19901123Brief.pdf

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EVANS, KEANE, KOONTZ, BOYD,
clo Idaho Power Company
1220 W. Idaho Street
P. O. Box 70
Boi se, Idaho 83707
[phone]
STEVEN L. HERNDON
IDAHO POWER COMPANY
1220 W. Idaho Street
P. O. Box 70
Boi se, 10 83707
[phone]
SIMKO & RIPLEY
Attorneys for Idaho Power Company
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RECEiVED 00
FILED 0
'90 NOU 23 Pll 3 22
mAHO PUBLIC
UTILITIES COMMISSION)2~~
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO RATE BASE THE INVESTMENT REQUIRED
FOR THE REBUILD OF THE SWAN FALLS
HYDROELECTRIC FACILITY
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY FOR
THE RATE BASING OF THE MILNER HYDRO-
ELECTRIC PROJECT OR IN THE ALTERNATIVE
A DETERMINATION OF EXEMPT STATUS FOR
THE MILER HYDROELECTRIC PROJECT
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CASE NO. IPC-E-90-2
CERTIFICATE OF MAILING
CASE NO. IPC-E-90-8
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on this 23rd day of November, 1990, I Federal
Expressed a true and correct copy of the wi thi nand foregoi ng REBUTTAL TESTIMONY
OF JAN B. PACKWOOD and BRIEF OF IDAHO POWER COMPANY, addressed as follows:
James N. Roethe
Pi 11 sbury Madi son & Sutro
P.O. Box 7880
San Franci sco, CA 94120
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Grant E. Tanner
DAVIS WRIGHT TREMAINE
2300 First Interstate Bank Tower
1300 S.W. Fifth Avenue
Portland, OR 97201
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and service by hand delivery was made upon the following on this 23rd day of
November, 1990 :
Peter J. Ri chardson
DAVIS WRIGHT TREMAINE
Jefferson PL ace, Su i te 400
350 N. Ninth
Boi se, 10 83702
Michael S. Gilmore
Brad M. Purdy
Idaho Public Utilities Commission
Statehouse Ma i 1
Boi se, 10 83720-0001
David H. Hawk
Di rector, Energy Natural Resources
J. R. Simplot Company
P. O. Box 27
Boise, ID 83707-0027
and service by regular mail made upon:
Harold C. Miles
Energy & Natural Resources
Commi ttee
316 Fifteenth Ave. South
Nampa, Idaho 83651
Afton Energy, Inc.
clo Owen H. Orndorff
Orndorff & Peterson
1087 W. River Street, Suite 230
Boi se, 10 83702
R. Mi chael South combe
Cl emons, Cosho & Humphrey
815 W.Washington
Boi se, 10 83702-5590
R. Scott Pasley
Ass i stant General Coun
J. R. Simplot Company
P. O. Box 27
Boi se, 10 83707-0027
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LARRY D. RI PLEY
c/o Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
[phone]
STEVEN L. HERNDON
I DAHO POWER COMPANY
P.O. Box 70
Boise, Idaho 83707
[phone]
Attorneys for Idaho Power
Street Address for Express Mai 1 :
1220 West Idaho Street
Boise, Idaho 83702
FAX Telephone No. [phone]
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, rOES COMM\~..¡\ I,¡.""T
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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I NTRODUCn ON
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO RATEBASE THE INVESTMENT
REQUIRED FOR THE REBUILD OF THE SWAN
FALLS HYDROELECTRIC PROJECT
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY FOR THE RATEBASING OF
THE MILNER HYDROELECTRIC PROJECT
OR IN THE ALTERNTIVE A DETERMINATION
OF EXEMPT STATUS FOR THE MILNER
HYDROELECTRIC PROJECT
Case No. IPC-E-90-2
Case No. IPC-E-90-8
BRI EF OF IDAHO
POWER COMPANY
On October 12, 1990, the Idaho Publ ic Util ities Commission (the
"Commission") requested that the Parties address the following legal issues
regarding the construction of hydroelectric generation facilities at Swan Falls
and Mi 1 ner:
IDAHO POWER BRIEF 1
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1. What is the legal authority for the Commission to approve
ratebas i ng of the Swan F all s rebu i 1 d before the rebu i 1 dis in serv ice? What is
the legal authority for the Commission to approve ratebasing for the Milner
project before the project is in servi ce.
2. What is the 1 ega 1 authori ty or propri ety as a matter of pol icy
of using avoided costs as a cap for ratebasing the Swan Falls rebuild? What is
the legal authority or propriety as a matter of pol icy of using avoided costs as
a cap for ratebasing the Milner project?
3. Does the Commission have authority to declare in the abstract
that a certified plant or a plant by statute exempt from certification may be
ratebased wi thout yet knowi ng the cost of ratebas i ng the plant in retail rates?
Does the Commission have authority to declare in the abstract that a certified
plant or a plant by statute exempt from certification may be excluded from
rate bas i ng for a fi xed peri od in the future wi thout yet knowi ng the cost of
ratebasing in retail rates? How are the rights of util ity investors affected in
the implied interval created by such a decision?
Before specifically addressing the above issues, a brief review of
applicable Federal law, the statutory authority of the Commission, and pertinent
Idaho Supreme Court decisions discussing the Commission's authority in this area,
is beneficial.
1.
FEDERAL ENERGY REGULATORY COMMISSION (FERC) JURISDICTION
Since the Swan Falls and Milner projects are both hydroelectric
facilities located on navigable waters of the United States, the construction and
operat i on of these projects is subject to the Federal Power Act. The Federal
Power Act clearly states that it is unlawful to construct, operate or maintain
IDAHO POWER BRIEF 2
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a hydroelectric project in any of the navigable waters of the United States
except under and in accordance with the terms of a 1 icense from the FERC. 16
U.S.C.S, § 817 Additionally, the Federal Power Act mandates that all licenses
issued are subject to the condi t i on that the FERC determi ne that the project best
adapted to a comprehensive plan for improving or developing beneficial public
uses be selected. 16 U.S.C.S. § 803 The projects, plans, and specifications,
when approved by the FERC are a part of the 1 icense conditions and thereafter
cannot be changed without approval. 16 U.S.C.S. § 802 Failure to comply with
any rul e, regul at ion, term, or condi t i on of ali cense can subject the 1 i censee
to revocation of the 1 i cense and ci vi 1 penal ties in an amount not to exceed
$10,000 for each day that such violation or failure or refusal continues. 16
U. S . C . S. § 823 ( b )
2.
STATUTORY AUTHORITY
In 1970 the legislature of the State of Idaho amended I.C. § 61-526
by striking the provision that permitted power companies to develop new
generat i ng plants and market the products thereof wi thout a Cert i fi cate of Publ i c
Convenience and Necessity (CPC&N). I.C. § 61-526 now requires that a publ ic
utility subject to jurisdiction of the Commission must obtain a CPC&N if it
des i res to construct a new generat i ng plant, although it is permi tted to increase
the capacity of existing generating plants without the issuance of CPC&N. A
copy of the appl icable 1970 Session Law is attached for the convenience of the
Commission and parties. It should also be noted that in Idaho Power Co. v.
Idaho Public Utilities, 703 P.2d 707, 108 Idaho 943 (1985) the Idaho Supreme
Court upheld the Commission's authority to disallow a portion of Idaho Power
Company's investment in the Boardman facility noting that the boiler "had been
IDAHO POWER BRIEF 3
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purchased prior to the issuance of a certificate of convenience and necessity,
I.C. § 61-526, as amended in 1970."
3.
SUPREME COURT DECISIONS
In 1983 the Idaho Supreme Court issued its decision in Utah Power &
Light v. Idaho Pub. Utile Com'n, 673 P.2d 422,105 Idaho 822, (1983), wherein the
Supreme Court ruled that construction work in progress could be included in a
ut il i ty' s ratebase for purposes of determi n i ng the ut il i ty' s revenue requ i rement.
In 1984 the Idaho legislature enacted I.C. § 61-502A to provide that construction
work in progress could not be included in ratebase for revenue requirement
purposes, but that the Commission must allow a reasonable allowance for funds
used during the construction of utility plant. A copy of the applicable 1984
Session Law is attached for the convenience of the Commission and parties. In
short, if a ut i 1 i ty has obta i ned a Cert ifi cate of Pub 1 i c Conven i ence and
Necessity authorizing the construction of plant, the Commission is required to
permit a return on that plant during construction and cannot retroactively
disallow the return or the investment upon which that return has been calculated.
For the Commission to act otherwise would allow the Commission to prohibit the
util ity from earning a return on an investment which had previously been approved
by the Commi ss i on.
In Citizens Utile Co. V. Idaho Publ ic Utile Comm., 164 P2.d 110, 115
99 Idaho 169,579, (1978), the Court stated: "A utility's 'rate base' represents
the original cost minus depreciation of all property justifiably used by the
utility in providing services to its customers. Utilities are allowed to charge
customers rates which will yield a certain percentage return on the utility's
total investment. II
IDAHO POWER BRIEF 4
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The Idaho Supreme Court has determi ned that the Commi ss ion's
authori ty to estab 1 ish avoi ded cost "rates II for a ut il i ty ari se out of the
Commission's obligation to establish a procedure for the purchase of power by
ut i 1 it i es from cogenerators and small power producers under § 210 of the Pub 1 i c
Utility Regulatory Policies Act of 1978 (PURPA) 16 U.S.C. § 824a-3. A discussion
of the Commission's authority to set avoided cost "rates" and the purpose for
setting such rates is discussed in Afton Energy, Inc. v. Idaho Power Co. 693 P.2d
427, 107 Idaho 781, (1984). As noted by the Idaho Supreme Court in Afton the
intention of Congress in enacting PURPA and the avoided cost rate methodology is
set forth in the House-Senate conferee's report:
liThe House and Senate conferees expl icitly stated in
thei r report on the PURPA bi 11 that thi s 1 anguage was
not to be interpreted to permit pervasive regulation by
state ut i 1 i ty commi ss ions over the avoi ded cost rates
paid CSPPs by utilities:"
liThe conferees intend that the phrase 'just and
reasonable to the electric consumers of the utility' be
interpreted in a manner which looks to protecting the
interests of the electric consumer in receiving electric
energy at equitable rates. It is not the intention of
the conferees that cogenerators and small power
producers become subject, by virtue of this language,
and the rules promulgated under this section, to the
type of examination that is traditionally given to
electric utility rate applications to determine what is
the just and reasonable rate that they should receive
IDAHO POWER BRIEF 5
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for their electric power. The conferees recognize that
cogenerators and small power producers are different
from electric utilities, not being guaranteed a rate of
return on thei r act i vi ties generally or on the
activities vis a vis the sale of power to the utility
and whose risk in proceeding forward in the cogeneration
or small power product ion enterpri se is not guaranteed
to be recoverable.
liThe conferees wi sh to make cl ear that
cogenerat ion is to be encouraged under th is sect i on and
therefore the examination of the level of rate which
should apply to the purchase by the util ity of the
cogenerator's or small power producer's power shoul d not
be burdened by the same exami nat i on as are uti 1 i ty rate
app 1 i cat ions, but rather ina 1 ess burdensome manner.
The establishment of utility type regulation over them
would act as a significant disincentive to firms
interested in cogeneration and small power production."
1978 U.S. Code Congo & Ad. News 7831-32 (emphasis in
original Afton Energy, Inc. 693 P.2d 427,433 (Idaho
1984). II
COMMISSION LEGAL ISSUES
1. What is the 1 ega 1 authori ty for the Commi ss i on to approve
ratebasing of the Swan Falls rebuild before the rebuild is in service? What is
the 1 ega 1 authori ty for the Commi ss i on to approve ratebas i ng for the Mi 1 ner
project before the project is in servi ce.
IDAHO POWER BRIEF 6
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The Commission in Case No. IPC-E-89-8, Order No. 22412 (a copy is
attached to this Brief) set forth the requirements for the Company's Applications
in these proceedings. Based upon the discussion set forth above it is clear that
the FERC has authority to issue a license for a hydroelectric facility located
on the navigable waters of the United States. Clearly, the Swan Falls and
Milner projects are located on such navigable waters, and as such must be
1 i censed by the FERC. In i ssui ng the 1 i cense the FERC determi nes the
specifications and conditions of construction. The authority of the Commission
must be read in harmony with the Federal statutory requirements. As set forth
above, the Commission, upon the issuance of a certificate of public convenience
and necessity has authorized the construction of the facil ity pursuant to the
license issued by the FERC. While the Swan Falls and Milner projects are being
constructed, Idaho Power is entitled by statute to an allowance for funds used
during construction. Upon completion of the facilities these facilities will be
included in Idaho Power's ratebase for revenue requirement purposes so long as
Idaho Power Company has uti 1 i zed reasonable and prudent construction pract ices.
If during the construction of the facil ities circumstances should change, the
burden to demonstrate that the construction of the facil ities should cease, is
upon those parties that would request that construction cease. Of course this
Commission on its own motion could also commence such an investigation as it did
in earlier Orders involving the Swan Falls project. The statutory scheme set
forth in the above discussion and the pertinent Idaho Supreme Court decisions are
clear in this regard.
2. What is the 1 ega 1 authori ty or propri ety as a matter of pol icy
of using avoided costs as a cap for ratebasing the Swan Falls rebuild? What is
IDAHO POWER BRIEF 7
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the 1 ega 1 authori ty or propri ety as a matter of pol icy of us i ng avoi ded costs as
a cap for ratebasing the Milner project?
The statutory scheme for the establishment of a utility's revenue
requ i rement is tota 11 y different than the estab 1 i shment of rates a ut i 1 i ty wi 11
pay for purchased power from cogenerators and small power producers. The
determination of avoided costs for purposes of establ ishing the rates a util ity
wi 11 pay for purchased power from cogenerators and small power producers is made
for a totally unrelated purpose and is not designed for the establishment of
ceilings on the original costs of facilities that a utility has dedicated to the
publ ic use.
3. Does the Commission have authority to declare in the abstract
that a certified plant or a plant by statute exempt from certification may be
ratebased without yet knowing the cost of ratebasing the plant in retail rates?
Does the Commission have authority to declare in the abstract that a certified
plant or a plant by statute exempt from cert ifi cat i on may be excluded from
ratebas i ng for a fi xed peri od in the future wi thout yet knowi ng the cost of
ratebas i ng in reta i 1 rates? How are the ri ghts of ut i 1 i ty investors affected in
the implied interval created by such a decision?
Idaho Power Company's submission of the Milner Application in the
alternative was an attempt by the Company to reconcile the jurisdictional
confl i cts between the FERC and th is Commi ss ion if th is Commi ss i on determi ned that
it would not issue a Certificate of Publ ic Convenience and Necessity (CPC&N) for
the Milner project. Recognizing that the Commission had the statutory authority
to refuse to issue a CPC&N for the Mi 1 ner project, and that the FERC had
statutory authority to issue a license, the Application reconciles the potential
confl i ct between the two juri sdi ct ions. The deni a 1 of the CPC&N by the Idaho
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Commi ss ion woul d resul tin the Mi 1 ner project not bei ng included in Idaho Power's
investment for revenue requ i rement purposes.In other words, the Mi 1 ner
investment would not be ratebased. Idaho Power's Appl ication in the alternative
is nothing more than a recognition of the Commission's existing authority to
issue or to refuse to issue a CPC&N which authorizes the construct ion of a
generat i ng pl ant. Thi s determi nat ion, whether the facil i ty shoul d recei ve a
CPC&N, is made at the beginning of the project (as the Commission requires) and
not at the completion of the construction of the project.DA=:~Of Novembet,IS~Larry D. ipley
Counsel for Idaho Power Company
1990
IDAHO POWER BRIEF 9
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CHAPTER 134
(I. B. No. 543)
ANAcr
AMENDING SECTON 61-526, IDAHO CODE, RELATING TO TH
GRANTING OF CERTIFICATES OF PUBLIC CONVNIENCE AN
NECESSITY TO PUBLIC UTILITIES, BY PROVIDING THT ON
THE EXTENSION OR CONSTRUCTION OF TH PUBLIC
UTILITS' LINE, PLANT OR SYSTEM A HEARING MAY BE HELD
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION TO
DETERMINE IF PUBLIC CONVENIENCE AN NECESSIT
REQUIRE THE EXTENSION OR CONSTRUCTION; AND STRIKIG
THE PROVISION THAT PERi'AS POWER COMPANIES TO
DEVELOP NEW GENERATIG PLAS Al'I MARKT TH
PRODUCTS THEREOF WITHOUT A CERTIFICATE OF
CONVENIENCE Al'I NECESSITY.
Be It Enacted by the Legilature of the State ofIdaho:
SECTION 1. That Section 61-526, Idaho Code, be, and the sae is
hereby amended to read as follows:
61-526. CERTIFICATE OF CONVENIENCE AN NECESSIT. - No
street raioad corporation, gas corporation, electrcal corporation, telephone
corporation or water corporation, shal henceforth begi the constrction of
a street raoad, or of a lie, plant, or system or of any extension of such
street raioad, or lie, plant, or system, without havig first obtaed frm
the commiion a certifcate that the present or futue public convenience
and necessty requie or wi requie such constrction: provided, that th
section sh not be constred to requie such corporation to secu such
certificate for an extension withi any city or county, SF eäy aF taWi,
withi which it shal have theretofore lawfuly commenced operation, or for
an extension into terrtory whether with or without a city or county, er
ei~ ef te.. ft, contiguous to its stret raroad, or lie, plant or system. and
not theretofore served by a public utiity of lie chacter, or for an
extension withi or to terrtory alady served by' it necess in the
ordinar course of its business: and provided furer, that if any public
utity in constructig or extending its lies, plant or system, shal interfere
or be about to interfere with the operation of the lie, plant or system of
any other public utity alrady constructed, or if public convenience an
necesity does not require or wil require such constction or extnson,the
commission on complaint of the public utilty claiming to be injurousy
affected, or on the commission's own motion, may, after hearg. mae such
order and prescribe such terms and conditions for the locatig or type of the
lie, plant or system affected as to it may seem just and reasonable:
provided, that power companies may, without such certcate, incras the
capacity of their exiting generatig plants eF e1e'lele~ Aew ..eAeflâfg p1ets
and maret the ~feài:et5 theFeef.
Approved March 9, 1970.
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24 IDAHO SESSION LAWS C.21 '84
CHATE 21
(S.B. No. 1214)
AN ACT
RELATING TO PULIC UTILITY RATES; AMING CHATER 5, TITL 61, IDAHO
CODE, BY TH ADDITION OF A NEW SECTION 61-502A, IDAHO CODE, TO
PROHIBIT TH IDAHO PULIC UTILITIES COMMISSION FROM SETING RATES
THT GR A RETU ON CONSTRUCTION WORK IN PROGRSS, EXCEPT UPN
TH COMMISSION'S FINDING OF AN EX EMEGENCY, OTIR TH
SHORT-TE CONSTRUCTION WORK IN PROGRESS, OR PROPERTY HE FO
FU USE, AN DECLAING RATES GRAING A RETU ON SUCH PROPE
IN TH ABSENCE OF TH FINDING OF' AN EXTME EMGECY TO BE
UNJUST, UNONABLE AN UNAIR, AN TO ALLOW FOR FUS USE
DURING CONSTRUCTION; DECLAING LEGISLATIVE INTlt"T; AN DECLAING
AN EMERGECY.
Be It Enacted by the Legislature of the State of Idaho:
SECTION 1. Tha t
is hereby amended
known and designated
follows:
Chapter 5, Title 61, Idaho Code, be, and the sam
by the addition thereto of a NEW SECTION, to be
as Section 61-502A, Idaho Code, and to read as
61-S0ZA. RESTICTION ON RATES AUTORIZING RETU ON PROPERTY NO
PROVIDING UTILITY SERVICE. Except upon its finding of an extreme emer-
gency, the commission is hereby prohibited in any order issued after
the effective date of this act from setting rates for any utility tht
grants a return on construction work in progress (except short-term
construction work in progress) or property held for future use andwhich is not currently used and useful in providing utility service.
As used in this section, short-term construction work in progressmeans construction work that has begun and will be completed in not
more than twelve (12) months. Except as authorized by this section,
any rates granting a return on construction work in progress (except
short-term construction work in progress) or property held for futureuse are hereby declared to be unjust, unreasonable, unfair, unlawful
and illegal. When construction work in progress is excluded from the
rate base, the commission must allow a just, fair and reasonable
allowance for funds used during construction or similar account to be
accumulated, computed in accordance with generally accepted accountin
princip les.
SECTION 2. It is hereby declared to be legislative intent tht
this act should overrule that portion of the decision of the Suprem
Court of Idaho entitled Utah Power & Light Company v. Idaho Public
Utilities Commission, issued December 14, 1983, which authorized or
required construction work in progress or property held for future nse
to be included in a utility's rate base or otherwise authorized or
required the commission to grant a return on such property, and tht
the commission be prohibited from following the precedent of that case
in any order issued after the effective date of this a~t to the extent
that such precedent authorizes construction work in progress or prop-
erty held for future use which is not currently used and useful in
providing utility service to be included in rate base or authorize or
require the commission to allow a return on such property.
SECTION 3. An emergency existing therefor, which emergency ishereby declared to exist, this act shall be in full force and effect
on and after its passage and approval.
Approved February 29, 1984.
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..Of øf th SecretaryS~ce Dati""
MAR 301989
BEFORE TH IDAHO PULIC UTILITIES COMMISSION
IN TH MATT OF TH REIEW UPN )
TH COMMISSION' S OWN MOTION OF )
IDAHO POWER COMPAN' S PLA TO )
REBUILD ITS SWAN FALLS HYRO- )ELECTIC FACILITY. )
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CASE NO. IPC-E-89-8
ORDER RO. 22412
For the reasons stated in the text of this Order, the
Conuission initiates on its own motion an investigation into
Idaho Power Company's plans to rebuild its hydroelectric genera-
tion facility at Swan Falls. The purpose of this investigation
is to determine the Company's plans, not ónly with regard to
reconstruction of the Swan Falls facility, but also its future
ratemaking proposals for Swan Falls.
HISTORY OF TH SW FALS PROJCT
The Swan Falls project occupies a unique position in
this state' s hydrological and legal history.In 1901, Trade
Dollar Consolidated Mining Company constructed the first
hydroelectric dam on the Snake River at Swan Falls. By 1919,
its successors to the project had secured water rights at Swan
Falls for 9,450 cubic feet per second with priority dates
ranging from 1900 to 1919, although it is undisputed that the
hydraulic capacity of the project was 8,400 cfs. The nameplate
capaci ty of the project l s generators was about 12 megawatts.
Swan Falls' construction preceded Congress's enactment
l.n 1920 of the Federal Water Power Act. Swan Falls was not
ORDER NO. 22412 -1-
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licensed by the Federal Power Commission until 1928, after Idaho
Power Company had succeeded to the project and its rights. The
original license for the project expi red in 1970, and it was
annually renewed for a number of years thereafter.
Beginning in 1977 the validity and the priorlty of
Idaho Power' s water rights for that project became the focus of
a complaint that began the most far-reaching water rights Ii tiga-
tion in this state's history. See Idaho Power Company v. State
of Idaho, 104 Idaho 575, 661 P.2d 741 (1983). In the meantime,
Idaho Power applied to the Federal Energy Regulatory Commission,
(the FPC' s successor agency) to relicense the Swan Falls
project. In 1982, FERC issued License No. 503 for the project,
which will expire in 2010 (forty years after the expiration of
the original license).
When the project was relicensed, Idaho Power was autho-
rized to build a new powerhouse and increase the capacity of the
proj ect to 2S megawatts. The license also recited that reports
from FERC's engineering staff found that the spillway at the
project was in poor condition and that major rehabilitation was
needed. Following receipt of the project license, Idaho Power
began reconstruction of the spillway .It had intended to re-
build the powerhouse and increase the generation as well.
On August 27, 1984, this Commission initiated Case No.
U-1006-240, an investigation into Idaho Power' s plans to rebuild
ORDER NO. 22412 -2-
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its generation facility at Swan Falls. The purpose of the inves-
tigation was "to determine whether the Swan Falls rebuild is con-
sistent with the least-cost energy future for Idaho Power rate-
payers. II That Order noted Idaho Power did not need a certifi-
cate of pub i ic convenience and necess i ty to "increase the
capacity of (its) existing generating plants," I.C. §61-526, but
further referred to the recently completed investigation of
Idaho Power's future plans in Case No. U-I006-197 and said:
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We concluded Order No. 18189 (the final Order in
Case No. U-I006-197) by putting Idaho Power on
formal notice that it could no longer expect
automatic rate base treatment of construction
expenditures that went significantly beyond
original cost estimate or that were not competi-ti ve wi th the cost ratepayers would have to pay
for power from alternative resources. . . .
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The Commission finds that this is the appropriate
time to initiate a review of the Swan Falls
rebui ld. . . .
The Company should . . . explain the history of
_~ its decision to rebui ld an expand production at
Swan Falls rather than simply to refurbish the
existing site, including a narrative of alterna-
tive studies the Company performed in deciding
that a total rebuild and expansion. of the si tewas the least-cost al ternati ve. Further, the
status of the Company i s license and water right
at the Swan Falls site should be presented.
Finally, a comparison with the cost of power
available from alternative resources should bepresented to show that the Swan Falls rebui Id is
consistent with the least-cost energy scenario
for Idaho Power ratepayers.
In clarification of this initial Order, the Commission
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issued Order No. 19129 on September 20, 1984. That Order said:
ORDER NO. 22412 -3--""
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.We put Idaho Power on formal notice that it acts
under its own peril for costs associated with the
Swan Falls rebuild until such time as the Company
is prepared to submit its definitive cost esti-
mate and to demonstrate that the project will be
cost-effective. As we stated in the -197 case,
the era of "hell-or-high-water-financing" is
over. The ratepayers should not be at risk if
management commences const ruction before it re-ceives a definitive cost estimate, or before it
has an approved water right, or if it fails to
study reasonable alternative projects, or if the
project itself is not cost-effective compared to
power that is readily available from competitors.
The -240 case did not proceed further, however, because
Idaho Power postponed its plan to upgrade the plant. s generating
capacity.Accordingly, the Commission closed the case, but
advised the Company that further proceedings would be initiated
.if the Company revived its construction plans. Order No. 19623,
issued April 24, 1985, said:
(Wl e have been informally notified that Idaho
Power Company does not plan to upgrade thecapaci ty of the Swan Falls dam from 12. to 25
megawatts in the near future, as it earlier had
planned, but has scaled back the bulk of its work
on the project to improvement of the spillway ofthe existing dam. If that be the case, then it
is unnecessary to proceed to an investigation of
the economics of the Swan Falls rebuild at this
time, and it is appropriate to dismiss the case.
We put Idaho Power on explicit notice, however,
that before it undertakes any substantial recon-
struction or replacement of the Swan Fa lIsf aci li ty, other than improvement or reconst ruc-
tion of the existing spillway, it must first
demonstrate to this Commission in a formal
proceeding that the project is the least-cost
method of acquiring a new resource for its system.
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ORDER NO. 22412 -4-
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On February 21, 1989, this Commission received a cover
letter accompanying the 1989 Supplement to Idaho Power' s Second
Amended Application for New License: Proj ect No. 503, for the
Swan Falls rebuild. That cover letter said:
When the Swan Falls project, FERC No. 503, was
relicensed in 1982, the license contained the
authorization to build a new powerhouse and
upgrade the capacity to 25 mw. However, Idaho
Power chose to defer installation of the addition-
al capacity at that time. Recently, concerns
have arisen surrounding the structural integrity
of the 0 ld powerhouse. Thus safety and operation
considerations dictate that Idaho Power now con-sider completion of the project as originally
relicensed in 1982. To this end, the Company
will be asking the FERC for permission to proceedwi th construction as soon as possible.
The 1989 Supplement to the Second Amended Application
contains revised cost estimates for the project in 1988
dollars:$53,814,800 total cost, $7,683, 000 levelized annual
costs, and 46.3 mills/kwh cost of generation. The Supplement
contrasts these estimates of the average cost of generation from
Swan Falls wi th 56.8 mills/kwh system avoided costs and 86.9
mills/kwh cost for replacement thermal generation.
Idaho Power' s 1989 Supplement to Second Amended
Applièation leaves a numer. of important questions unanswered.
We list them below and direct the Company to submi t wri tten
responses to them within 28 days of the service date of this
Order.
1. Does the Company intend to ini tiate a formaL
proceeding before this Commission before it undertakes any
ORDER NO. 22412 -5-
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. reconstruction on the Swan Falls project. s powerhouses and
generating facilities? If so, when does it anticipate filing
its application or petition, and when does it anticipate
beginning construction? If not, why not?
2. Does the Company intend to propose that this plant
be included in its rate base? If so, is this based upon the
Company's expectation that the plant will be used to serve its
load (either retail or firm wholesale) under its own planning
cri teria? Is Swan Falls a nonavailable resource if the Company
wi 11 not be in load/resource balance when the proj ect is
completed.
3. If the Company does not plan to include this
rebuild in rate base, why not? Does the Company intend to keep
.. new or increased hydroelectric facilities for an unregulated
division or subsidiary?
4. The cost estimates contained in the Company's 1989
Supplement to its Second Amended Application appear to show a
1988 levelized cost of production from Swan Falls significantly
lower than similar calculations would show costs for the Compa-
ny's investment in the Valmy or Boardman thermal plants. Is
this the case? If so, is it the Company's proposal that the
Valmy and Boardman plants will continue to be rate based at a
higher unit cost of generation than Swan Falls? How will this
upgrade and ratemaking treatment benefit the ratepayers?
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ORDER NO. 22412 -6-
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5. What is the status of the Company' s water rights at
Swan Falls? In making estimates of the amount of hydroelectric
generation that would be available from Swan Falls, what assump~
tions did the Company use with regard to increased, similar, or
decreased flows at Swan Falls from those available to the Compa-
ny in the mid-1970s through mid-1980s? How do changes in those
water rights affect generation upstream and downstream from Swan
falls?
6. What is the status of the Company' s license at Swan
Falls beyond 20l0? Have the Company's cost estimates assumed
the retention of the project beyond 20l0?
7. Are the cost estimates in the Company's application
based on detailed designs and critical path scheduling? If so,
please submit the- plan and a critical path chart.If not,
please explain and document the basis of the estimates.
The Commission at this time is not scheduling a prehear-
ing conference or hearings in this investigation. Instead, fol-
lowing the Company's written answers to the questions posed by
this Order, the Commission will decide whether or what further
investigation is appropriate.
o R D E R
IT is THREFORE ORDERED that Idaho Power Company answer
the questions posed by the text of this Order within 28 days of
the service date of this Order.
ORDER NO. 22412 -7-
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DONE by Order of the Idaho Public Utilities Commission
at Boise, Idaho, this 3OU-day of March, 1989.
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~, pbSIDEN(ft~~Q'
., PERRYSWii, COMMISSIONER
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RAPH NËtSON, COMMISSIONER
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ATTST: . '... .~,~~ (J A ~2,--
J. iams, SZcuARY
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ORDER NO. 22412 -8-