19901123Brief.pdf

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LAW OFFCES
RECEIVED
FILED
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flF) 3 16
DAVIS WRGHT TRMAIE
JEFFERSON PiCE . 350 N. 9TH, SUITE 400 . BoISE, IDAHO 83702
[phone]
90 NUH2S
November 23, 1990
iDAHO PUBLIC
UTILITIES COMMISSION
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PETER J. RICHARDSON
Ms. Myrna J. Wa1 ters
Commission Secretary
Idaho Public utilities Commission
472 W. Washington
Boise, ID 83702
Re: Brief Of The Industrial Customers of Idaho Power
In Response To Commission Order No. 23380
Case Nos. IPC-E-90-2 and IPC-E-90-8
Dear Ms. Walters:
Enclosed is the '.:riginal and eight copies of the above
referenced Brief of t~e 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,
?l~/J!:føv
secretar~~~r 4eter Richardson
np
Enclosures
FAX: [phone]
ANCHORAGE, ALSKA . BELLEVUE, WASHINGTON . Los ANGELES, CAIFORNA
PORTLAND, ORGON' RICHLAD, WASHINGTON' SEATTE, 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 TRMAINE
350 North Ninth Street
suite 400
Boise, Idaho 83702
[phone]
Fax: [phone]
.
HECEIVED 0
FILED 0
'SO NOli 23 Pll 3 16
IDl~HO PUDLl-C
L1TIES COMMISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICA- )
TION OF IDAHO POWER COMPANY )
FOR AUTHORITY TO RATE BASE )
THE INVSTMNT REQUIRED FOR )
THE REBUILD OF SWAN FALLS )
HYDROELECTRIC FACILITY )
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IN THE MATTER OF THE APPLICA-
TION OF IDAHO POWER COMPANY
FOR CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY FOR
THE RATE BASING OF THE MILNER
HYDROELECTRIC PROJECT, OR IN
THE ALTERNATIVE, A DETERMINA-
TION OF THE EXEMPT STATUS FOR
THE MILNER HYDROELECTRIC
PROJECT
CASE NO. IPC-E-90-2
CASE NO. IPC-E-90-8
BRIEF OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER IN
RESPONSE TO COMMISSION
ORDER NO. 23380
ICIP 's BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 1
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I.
INTRODUCTION
COMES NOW, the Industrial Customers of Idaho Power Company
and pursuant to Commission Order No. 23380 issued in the above
captioned matters and hereby files its brief regarding the legal
issues surrounding the construction of hydroelectric generating
facilities at Swan Falls and Milner.
On April 25, 1990, Idaho Power Company (Company) filed its
application with the Commission initiating the Milner proceeding.
In that application, Idaho Power requested:
a Certificate of Pulic Convenience and Necessity forthe Rate Basing of the Milner Hydroelectric Proj ect orin the al ternati ve a Determination of Exempt status for
that Proj ect
Idaho Power Company's Application in Case No. IPC-E-90-8 at page
1. (Milner Application)
On February 14, 1990, Idaho Power filed its application with
the Commission initiating the Swan Falls proceeding. In that
application Idaho Power asserted:
In Case No. U-1006-240 and Case No. IPC-E-89-8, the
Idaho Pulic Utilities Commission . . . made it clear
that Idaho Power Company. . . should file an
application with the Commission requesting approval for
the rate basing of construction costs before
undertaking reconstruction of the Swan Falls powerhouse
and generating facilities. . . . As noted by the
Commission, I.C. Section 61-526, does not require that
the Company apply for a Certificate of Pulic
Convenience and Necessity to increase the capacity of
existing generating plants, but the Commission does
require that the Swan Falls rebuild be reviewed, and
Commission approval for rate basing be obtained, before
construction of the facilities commences.
ICIP 's BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 2
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Idaho Power Company's Application in Case No. IPC-E-90-2 at page
1. (Swan Falls Application) .
Idaho Power is asking the Commission to commit now to
include in the Company's rate base the future construction costs
for Milner and Swan Falls in an amount equal to or less than the
Company's commitment estimate. Idaho Power is not asking,
however, for recognition of the impact of its rate base request
in its retail rates at this time.
Idaho Power's claims are based on an assumption that by
granting a certificate of public convenience and necessity, in
addi tion to finding that construction of the two proj ects would
be in the public interest, the Commission is estopped from
consideration of the value of the projects once they are
constructed.
The Commission recognized the difficulty with the Idaho
Power's blurring of the distinction between the discrete concepts
of valuation of utility property for purposes of determination of
rate base and of the issuance of certificate of public
Jconvenience and necessity and therefore asked the parties to
address the legal issues associated with the Company's
application. The Commission asked the parties to address the
following three broad questions:
1. May the Commission approve rate basing a facility prior
to that facility's construction?
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 3
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2. May the Commission predetermine a valuation methodology
for a facility prior to that facility's construction?
3. May the Commission approve rate basing a facility
without first having an understanding of the ramifications of
that decision on retail rates?
The following brief of the ICIP will show that the
Commission does not have the authority, either in case law or the
Public utilities Law, to approve an application to include
property in rate base prior to facility being constructed and
providing service to the utility's ratepayers. Because the
Commission may not predetermine rate base for future plant, it
cannot predetermine valuation methodologies for such plant.
Finally, the Commission may not make valuation decisions without
at the same time understanding the impact f those decisions on
retail rates.
II.
THE COMMISSION HAS NO AUTHORITY TO RATE BASE
ANY UTILITY PLAT PRIOR TO THAT PLA'S PROVIDING SERVICE
1. The 'Valuation' statute Does Not Support
Idaho Power's Applications
The Commission asked the parties to brief the issue of
ratemaking treatment of utility plant that has yet to be placed
in service. Specifically, the Commission asked:
What is the legal authority for the Commission to
approve ratebasing of the Swan Falls rebuild before the
rebuild is in service? What is the legal authority for
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 4
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the Commission to approve ratebasing for the Milner
project before the project is in service?
The Idaho Pulic utilities Commission is a creature of
limited statutory jurisdiction. Grindstone Butte, v. Idaho
Public utilities Commission, 102 Idaho 175, 181, 627 P2d 804
(1981). Therefore, there must be some authority in the Idaho
Code allowing the Commission to preapprove inclusion in a
utility's rate base the predicted costs of constructing a
facili ty that has yet to provide service.
The phrases rate base or "rate basing" have never been
defined by the Idaho legislature. Rather than rate base, the
Code speaks of "valuation" of utility property. The act of "rate
basing" utility plant is not, strictly speaking, what the
legislature contemplated when it passed the Pulic utility Law.
Placing a value on utility property, on the other hand, is the
duty the legislature charged the Commission to perform in setting
utility rates. The use of the phrases rate base or "rate basing"
is merely a shorthand method of describing the valuation function
of the Commission.
The statutory authorization for the Commission to value
utility property is found at Idaho Code § 61-523. That Section
provides:
The commission shall have power to ascertain the value
of the property of every public utility in this state
and every fact which, in its judgment, mayor does have
any hearing (sic) on such value. The commission shall
have power to make revaluations from time to time and
to ascertain all new construction, extensions and
additions to the property of every public utility.
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 5
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In order to find a definition of the term rate base, one
must turn to the Idaho Supreme Court. The Idaho Court's
definition of rate base is:
A utility's "rate base" represents the original cost
minus depreciation of all property justifiably used by
the utility in providing service to its customers.
utilities are allowed to charge customers rates which
will yield a certain percentage return on the utility's
total investment. Thus the larger the utility's rate
base the higher the rates utilities can charge tocustomers.
citizens utilities Company v Idaho Public utilities Commission,99 Idaho 164, 169, 579 P. 2d 110, 115 (1978).
In Application of Utah Power and Light Co., 107 Idaho 446,
690 P.2d 901 (1984) the Court explained that, for purposes of
valuation of utility property under Idaho Code 61-523, rate base
is:
the value of that which (the utility) employs for the
public convenience
Id. at 451, 690 P.2d at 906, Parenthetical in original.
The Idaho PUC therefore has an independent and ongoing
responsibility (pursuant to Idaho Code § 61-523) to examine and
value utility property. The result of that valuation process is
termed rate base by the Idaho Supreme Court. ~ Application of
Utah Power and citizens utility Company, supra. Finally, the
Idaho Supreme Court has ruled that to be considered part of rate
base, a utility's property must be actually used to provide
serv ice to the util i ty 's customers. Id. In other words, if the
property is determined to have a value of zero, there will be no
rate base impact. If the property has a positive value then the
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 6
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Commission will allow the utility to earn a return on that
property through the mechanism popularly known as rate base.
What Idaho Power is asking is for the Commission to make its
valuation determination now to be implemented later.
That Idaho Power is not asking recognition of its rate base
request in retail rates at this time is not relevant. If the
Commission grants its order allowing Milner and Swan Falls to be
included in rate base now, Idaho Power will argue that the
Commission is estopped from placing any different value on those
plants in the future.
Idaho Power's applications raise serious practical
questions. For example, does granting Idaho Power's request bind
all future Commissions as to the proper value of the Swan Falls
and Milner facilities? What would be the 'authority' of the
Commission to return to the valuation question of these
facilities in the event Idaho Power's load actually declines in
the future and the Company is faced with the need to retire one
of these facilities prematurely?
Distinct from its ongoing oversight responsibilities, the
Commission must make a ruling, at a single point in time, as to
whether a proposed new construction proj ect is in the public
convenience and necessity. Idaho Code § 61-526 provides:
No ... electrical corporation ... shall ... begin
construction of a ... plant ... without having first
obtained from the commission a certificate that the
present or future public convenience and necessity
require or will require such construction.
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 7
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Once a certificate is granted, the utility is authorized to
commence construction. The question of the value of that
construction to the ratepayers is not answered (or even at issue)
until the plant is alleged to be used and useful to the utility's
customers.
Idaho Code § 61-523 not only speaks of "valuation" of
utility property but also of "revaluations" to ascertain the
value of "all new construction." Idaho Power is asking the
Commission to ignore the legislature's mandate that all utility
property, including new construction, be subject to Commission
scrutiny - not just once, but continually.
In 1984 the Idaho legislature enacted Idaho Code Section 61-
502A which prohibits the Commission from setting rates based on
utili ty property that is not currently used and useful. Idaho
Code § 61-502A provides:
Except (in) ... an extreme emergency, the commission is
hereby prohibited ... from setting rates for any
utility that grants a return on construction work in
progress ... on property held for future use and which
is not currently used and useful in providing utilityservice.
Idaho Code § 61~502A only addresses the issue of setting
rates that are based on utility property yet to be placed in
"used and useful" service. Idaho Power is not asking to have its
rate set today on such plant. Rather, Idaho Power is asking the
Commission to commit today to include such plant in rate base for
future ratemaking purposes.
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 8
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Although Idaho Power is not requesting the Commission to
approve construction work in progress in its rate base, Section
61-502A makes an enlightening distinction between the concepts of
"used and useful" and the valuation of utility property. In the
statement of purpose to Idaho Code § 61-502A the legislature
explained that it intended to prohibit the Commission from being
required to include in rate base plant yet to be found to be
"used and useful." The legislature's statement of purpose
provides:
It is hereby declared to be the legislative intent that
this act should overrule (Utah Power & Light Company v
Idaho Pulic utilities Commission ios Idaho 822, 673
P.2d 422 (1983)) ... which authorized or required
construction work in progress on property held for
future use to be included in a utility's rate base ~
otherwise authorized or required the cOmmission to
grant a return on such property, and that the
commission be prohibited from following the precedent
of that case ... to the extent that such precedent
authorized construction work in progress on property
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.
1984 Id. Sess. Laws, ch. 21 (Emphasis Provided).
The legislative intent makes it clear that the Idaho
legislature has prohibited the Commission from either (1)
allowing a return on, or (2) including in rate base any property
that is not currently in service and used and useful to the
customers of the utility. The use of the disjunctive "or"
between the phrases -to be included in rate base" and the phrase
"require the commission to allow a return on such property" is
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 9
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convincing evidence that the legislature was aware of and
intended to distinguish between (1) the act of inclusion of
future property additions in rate base and (2) the act of setting
rates based on future property additions.
The short answer to the Commission's questions is therefore:
The Commission does not have the authority to include in rate
base any plant that has yet to be built or plant that is not
currently "used and useful."This conclusion is supported by
examining how other jurisdictions have addressed the distinction
between a certificate of public convenience and necessity and the
ul timate question of how much of the investment in a certificated
facility should be included in rate base.
2 . Case Law Does not Support Idaho Power'sApplication
Al though the questions presented by Idaho Power's
. applications appear never to have been brought to the attention
of the Idaho Courts, those questions have been thoroughly
litigated in other jurisdictions. The experience of the Montana
Power Company in attempting to rate base its Colstrip plant
Montana Power Co. v Pulic Service commission, 692 P. 2d 432, 433
(Mont. 1984), is illustrative.
The Montana Major Facility Siting Act ("Siting Act"),
Montana ,Code Ann. § 75-20-101 et seq. requires electric utilities
in Montana to obtain a certificate of need before constructing
new plant in much the same way as Idaho's certificate of public
convenience and necessity. Cf Idaho Code 61-526. The Montana
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 10
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Siting Act requires the Montana Board of Natural Resources and
Conservation to make a finding that a proposed electric
generating station will, inter alia:
serve the public interest, convenience and necessity
Montana Code Ann. § 75-20-301 (g) .
Similarly, before an Idaho electric utility may commence
construction of an electric generating facility, it must first
obtain from the Idaho Pulic utilities commission ("PUC") a
certificate that:
the present or future public convenience and necessity
require or will require such construction
Idaho Code 6l-526.
The Idaho PUC and the Montana Board of Natural Resources are
charged with making the same finding relative to construction of
new electric generating stations. Both must find that the
construction of a new electric generating facility is in the
public interest. The Montana Natural Resources Board must make
additional findings relative to possible environmental impacts of
the plant. However, the Montana Board's additional duties do not
dilute the comparison that both entities make the same findings
relative to the public convenience and necessity of the
construction of a new generating station.
Montana Power was issued a certificate of need to construct
Colstrip in 1976. In issuing the power company its certificate,
the Montana Board determined that there was a need for the energy
that would be produced by Colstrip and that construction of the
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 11
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facility would serve the public interest, convenience and
necessity. See Montana Power Co. v Public Service Commission,
692 P. 2d 432, 433 (Mont. 1984).
After construction was complete, Montana Power Company filed
an application with the Pulic Service Commission ("PSC") for an
increase in rates to reflect inclusion of Colstrip in its rate
base. The Montana PSC rej ected MPC' s application to include
Colstrip in rate base concluding that the plant was not "used and
useful." lg. at 434.
Montana Power appealed the PSC' s decision to the Supreme
Court of Montana. The Power Company argued before the Court that
once a determination had been made that construction of the plant
was in the public interest and a certificate of need was issued,
the PSC was precluded from questioning whether the plant should
be included in rate base for ratemaking purposes. Montana Power
argued:
the effect of certification under the Siting Act is to
create a conclusive evidentiary presumption that a
certified facility is actually used and useful
Id. at 437.
Idaho Power is making the same arguent:
It is the position of Idaho Power Company ("Idaho
Power") that the issuance of a certificate of public
convenience and necessity for a generating facility is
a determination by the Commission that the facility
upon construction, will be included in the ratebase of
the utility when determining the service requirement of
that utility.
. . .
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 12
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The issuance of a certificate of public convenience and
necessity is a determination that the facility should
be constructed and is dedicated to the public use.
Response of Idaho Power Company to Comments of Staff and Parties
in the Milner proceeding, at 1-2.
Idaho Power's arguents in the Swan Falls proceeding are
indistinguishable. In Swan Falls, Idaho Power asserts that
authority to construct is equal to a determination that the
proj ect should be rate based for retail ratemaking purposes:
The reconstruction of the Swan Falls facility in
compliance with the FERC license is in the public
interest and all the costs reasonably incurred in that
reconstruction should be included in the Company's
investment for ratemaking purposes.
Response of Idaho Power Company to Comments of Staff and Parties
in the Swan Falls proceeding, at 4.
The question the Montana court faced was whether the Siting
Act's requirement that the Board of Natural Resources and
Conservation's charge of determining if a proposed plant will
serve the public interest and convenience impliedly overruled the
PSC's authority over ratemaking questions once the utility seeks
to rate base the plant. Al though the Idaho PUC is not faced with
a possible conflict with a sister state agency, it is faced with
the identical issue as the Montana Court. That is, whether the
issuance of a certificate of public convenience and necessity
predetermines a conclusion that the plant, once constructed, is
used and useful for ratemaking purposes. In essence, Idaho Power
is arguing that future Commission's will be estopped from
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 13
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questioning the reasonableness or prudency of the Company's
actions with regard to Milner and Swan Falls.
Al though the Montana Court recognized the relationship
between the two concepts of "used and useful" and "certificate of
public convenience":
While the public need determination under the Siting
Act does include consideration of factors which can be
associated with the used and useful concept of the
utility regulation statutes, the Siting Act is not
limited to determining whether a facility is actuallyused and useful.
lg. at 438.
The Court went to some lengths to explicitly explain that
the two concepts are very different. The Montana Supreme Court
found that the procedure involved for each concept is unique and
requires a
A two-step process: (1) the utility obtains a
certificate ... before construction may be commenced;
(2) having constructed the plant, the utility requests
rate base treatment for the new facility and the PSC
then determines whether the facility is actually used
and useful.
lg.
It cannot be plausibly asserted that the granting of a
certificate of public convenience and necessity equates to a
finding of used and useful. The Montana Court sympathized with
the utility over the risk it assumes when it embarks upon a large
construction proj ect. The Court notes that after having spent
funds on a project and having completed the project, a utility
will find no comfort in its certificate of public convenience and
ICIP' S. BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 14
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necessi ty when it comes time to seek rate making approval for its
investment. Although sympathetic, the Court did not disturb the
clear dual statutory scheme of requiring a certificate of public
convenience and necessity prior to construction and requiring a
finding of used and useful for ratemaking treatment once the
plant was constructed:
We do not suggest that the separate determinations over
a turn of years constitutes the best or most efficient
approach to major facility approval and cost recovery.
It is unfortunate that after the expenditure of
hundreds of millions of dollars, MPC has no indication
of whether or not its facility may be charged to its
ratepayers even though the NCRC found it to be needed.
In the early 1970's it was difficult to forecast the
changing energy requirements of the 1980' s. However
the balancing of these considerations is for thelegislature.
lg.
Idaho Power's situation is no different. In the early
1990's it is difficult to predict the changing energy
requirements of the mid-1990's into the 21st century. The
legislature, through the certificate of public convenience and
necessity process has mandated that the utility bear some of the
risk of imprudent investment. Idaho Power is compensated for
that risk through its rate of return and cost of equity.
The Wyoming Supreme Court also draws a line distinguishing
between the granting of a certificate of public convenience and
necessi ty and ratemaking treatment for investments made pursuant
to such a certificate.
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 15
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In Sig Horn Rural Electric v Pacific Power & Light Co., 397
P.2d 455, 57 PUR 3d 362 (Wyo. 1964) the Wyoming Pulic service
commission granted Pacific Power & Light a certificate of public
convenience to serve a previously unserved terri tory in rural
Wyoming. Big Horn Rural Electric obj ected to the Commission's
finding that Pacific Power & Light was best suited to serve the
new area. One of Big Horn's objections was that Pacific Power &
Light was overbuilt ecid, impliedly, as a result of its excess
capacity, would have to assess unreasonable rates.
The Wyoming Court agreed that Pacific Power & Light's
capacity was "substantially in excess of actual requirements."
¡g. at 460, 57 PU 3d at 368. The Court ruled, however, that the
excess capacity issue (and the attendant issues of the ratemaking
treatment for that excess capacity) is an issue to be addressed
in a ratemaking proc~eding and not a certificate of public
convenience and neceusity proceeding. The Court ruled:
. . . there was uncontroverted evidence that Pacific's
proposed facilities were entirely adequate; and even
though some excess was indicated, the extent and cost
thereof beyond reasonable requirements for the area
were not shown. Furthermore, such element is directly
related to the matter of rates and charges for the
service. In these matters the commission has
continuing jurisdiction, and if it should develop that
the rates proposed are unjust and reasonable, as a
result of excess capacity, the matter can be adjusted
without too much difficulty in a proper proceeding
before the commission.
Id. at 461 57 PUR 3d,at 369.
The Wyoming Supreme Court's decision in Big Horn is premised
on the assumption that an investment that is approved for
ICIP l S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 16
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purposes of issuance .of a certificate of public convenience and
necessi ty may well be disallowed in subsequent ratemaking
proceedings, "without too much difficulty."
The Kentucky Supreme Court also draws a bright line
distinguishing between valuation of a facility for ratemaking
purposes and whether or not that facility ought to be
certificated. In Blue Grass State Tel. Co. v Pulic Service
Commission, 382 S.W. 2d 81, 55 PU 3d 428 (KY 1964) the Kentucky
Supreme Court overturned a decision by the Kentucky Pulic
Service Commission (PSC) in which the PSC denied Blue Grass'
application for a certificate of public convenience and
necessity. Blue Grass had purchased the assets of the previous
telephone company which was in receivership. The purchase price
($125,000) was far in excess of the depreciated original cost
($25,000) of the assets. The Kentucky PSC, feared that if it
granted a certificate of public convenience and necessity to Blue
Grass, it would also be committing to allowing the entire
purchase price in rate base for ratemaking purposes:
The Commission determined that the depreciated original
cost of this system was $25,366.90, and its order shows
that it refused to issue the certificate of convenience
and necessity solely because of the disparity between
this cost basis and the sale price paid by Blue Grass.
It assumed that the price paid would have to be
considered as a determining factor in establishing a
rate base at some later date.
Id. at 82, 55 PUR 3d at 429. (Emphasis provided).
ICIP 's BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 17
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The Court corrected the PSC' s misunderstanding of the
difference between ratemaking and certificates of public
convenience and necessity. The Court ruled that:
This does not mean that the commission has no
discretion in setting the rate base. If it is
established that the price paid is grossly excessive or
that the facilities purchased are not entirely useable,
then the rate base should be adjusted accordingly.
Id. (Emphasis provided).
The Kentucky PSC was not required to include in the
utility's rate base the purchase price of the telephone system
simply because the PSC had allowed the purchase through the
issuance of a certificate of public convenience and necessity.
Likewise, the Idaho PUC is not bound - indeed, cannot be bound -
to a predetermined rate base amount on utility plant that has yet
to be placed in service and has not been found to be used and
useful.
III.
THE COMMISSION HAS GREAT DISCRETION IN
DETERMINING THE USEFULNESS AND, HENCE VALUE,
OF UTILITY PROPERTY FOR RATEMAING PURPOSES
The Commission asked the parties to address the following
question:
What is the legal authority or propriety as a matter of
policy of using avoided costs as a cap for ratebasing
the Swan Falls rebuild? What is the legal authority or
propriety as a matter of policy of using avoided costs
as a cap for ratebasing the Milner project?
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 18
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As noted in the preceding section, the term rate base is not
defined under the Idaho Pulic utilities Code. Idaho Code
Section 61-523 provides:
The Commission shall have power to ascertain the value
of the property of every public utility in this state
and every fact which, in its judgment, mayor does have
any hearing (sic) on such value.
The threshold question the Commission must ask prior to
making a determination of the value of a particular plant is
whether that plant is used and useful to the customers of the
utility. If it is concluded that the plant is in fact used and
useful then the Commission will be called upon to determine the
value of that plant for ratemaking purposes.
The range of possible methodologies the Commission may
employ in valuing utility property is extremely wide. The
Commission is primarily constrained by the need to set rates that
are, taken on the whole, reasonable. The United States Supreme
Court has found on several occasions that state public utility
commissions have wide latitude in selecting an appropriate
methodology for setting rates:
an otherwise reasonable rate is not subj ect to
constitutional attack by questioning the theoretical
consistency of the method that produced it. It is not
the theory, but the impact of the rate order whichcounts
Duquesne Light Co. v. Barasch, 488 US __' 102 L.Ed 2d 646, 661,
109 S.ct.(1989); quoting Federal Power COmmission v. Hope
Natural Gas Company, 320 US 591, 88 L.Ed 2d 333, 64 S.ct. 281
(1944) .
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 19
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Pursuant to both the Idaho statutory scheme of utility
ratemaking and pursuant to the gloss placed on such schemes by
the United states Supreme Court, Idaho has great leeway in
selecting a methodology for valuing utility plant. The
Commission may legitimately determine that the value of new
generating plant is limited by the cost by which the utility may
acquire similar power and energy elsewhere. Under such a theory,
the usefulness to the ratepayers of the more expensive utility
plant would be limited if that plant's costs to exceeded the cost
of power of similar quality that could be acquired from other,
less expensive, sources.
The Commission therefore has both the legal authority and
the policy prerogative to use whatever yardstick at its disposal
in determining the value of the rate base of any given plant.
Idaho Power's avoided cost is one such yardstick.
The Commission has exercised its policy prerogative in the
avoided cost arena on other occasions. For example, the
Commission declared, as a matter of policy, in Case Nos. U-I006-
173, P-300-12 by Order No. 16739 that:
Failure to exhaust all power supplies available from
cogeneration and small power production shall be groundfor rej ection of applications for certificates of
convenience and necessity regarding construction of
conventional thermal units or for the issuance of
securities to finance such units.
44 PUR 4th 160, 165 (1981).
The Commission therefore has set the precedent of the use of
its ratemaking authority over conventional generating facilities
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 20
..
to encourage the development of cogeneration and small power
production. The use of avoided costs as a ceiling on the value
of Idaho Power's rate base for Milner and Swan Falls is clearly
within the policy prerogative of the Commission. The above
referenced Order, admi ttedly issued in somewhat more contentious
days, clearly provides the Commission with precedent to use
avoided cost issues as a policy tool in the ratemaking arena.
iv.
THE COMMISSION DOES NOT HAVE THE AUTHORITY
TO RATE BASE AN PLAT THAT is NOT USED AND USEFUL
THEREFORE MAING THE QUESTION OF THE IMPACT
OF SUCH AN ACT ON RETAIL RATES IRRLEANT
The parties to this proceeding were asked to address the
following questions by the Commission:
Does the Commission have the authority to declare in
the abstract that a certified plant or a plant exempt
from certification may be ratebased without yet knowing
the cost of ratebasing the plant in retail rates?
As discussed above, the Commission does not have the
authori ty to declare, in the abstract, that a plant will be
included in Idaho Power's rate base. The Commission cannot value
utility property for ratemaking purposes before that plant is
actually used and useful to the customers of that utility.
The Montana Supreme Court in Montana Power supra recognized that
a determination of need and a finding of used and useful are
distinct from retail ratemaking issues. The Court made it clear
ICIP 's BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 21
..
that granting a certificate of public convenience and necessity
is just the first step in a multifaceted process:
The NCRC' s findings of fact concerning public need in
this case related to anticipated energy needs based
upon utility proj ections. These findings did not
attempt to address questions of cost of the facility,
the proportion of energy production to be devoted to
Montana consumers, or MPC' s share of the power to begenerated by Colstrip.
Id.
Distinct inquiries must be made for each finding. It is beyond
dispute that a finding of future need based on pro; ected load
does not equate with a current finding of prudency of investment
and usefulness of the plant to serve current customers.
Evaluating the impacts of including a particular plant in
rate base on retail rates is a critical part of the Commission's
responsibility in setting fair, just and reasonable rates.
Including new plant in rate base for ratemaking purposes without
at the same time examining the impact of the addition of that new
plant on Idaho Power's retail rates would clearly be an
abdication of the Commission's responsibility to set fair, just
and reasonable rates.
RESPECTFULLY SUBMITTED this
,.~
?1""day of November, 1990.
DAVIS WRIGHT TRMAINEBYtt~
- Of The Firm -
ICIP'S BRIEF IN RESPONSE TO
COMMISSION'S ORDER NO. 23380 - PAGE 22
..
CEIFICATE OF SERCE
,.I HEREBY CERTIFY that I have this'¡ 3 --day of November,
1990, served the foregoing BRIEF OF THE INDUSTRIAL CUSTOMERS OF
IDAHO POWER IN RESPONSE TO COMMISSION ORDER NO. 23380, CASE NOS.
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
Larry D. Ripley, Esq.
Legal Department
Idaho Power Company
P.O. Box 70
Boise, ID 83707
Steven L. Herndon, Esq.
Legal Department
Idaho Power Company
P.O. Box 70
Boise, ID 83707
and by mailing a copy thereof, postage prepaid, to the following:
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
James N. Roethe, Esq.
Pillsbury, Madison & Sutro
P. O. Box 7880
San Francisco, CA 94120
R. Michael Southcombe, Esq.
Clemons, Cosho & Humphrey
815 W. Washington
Boise, ID 83702-5590
David H. Hawk, Director
Energy Natural Resources
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 ~td~3.
pët . Richardson
CERTIFICATE OF SERVICE - PAGE 1