19900905Position Statement.pdf

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DAVIS WRGHT TRMAIBlECElVEO 00i'-l" 0LAW OFFICES 1_ t. \J
5 Pl\ 1\ 19
PETER J. RiCHARDSON
JEFFERSON PLACE' 350 N. 9TH, SUITE 400 . BOISE, IDAlQ"S3~'=l(208) 336-8844 'j U i)(.
\\HO PUt3UC
\! ~~;ÈS COMMiSSION,I. ;r~
September 5, 1990
Ms. Myrna J. Walters
Commission Secretary
Idaho Public utilities Commission
472 W. Washington
Boise, ID 83702
Re: Statement of Position and Issues of the Industrial
Customers of Idaho Power
Case No. ~nd Case No. IPC-E-90-8
Dear Ms. Walters:
Enclosed is the original and seven copies of the above
referenced Statement of Position and Issues of the Industrial
Customers of Idaho Power. Would you please file the same?
If you have any questions concerning this filing, please do
not hesitate to contact Peter Richardson.
Sincerely,
N~ci~
Secretary to Peter Richardson
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Enclosures
FAX: [phone]
ANCHORAGE, ALASKA . BELLEVUE, WASHINGTON . Los ANGELES, CAIFORN
PoRTLAND, OREGON' RiCHLAD, WASHINGTON' SEATTLE, WASHINGTON' WASHINGTON, D.C.
. .
Grant E. Tanner
DAVIS WRIGHT TREMAINE
2300 First Interstate Bank Tower
1300 SW Fifth Avenue
Portland, Oregon 97201
[phone]
Fax: [phone]
Peter J. Richardson
DAVIS WRIGHT TREMAINE
350 N. Ninth Street
Suite 400
Boise, Idaho 83702
[phone]
Fax: [phone]
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RECEIVED l!
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30 SEP 5 Pl1 ~ 19
o PUErLIC
Ll ¡LHIES COMMISSIONJ2.~
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 A )
CERTIFICATE OF PUBLIC CONVENIENCE )
AND NECESSITY FOR THE RATE BASING )OF THE MILNER HYDROELECTRIC )
PROJECT OR IN THE ALTERNATIVE )
A DETERMINATION OF EXEMPT STATUS )
FOR THE MILNER HYDROELECTRIC )PROJECT )
)
CASE NO. IPC-E-90-2
CASE NO. IPC-E-90-8
STATEMENT OF POSITION
AND ISSUES OF THE
INDUSTRIAL CUSTOMERS OF
IDAHO POWER
Pursuant to the agreement of the parties reached during
the prehearing conferences in the above-enti tled matters, the
Industrial Customers of Idaho Power (ICIP) provide herein their
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 1
..
statement of Position and Issues relating to Idaho Power Company's
(Idaho Power, or Company) Milner and Swan Falls applications.
These applications raise procedural and jurisdictional issues, the
resolution of which may affect future proceedings before this
Commission relating not only to these hydroelectric proj ects, but
to Idaho Power's general rates, as well. These threshold issues
must be resolved by the Idaho Public utilities Commission
("Commission") before it recognizes either project for rate making
purposes.
I. IDAHO POWE'S REQUEST FOR PRE-APPROVAL OF RATE BAE
TRTM IS INAPPROPRIATE AND MUST BERECTED
In the Swan Falls application Idaho Power requests
Commission "authority to rate base the investment required for the
rebuild of the Swan Falls" facility. In the Milner application
Idaho Power requests either a "certificate of public convenience
and necessity for the rate basing of the Milner" project or "a
determination of exempt status" for that project.Neither
application conditions these requests on completion of these
projects. Rather, both applications appear to contemplate that the
requested actions will be implemented by the Commission at the
completion of these proceedings.
Both of these applications on their face request the
Commission to perform what is traditionally regarded as a rate
making i act i with respect to these generating facilities prior to
the commercial operation, or even the commencement of construction
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 2
..
of either project. According to each application, Idaho Power asks
the Commission to include in the Company i s rate base the amount
invested in each proj ect up to a "Commitment Estimate" developed
for each proj ect.Cf., Swan Falls application, p. 8 ¡ Milner
application, p. 9. Additionally, in the Milner application Idaho
Power also requests recogni tion of royalty and debt service
paYments to Twin Falls Canal Company as "revenue requirement
expenses. " Finally, while the Company iS al ternati ve request for
Milner would exclude Milner expenses and revenues from general
rates for 20 years, approval of that request would commit the
Commission to a buy-back plan, or formula once the "exemption"
period has terminated. See, Milner application, para. V, p. 11.
The Commitment Estimate for Swan Falls is $80,285,000.
See, Attachment 3 to Supplement to Initial Application, June 21,
1990. The Commitment Estimate for Milner is $63,350,600. Milner
application, p. 9.The royalty and debt service "revenue
requirement expenses" for Milner are estimated in the Company i s
application, but the cost of the Milner "buy back" alternative
cannot now be estimated. At a minimum, Idaho Power seeks some form
of assurance from the Commission that the Company i s rate base will
be increased by as much as $143,635,600, or by some other amount
the Commission finds reasonable on the basis of the Company iS,
Staff i s and intervenors i submissions in these proceedings. The
Company wants that assurance now, not after these projects are
completed, operational and demonstrated to be used and useful.
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 3
..
Idaho Power's applications are nothing more than a
request for Commission pre-approval of significant investments in
new generating resources. Absent the filing of revised tariffs,
Idaho Power seems to be content to wait until Milner and Swan Falls
have been completed before actually requesting an increase in rates
(although that is not what a literal reading of the applications
- would indicate). However, the Company seeks assurance now that its
investment and expenses, or the Milner buy-back al ternati ve, will
be recognized in rates--up to a limit--at some future date.
II. THRE IS NO AUTORITY FOR IDAHO POWE'S REQUESTS
At the combined pre-hearing conferences, counsel for
Idaho Power admonished the ICIP' s attorney for "not reading the
(Swan Falls and Milner) applications" to discover the Company's
citations of authority relating to these applications. The Milner
application, however, cites no authority whatsoever to support the
concept of "rate basing" the investment cost of that project, prior
to commencement of construction, or commercial operation of the
project.
Our review of this Commission's orders reveals no case
in which the commission has approved, or rejected a utility's
request for future (or current) rate recognition of investment and
expense associated with a yet-to-be-constructed generating
facility.Our review discloses no record of any Idaho utility
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 4
..
requesting such pre-approval. 1 Nor does Idaho case, or statutory
law authorize the Commission to approve such a request.
In its Swan Falls application Idaho Power cites the
Commission's orders in Docket Nos. U-1006-240 and IPC-E-89-8 (Order
No. 22526) and recites that these orders require the "Swan Falls
rebuild be reviewed, and Commission approval for rate basing be
obtained, before construction of the facilities commences." Swan
Falls application, p. 1. However, Order No. 22526 merely closed
a proceeding the Commission initiated to investigate the costs of
the Swan Falls rebuild. The Commission based its decision to close
that proceeding on Idaho Power' s representation that the Company
would file the instant application following FERC approval of Idaho
Power's rehabil i tat ion plan.Nothing in the Commission's
investigation, or the Company's representations to the Commission,
suggested or implied that the intended outcome of these proceedings
would be the "rate basing," or pre-approval of this investment for
ra te making purposes.Finally, there is nothing in the
Commission · s orders regarding Swan Falls to indicate that, even if
the Commission were prepared to pre-approve Swan Falls rebuild
costs for rate making purposes, this same treatment was to be
extended to Milner.Possibly, without citation, the Company
"relied" on the Commission's directives announced in Order No.
1 While there have been discussions in various IPUC orders
of construction work in progress, CWIP is not pre-approval of total
investment cost, or expenses associated with a future generatingfacility. '
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 5
..
18189 in Case No. U-1006-l97, relating to cost reconciliation and
certificates of public convenience and necessity.At pages 8
through 11 of that order the Commission required Idaho Power, as
a condition of obtaining a certificate for a new generating
facility, to report to the Commission "final construction
estimates" and to report variances from these estimates as project
construction went forward.Nowhere, however, is it stated, or
implied that such "final construction estimates" will be used as
a ceiling for "rate basing" such projects, or for any rate making
purpose whatsoever.While Idaho Power's Swan Falls and Milner
applications comply with the directives of Order No. 18189 in that
they provide "final construction estimates," these applications go
well beyond the Commission's directive by requesting that these
estimates be used for future rate making purposes.
III. TH COMMSSION IS UNABLE TO PRDICT TH FAR RECHING
IMPLICATIONS OF PR-APPROVAL OF A RATE BAE EXPENSE
The Commission is charged with authority to place a value
on utility assets for rate making purposes. Idaho Code § 6l-523
(1976). While often the proper "value" of a utility's assets is
equal to the original cost of those assets, less depreciation, the
Commission may use other measures of value, as well. For example,
if a generating facility costs, over its useful life, more than the
utility's avoided cost--which is the Commission's determination of
the cost of the utility's next generating resource addition--the
Commission might "cap" its valuation of the generating facility at
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 6
. .
a cost equal to avoided cost. Alternatively, if the Commission
were to find the utility imprudent as to the cost of a new
facility, the Commission may determine that it is in the public
interest to place a value, for rate making purposes, only on a
portion of the asset.
Idaho Power's request that some amount up to the
"Commitment Estimates" for Swan Falls and Milner be "rate based"
is a request that a commitment be made to include up to
$143,650,600 in the Company's rate base at sometime in the future.
This commi tment could now be made only on the basis of the
Commission's review of the reasonableness of the construction cost
estimates provided by Idaho Power.If that commitment is made,
neither this Commission, a future Commission, nor any other
interested parties will be able to urge that Milner and/or Swan
Falls be "valued" on any basis other than actual, original
construction cost.
Moreover, when a new generating facility is included in
rate base, a number of other rate making adjustments must also be
made. An obvious example, involves the impact of the new facility
on average, or "normal" power costs. If Milner or Swan Falls are
included in rate base, the Company's power cost model must be
updated with these facilities included to determine a new set of
average power costs.For Idaho Power, this also means updating
the model to account for the most recent water years and deleting
an equivalent numer of years from the beginning of the series.
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 7
..
In addition, a revision of the Company's power costs will have
other related implications. For example, income tax expenses will
be altered. Simply "rate basing" the actual construction costs of
Swan Falls and Milner ignores these considerations and will result
in rates that do not match, and will probably exceed, costs.
IV. IDAHO POWER HA NOT MAE TH REQUISITE SHOWING FOR TH
GRAING OF PRE-APPROVAL OF RATE MAING TRTM FOR
THSE FACILITIES
One of the principal issues that must be addressed
whenever a new resource is considered for purposes of issuance of
a certificate of public convenience and necessi ty.A second
important issue deals with rate making treatment. For example, is
the cost of the new resource less than or equal to the cost of
other resources available to the utility? If the new resource
costs more than identified alternatives, or if alternative
resources provide better service at the same, or lower cost, the
utility's request for a certificate, or rate recognition must be
rejected.As stated above, the utility's avoided cost is one
measure of the cost of these al ternati ves. At a minimum Idaho
Power must pass the threshold test of demonstrating that its new
generating facility will produce power at less than, or equal to
its avoided cost.
Idaho Power must obtain a certificate of pUblic
convenience and necessity prior to beginning construction of any
new generating facility. I.C. § 61-526 (1976). In granting that
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 8
..
certificate the Commission must find that it is in the public
interest to permit construction of the facility, which involves
consideration not only of the need for power, but also of the cost
of that power.
In order for Idaho Power to demonstrate that Milner is
in the public interest it must prove that Milner will be
constructed and will produce power for less than or equal to Idaho
Power's full avoided cost, as established by the Commission, and
as measured by the same standards upon which avoided cost rates
paid to cogenerators and small power producers are determined.
If Milner costs more than alternative sources of equally
reliable energy, it would not be in the public interest for Idaho
Power be allowed to include it in rate base.
Swan Falls has been certificated and the Company has been
ordered by the FERC to rehabilitate this facility on pain of
termination of the Company's operating license.Nevertheless,
Idaho Power's avoided cost still provides a benchmark as to the
reasonable cost for Swan Falls. The ICIP submits that, as with
Milner, the Company's avoided cost should constitute the ceiling
for any rate making recognition of Swan Falls. In the alternative,
if Swan Falls' cost exceeds the Company's avoided cost, avoided
cost rates extended to CSPPs should be increased to the Swan Falls
level.
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 9
..
v. CONCWSION
The ICIP requests that the Commission make the following
findings:
1. Idaho Power's Milner and Swan Falls applications
requesting pre-approval for rate making purposes of the Company's
construction costs for each proj ect, up to the amounts of the
Milner and Swan Falls Commitment Estimates should be rejected.
Neither project should be recognized for rate making purposes until
each is operational and shown to be used and useful to Idaho
Power's rate payers.
2. The Milner project should not be certified unless the
cost of that facility is demonstrated to be less than, or equal to
Idaho Power's full avoided cost, as measured by the same standards
and over the same time periods used by the Commission to set CSPP
buy-back rates.
3. Since the Swan Falls facility has been certified,
once that facility has become operational, following the Company's
rehabilitation of the project, the avoided cost standard should be
used by the Commission as a "cap" on rate recognition of Idaho
Power's expenditures.
DATED this
¥
~ day of September, 1990.
Respectfully submitted,
DAVIS WRIGHT TREMAINE
BY~~"Peter.Rion ~
STATEMENT OF POSITION
AND ISSUES OF THE ICIP - PAGE 10
..
CERTIFICATE OF SERVICE.,
I HEREBY CERTIFY that I have this ~ day of September,
1990, served the foregoing STATEMENT OF ISSUES AND POSITION OF
THE INDUSTRIAL CUSTOMERS OF IDAHO POWER, Case No. IPC-E-90-2 and
IPC-E-90-8, on all parties of record by hand delivering a copy
thereof, to the following:
Michael S. Gilmore
Brad M. Purdy
Idaho Pulic utilities Commission
472 W. Washington
Boise, ID 83720
and by mailing a copy thereof, postage prepaid, to the following:
Larry D. Ripley, Esq.
Legal Department
Idaho Power Company
P.O. Box 70
Boise, ID 83707
David H. Hawk, Director
Energy Natural Resources
J .R. Simplot Company
P.O. Box 27
Boise, ID 83707-0027
Steven L. Herndon, Esq.
Legal Department
Idaho Power Company
P.O. Box 70
Boise, ID 83707
James N. Roethe, Esq.
Pillsbury, Madison & SutroP. O. Box 7880
San Francisco, CA 94120
R. Michael Southcombe, Esq.
Clemons, Cosho & Humphrey
815 W. Washington
Boise, ID 83702-5590
Harold C. Miles
Idaho Consumer Affairs, Inc.316 15th Ave. S.
Nampa, ID 83651
R. Scott Pasley
Assistant General Counsel
J .R. Simplot Company
P.O. Box 27
Boise, ID 83707-0027
Afton Energy, Inc.
c/o Owen H. Orndorff
Orndorff & Peterson
1087 W. River st., suite 230
Boise, ID 83702-7035
By /J~~ #
ie~i~ Richardson
CERTIFICATE OF SERVICE - PAGE 1