22ND DAY oF JUNE 2022,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC.E.22.O5, BY E-MAILING A COPY T}IEREOF, TO THE FOLLOWING:
LISA NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-MAIL : [e-mail]
dockets @ idahopower. com
MATT LARKIN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
SECRETARY
CERTIFICATE OF SERVICE