19901121Legal Memorandum.pdf

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FILED 0BEFORE THE IDAHO PUBLIC UTS COMMSSON
90 NOV 21 AlI 10 18
IN TIMATrim OF TH APLICATION )
OF IDAHO POWER COMPAN FOR AUT )ORf TO RATE TH IN )REQUI FOR TH REUI OF TH )SWAN FAL HYROELECTRC PROJECT )
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IN TH MATIEROF TH APLICATION
OF IDAHO POWE COMPAN FORACERTICATE OF PULIC CONVCEAN NECESSIT FOR TH RATBBASGOF TH Mn HYROELCTCPROJECT OR IN TH ALTERNATIA DETERMATION OF EXSTATUS FOR TH Mn HYRO-
ELCTC PROJECT
CAS NO. iitt~Oc~~~~\~/~ S ¡ 0 N
CAS NO. IPß.90
LEGAL MEMORAUM OFCOMMION STAF
Order No. 23380, issued on October 15, 1990, directed
the parties in the Mi Iner and Swan Falls cases to address the
three legal issues set forth below.
response.
Following is Staff's
I . WHT IS THE LEGAL AUTORITY FOR TH COMISSIOll TO APPROVE
RATE BASlllG OF THE SWAB FALLS REBUILD BEFORE THE REBUILD
is IN SERVICE? WHT IS TH LEGAL AUTORITY FOR THE
COMMISSION TO APPROVE RATE BASIllG FOR TH MILNER PROJECT
BEFORE THE PROJECT IS IN SERVICE?
The critical statute upon which most legal issues in
this case hinge is Idaho Code § 61-626 which, in pertinent part,
provides:
No . . . electrical corporation . . . shall
henceforth begin the construction of a . . .
plant or system . . . without having firstobtained from the commission a certificate
that the present or future public convenience
and necessity require or will require such
construction . . . .
LEGAL MEMORANDUM OF
COMMISSION STAFF -1-
..
Staff interprets § 61-526 to require a utility to apply for and
obtain a Certificate of Public Convenience and necessity prior
to construction of a new plant.This statute thus applies to
Mi lner, a new generation project, but not to Swan Falls, the
rebui ld of an existing generating project.
Further, and more importantly with respect to this
issue, § 61-526 does not guarantee that investment in a plant
for which a certificate has been issued will necessarily be
included in the Company's rate base upon completion.It only
addresses the authority to construct the plant.
Idaho Power interprets § 61-526 differently. It argues
that the issuance of a certificate for Milner means that all
costs reasonably incurred, up to the Company's self-imposed cap,
will necessarily be included in rate base once the plant is
completed and put into service.The Company has framed its
Application in this manner. Staff disagrees.
Staff interprets the Company's Application, in part, as
a Petition for a Declaratory Ruling by the Commission for an
interpretation of § 61-526. Idaho Code § 67-5208 provides legal
authori ty for making this determination.
Declaratory Rulings by Agencies. --Each agency
shall provide by rule for the filing and
prompt disposition of petitions for declara-
tory rulings of the applicability of any
statutory provision or of any rule or orderof the agency. Rulings disposing of peti..
tions have the same status as agency deci-
sions or orders in contested cases.
Staff believes this statute allows the Commission to
address the issue of rate basing the plant. Staff believes that
LEGAL MEMORANDUM OF
COMMISSION STAFF -2-
. ...
the Company's Application and subsequent arguments, if accepted,
would force the Commission into an untenable posture. There are
many events that could take place between issuance of a certifi-
cate and the date of new plant put in service for retail rate-
payers, particularly if there is a 20-year delay between them.
For example, there could be significant changes in energy
generation technology making the certificated plant obsolete
before it is dedicated to retai 1 use. The Company's load could
be drastically curtai led through the loss of large customers,
thereby, making the certificated plant unnecessary.
Staff concedes that these examples present extreme
scenarios. Furthermore, it would not be good policy and it has
not been the habit of this Commission to issue certificates for
plants and then arbitrarily refuse to allow them into rate base
wi th findings of management/shareholder responsibi Ii ty for some
of the costs of the plant.
Sti 11, it would be unwise for the Commission to unquali-
fiedly preapprove a plant for rate base and place risks upon the
ratepayers that should be borne by the Company shareholders.
Staff is not aware of any specific legal precedents for
preapproval of rate base for an uncompleted plant.This is a
policy question that the Commission may address in a declaratory
ruling. Staff asserts that the Commission should not preapprove
Milner for rate base but limit its decision to whether to issue
a certificate to authorize the Company simply to çonstruct the
plant, recognizing that in the ordinary course of events that
LEGAL MEMORANDUM OF
COMMISSION STAFF -3-
. ...
rate basing of a reasonable cost of the project is the general
rule.
Although this analysis technically only applies to
Milner, as a practical matter, given the Commsision's past
treatment of the Swan Falls rebuild, a similar analysis is
appropriate there.
II. WHT is TH LEGAL AUTRITY OR PROPRIETY AS A MATT OF
POLICY OF USING AVOIDED COSTS AS A CAP FOR RATE BASIRG
TH SWAN FALLS REBUILD? WHT IS THE LEGAL AUTORltt OR
PROPRIET AS A MATTR OF POLICY OF USING AVOIDED COSTS AS
A CA FOR RATE BASING THE MILNER PROJECT?
At the outset, Staff would like to point out that it is
not necessary for the Commission to decide whether to use
avoided costs as a cap on rate basing Mi Iner at this juncture.
This determination can and should be made after the plant has
been completed.
Should the Commission wish to decide the matter now,
Staff would assert that avoided costs are a factor in determin-
ing whether investment in a plant was reasonable. To the extent
that actual costs for Milner and Swan Falls exceed the avoided
cost rates, these costs could be presumed unreasonable subject
to justification by the Company. PURPA is silent whether utili-
ties may build their own generating projects at costs exceeding
avoided costs.PURPA has not precluded state commissions from
considering intangible benefits associated with given plants
that may justify charging them to ratepayers at more than
avoided costs.This is not the time to consider such argu-
ments.Instead, those questions should be delayed until Idaho
Power proposes to include the project in rates.
LEGAL MEMORANDUM OF
COMMISSION STAFF -4-
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Furthermore, the Company should not be led to believe
that any costs incurred up to the avoided cost rates will be
presumed reasonable. All costs incurred must be judged on their
own merits. The Company should not be al lowed to include unrea-
sonable costs in rate base.
iiia. DOES THE COMISSION HAVE TH AUTRITY TO DECLA IN THABSTRCT A CERTIFIED PLA OR A PLA BY STATU EX
FROM CERTIFICATION MAY BE RATE BASED WITHUT YE DOWlll
THE COST OF RATE BASING THE PLA Ill REAIL RATES?
Staff reiterates that the Commission should not preap-
prove rate basing of an unfinished plant. This does not mean,
however, that a utility may not be told that its certificated
project may be included in the Company's resource stack. The
consequences of the failure of the Company to b~ing the resource
on line or the risk that the plant may be rendered obsolete
prior to completion should inure to the Company's shareholders,
not the ratepayers.
IIIb. DOES TH COMMISSION HAVE AUTORITY TO DECLAE Ill THEABSTRCT THT A CERTIFIED PLA OR A PLA BY STATU
EXE FROM CERTIFICATION MAY BE EXCLUDED FRO RATEBASING FOR A FIXED PERIOD IN THE :FWITHUT YE
:Klll TH COST OF RATE BASING IN RETAIL RATES?
Staff has stated in prior briefing that the Commission
has the option of issuing a certificate for the future public
convenience and necessity.Such a certificate could contain
language to exempt Mi Iner from retai 1 rate regulation under the
conditions requested by the Company in its alternative proposal.
This does not mean that the Commission could or should
preapprove rate basing of either plant prior to the expiration
LEGAL MEMORANDUM OF
COMMISSION STAFF -5-
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of the exemption period.Staff has recommended in testimony
that, under this option, the Commission should not determine the
amount or the means of determining an amount for rate basing
unti I the time that the plant is put into service for the
Company's ratepayers.
IIIc. HOW ARE TH RIGHTS OF UTILITY INVSTORS AFECT IN TH
IMPLIED IN"RVAL CRETED BY SUCH A DECISIOll?
Assuming that the Commission opts to exempt Milner from
retai I rate regulation, the Company should be allowed to operate
the plant or plants in any manner that it desires. Under this
scenario, it must be made clear that the Company's shareholders
and not the ratepayers shall bear the risk or risks identified
in this memorandum relating to the two plants.The Company
should not be allowed to subsidize the costs of either plant
whi Ie they are under exempt status.
RESPECTFULLY submitted this '( ¡5,r day of
November 1990.
1JYJ~Michael S. Gilmore
/)
Brad M.
BP: vld/B-l3 6
LEGAL MEMORANDUM OF
COMMISSION STAFF -1-
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CERTCATE OF SEVI
I HEREBY CERTIFY THAT I HAVE THIS 21st DAY OF NOVEMBER,
1990, SERVED THE FOREGOING LEGAL MERAUM OF COMISSIOl STAF,
CASE NOS. IPC-E-90-2 and IPC-E-90-8, ON ALL PARTIES OF RECORD BY
MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
STEVEN L. HERNDON
IDAHO POWER COMPANY
P. O. BOX 70
BOISE, ID 83707
GRANT E. TANNER, ESQ.
DAVIS WRIGHT TREMAINE
SUITE 2300
1300 S. W. FIFTH AVENUE
PORTLAND, OR 972 cn
PETER J. RICHARDSON, ESQ.
DAVIS WRIGHT TREMAINE
400 JEFFERSON PLACE
350 N. NINTH STREET
BOISE, IO 83702
LARRY D. RIPLEY, ESQ.
IDAHO POWER COMPANY
P. O. BOX 70
BOISE, ID 83707
AFTON ENERGY, INC.
C/O OWEN H. ORNDORFF
ORNDORFF & PETERSON
SUITE 230
1087 W. RIVER STREET
BOISE, ID 83702
HAROLD C. MILES, CHAIRMAN
IDAHO CONSUMER AFFAIRS, INC
316 FIFTEENTH AVENUE SOUTH
NAMPA, ID 83651
JAMES N. ROE THE
PILLSBURY MADISON & SUTRO
P. O. BOX 7880
SAN FRANCISCO, CA 94120
R. MICHAEL SOUTHCOMBE
CLEMONS COSHO & HUMPHREY
815 W. WASHINGTON STREET
BOISE, ID 83702
DAVID H. HAWK, DIRECTOR
ENERGY NATURAL RESOURCES
J. R. SIMPLOT COMPANY
P. O. BOX 27
BOISE, ID 83707-0027
OWEN H. ORNDORFF
ORNDORFF & PETERSON
SUITE 230
1087 W. RIVER STREET
BOISE, ID 83702-7035
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