20040715Kelly Supplemental.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
INVESTIGATION OF
INTER-~SDICTIONAL
ISSUES AFFECTING P ACIFICORP )
DBA UTAH POWER & LIGHT CO. )
CASE NO. PAC-O2-
SUPPLEMENTAL DIRECT
TESTIMONY OF
ANDREA L. KELLY
JULY 2004
Purpose
Ms. Kelly, did you previously file testimony in this proceeding?
Yes. My Direct Testimony was part of the Company s original filing with the
Commission in September of 2003. The principal purpose of my Direct Testimony was to
describe the terms of a "Protocol" document to be ratified by the Commission. The
Protocol contained the terms of a proposed resolution of the PacifiCorp interjurisdictional
cost allocation issues that have been the subject of the Multi State Process ("MSP"
What is the purpose of your Supplemental Direct Testimony?
The purpose of my Supplemental Direct Testimony is to describe events that have
occurred in the MSP since our September filing and to present a revised version of the
MSP Protocol for Commission consideration.
Exhibit No. 19 is a copy of the Revised Protocol, including its Appendix A, which
sets forth various defined terms. Mr. Taylor sponsors Appendices B, C, D and E to the
Revised Protocol in his Supplemental Testimony. Mr. Duvall sponsors Appendix F to the
Revised Protocol in his Supplemental Testimony. As with my Direct Testimony, when I
use capitalized terms in my Supplemental Testimony they are intended to have the same
meaning set forth in Appendix A to the Revised Protocol.
Events Since September" 2003 filin!!
What has occurred in the MSP since the Company s September, 2003 filing?
Subsequent to the filing, procedural schedules were set in Utah, Oregon and Wyoming.
All of the schedules provided for discovery, prefiled testimony by other parties and
ultimately formal hearings this summer. However, Commissioners and other interested
parties in Utah and Oregon expressed a preference for a continued exchange of
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Pacifi Corp
information among the States and a continued attempt to achieve a consensus solution to
MSP issues. Therefore, the procedural schedules in Utah and Oregon also provided for a
number of technical conferences, public meetings and meetings among Commissioners
from different states - all aimed at achieving consensus among the parties. To further the
exchange of information and perspectives, representatives of the Oregon Commission
Staff and the Utah Division of Public Utilities participated in several meetings. In April
2004, Commissioners in Oregon and Utah concluded that the process would benefit from
the further involvement of Robert Hanfling as a mediator. After Mr. Hanfling was
reengaged, he participated in a number of meetings with individual parties and groups
and presided over four multi-party meetings during late April.
Did these informal meetings afford the Company an opportunity to better
understand the parties' reactions to its September , 2003 filing?
Yes. We received a great deal of valuable feedback, much of which is reflected or
incorporated in the Revised Protocol.
Please summarize the major issues that were raised by parties in response to your
September filing.
The major messages we received were as follows:
No party appeared supportive of the proposed form of "hydro endowment" and
corresponding "coal endowment"
No party appeared supportive of the "coal opt-out" provision that was proposed
for Oregon.
Many parties were concerned that provisions of the Protocol related to Special
Contracts and Portfolio Resources could impinge on the right of each State to set rates
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PacifiCorp
without being bound by the determinations of other Commissions.
Utah parties remained very concerned about including the Mid-Columbia
Contracts in a "hydro-endowment" to the former Pacific Power States. Oregon parties felt
strongly that they should be included.
Oregon parties were very concerned that it be understood that any Northwest
entitlement to Hydro-Electric Resources and Mid-Columbia Contracts would be
permanent. Correspondingly, Utah parties were concerned that if Northwest States
received the near-term benefits of Hydro-Electric Resources and Mid-Columbia
Contracts that they remain responsible for future costs of those Resources even if they
become uneconomic.
Oregon parties remained unconvinced that cost shifts were not flowing from
slower growing States to faster growing States under the Protocol. Utah parties
recognized that cost shifts arising from disparate State load growth was a legitimate
concern, but wished to assure that any "cure" be well understood and equitable for all
States.
Oregon parties pointed out that there was a flaw in the provisions of the Protocol
related to assigning the costs of New Resources to the loads of Direct Access Customers
who were no longer being planned for by the Company.
Utah and Oregon parties recognized that a principal goal of the Protocol was to
afford States the ability to craft their own energy policies and wished to make sure that
such policies did not burden customers in other States. In addition, Utah parties wished to
be assured that PacifiCorp would make locally based Company decision-makers available
to support the development and implementation of such State policy initiatives.
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Pacifi Corp
Many parties reiterated the view that any MSP solution be rooted in principle and
good analysis and not simply be crafted to reach a pre-conceived numeric outcome.
10.Many parties expressed a preference for an MSP solution that was as simple and
understandable as possible. Concern was regularly expressed that any changes from
existing practices be carefully studied so as to avoid unintended consequences.
Protocol Chan!!es
Classification
Does the Revised Protocol make changes in the proposed classification of
Resources?
Yes. The original Protocol proposed to classify the Fixed Costs of simple-cycle
combustion turbines as 100 percent Demand-Related. Not all parties were convinced that
there was a compelling case for classifying simple cycle combustion turbines differently
from other Resources. The Revised Protocol accepts this view and proposes a 75 percent
Demand-Related and 25 percent Energy-Related classification. The reasons for this
change are discussed in the Supplemental Testimony of David L. Taylor.
Hydro- Endowment
How does the Revised Protocol deal with the previously proposed form of hydro
endowment and corresponding "coal endowment"
The concept of a hydro endowment is preserved but implemented in a different form. The
coal endowment has been eliminated.
How is the hydro endowment implemented in the Revised Protocol?
The Revised Protocol introduces a new concept of affording States value from their
allocated share of Hydro-Electric Resources and Mid-Columbia Contracts through a
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PacifiCorp
embedded cost differential" calculation. The Supplemental Testimony of Messrs. Taylor
and Duvall describe in detail how the calculation is made. However, generally speaking,
this method compares the total embedded cost of Hydro-Electric Resources and Mid-
Columbia Contracts on a dollar per MWh basis with the total embedded cost of the
Company s other Resources (excluding the costs of Hydro-Electric Resources, Mid-
Columbia Contracts and Existing QF Contracts). The difference in cost is then multiplied
by the normalized output from the Hydro-Electric Resources and the Mid-Columbia
Contracts. If the difference is negative (the Hydro-Electric Resources and Mid-Columbia
Contracts costs are less expensive than other Resources), it is credited to the States with
the hydro endowment. If the difference is positive (the Hydro-Electric Resources and
Mid-Columbia Contracts costs are more expensive than other Resources), there is a
charge to the hydro endowment States.
Why are the costs of Existing QF Contracts excluded from the calculation of the
Company s embedded cost of Resources when performing this calculation?
Existing Qualifying Facilities are also subject to an "endowment" which I discuss later in
my testimony.
What issues have arisen regarding the inclusion of the Mid-Columbia Contracts in
the hydro endowment?
Allocating the benefits of the Mid-Columbia Contracts has been one of the most
controversial subjects dealt with in the MSP. Parties in Oregon and Washington see little
distinction between Hydro-Electric Resources and the Mid-Columbia Contracts. They
observe that the original Mid-Columbia Contracts were structured in a way that affords
PacifiCorp rights and responsibilities similar to ownership of a share of the Mid-
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Pacifi Corp
Columbia projects. They also note that the social costs and cultural concerns associated
with the Mid-Columbia projects are of unique interest to Oregon and Washington. Utah
parties respond by pointing out that for most of the time since the Pacific PowerlUtah
Power merger, the Mid-Columbia Contracts have been treated as System Resources with
all States supporting the costs of these contracts.
How does the Revised Protocol resolve these issues?
The Revised Protocol seeks to balance the parties concerns. All States are afforded a
share of the costs and benefits of the Mid-Columbia Contracts. However, shares assigned
to Oregon and Washington are larger than would be the case if they were treated as
System Resources. Mr. Duvall's Supplemental Testimony provides specifics regarding
the calculation of each State s allocated share related to the Mid-Columbia Contracts.
QF Contracts
You previously mentioned that Existing QF Contracts are also subject to a unique
treatment. Please explain what is proposed.
The embedded cost differential method is used to compare the average annual costs of
Existing QF Contracts located in each State with the average embedded cost of the
Company s other Resources (excluding the costs of Hydro-Electric Resources, Mid-
Columbia Contracts and Existing QF Contracts). The difference in cost is then multiplied
by the normalized output from the Existing QF Contracts. If the difference is positive (the
Existing QF Contracts are more expensive than other Resources), there is a charge to the
State in which the QF is located. If the difference is negative (the Existing QF Contracts
are less expensive than other Resources), the State receives a credit for the amount of the
difference.
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PacifiCorp
Why is the adjustment for Existing QF Contracts being proposed?
Existing QF Contracts have substantially different prices in different States, reflecting
different State policies that were in effect at the time they were entered into. These prices
do not necessarily reflect market derived prices and may differ substantially from the
costs of other resources. A consistent theme in the MSP discussions is that costs arising
from individual State policies should be borne by customers in the State making the
policy. Also, because Existing QF Contracts in Oregon have higher prices than those in
Utah, this adjustment tends to balance the revenue requirement impact of the Revised
Protocol. It appears that Oregon parties view this as reasonable, provided they can be
assured that Oregon s greater entitlement to Mid-Columbia Contract benefits is not
reduced in the future.
Why is the embedded cost differential charge/credit being applied only to Existing
QF Contracts and not to New QF Contracts?
There are two primary reasons. First, an underlying provision of the Protocol is that all
States share in the cost of new Resources. If the costs of New QF Contracts are equal to
the costs of other new Resources, there is no negative impact on other States and no
reason to make a situs assignment of additional costs. Only if New QF Contracts are
more expensive than the costs of Comparable Resources is there an impact on other
States. Second, there was substantial concern that applying the embedded cost differential
approach in respect to New QF Contracts could distort the Company s new Resource
acquisition process and create an unfair bias against New QF Contracts.
Please explain why there could be such a bias.
If the embedded cost differential method were applied to a New QF Contract (assuming
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Pacifi Corp
its cost is greater than the embedded cost of existing Resources), it would have a greater
impact on prices charged to customers in the State where the New QF Contract is located
than would a comparable, equally priced non-QF resource that was not subject to the
embedded cost differential method.
How are States protected from decisions by other States that cause excessive prices
to be paid for New QF Contracts?
Paragraph ill (C) (3) (b) of the Protocol provides that "(C)osts associated with any New
QF Contract which exceed the costs PacifiCorp would have otherwise incurred acquiring
Comparable Resources, will be assigned on a situs basis to the State approving such
contract" .
When and how will the determination be made that the price paid for a New QF
Contract was excessive and that there should be a situs assignment of costs?
The MSP discussions did not resolve this issue. While parties seem to generally agree
with the principle expressed in the Protocol, there was considerable concern that it not
undermine each Commission s prerogative to establish fair, just and reasonable rates and
to not be bound by the finding of another Commission. The Company is not especially
comfortable with the lack of detailed procedures in the Protocol regarding New QF
Contracts that exceed the cost of Comparable Resources. Hopefully, Commissions will
be mindful of the importance of not permitting additional expensive QF contracts to be
put in place and there will not be a need for situs cost assignment. If problems do arise
the subject would be appropriate for prompt review by the MSP Standing Committee.
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PacifiCorp
Portfolio Resources
What changes are made in the Revised Protocol in respect to Portfolio Resources?
Under the terms of the original Portfolio, costs of Portfolio Resources that were
disallowed by other States were to be assigned to the State requiring the acquisition of the
Portfolio Resource. MSP parties were uncomfortable with this approach because it
appeared that another Commission s findings in regard to Portfolio Resources might
unreasonably shift costs to the State mandating the Portfolio Resource and limit that
State s rate setting prerogatives.
How were these issues resolved?
The Revised Portfolio treats Portfolio Resources in the same manner as New QF
Contracts. It establishes the basic principle that costs of Portfolio Resources which
exceed the costs of Comparable Resources available to the Company will be assigned on
a situs basis. As with New QF Contracts, the Revised Protocol does not describe
procedures that will cause this to occur. Again, if Portfolio Resources become a
significant issue, the matter will have to be taken up by the MSP Standing Committee.
Direct Access
What changes were made in the Revised Protocol in respect to Direct Access
Programs?
The original Protocol proposed that the costs of all Resources be allocated on the basis of
State load that included the load of Direct Access Customers. Oregon parties correctly
pointed out that the load of Direct Access Customers who had permanently left
PacifiCorp s system (and were no longer being planned for) should not be included in
Load-Based Dynamic Allocation Factors for New Resources. The Revised Protocol
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Pacifi Corp
recognizes this distinction. The Revised Protocol also recognizes that some customers
may make a permanent election to have some or all of their load served by the Company
based upon a market rate rather than a traditional cost-of-service rate derived from the
cost of the Company s Resources. The definition of "Direct Access Customers" in the
Revised Protocol is expanded to include customers who exercise such a permanent "opt-
out" so that their load is excluded from Load-Based Dynamic Allocation Factors for New
Resources.
Sustainability
What changes were made in the "sustainability" provisions of the Protocol?
In the Revised Protocol, express provision is made for a "Standing Neutral" to be
appointed by the MSP Standing Committee. The Standing Neutral is to facilitate
discussions among States, monitor emerging issues and assist the MSP Standing
Committee, as required.
As I indicated previously, Oregon and Washington parties remain very concerned
about the prospect of relatively faster growing States causing a cost shift to relatively
slower growing States. In an effort to alleviate these concerns, the Revised Protocol
includes a commitment to analyze potential cost shifts related to faster-growing States in
concert with the current IRP planning cycle. In addition, a multi-state workgroup will
track key factors including actual relative growth rates, forecast relative growth rates,
costs of new Resources compared to costs of existing Resources and other factors
deemed relevant to this issue. The MSP Standing Committee -likely through a technical
workgroup - is charged with developing a mechanism that could be implemented in a
timely manner in the event that the studies show a material and sustained harm from the
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PacifiCorp
implementation of the IRP to slower-growing States.
Benefits of an Agreement
Ms. Kelly, in your Direct Testimony, you described how the Protocol attempted to
recognize and balance the various principles that had been articulated by MSP
participants. Is that true as well of the Revised Protocol?
Yes. Of the various principles articulated in my Direct Testimony, the concept of States
being afforded the ability to craft their own energy policies, while not shifting costs to
other States, figures somewhat more prominently in the Revised Protocol as reflected in
the treatment of QF Contracts and the provisions regarding Direct Access Programs.
With the elimination of the unique classification of Simple-Cycle Combustion Turbines
and the Oregon "coal opt-out" provision, the Revised Protocol furthers the principles of
simplicity and ease of administration.
Are there other benefits to the States of reaching a mutual agreement on the inter-
jurisdictional issues that have been the subject of the MSP?
Yes. An agreement to the terms of the Revised Protocol by all States will benefit
customers through: (1) continued six-State integrated system planning, (2) improved
ability to implement the results of system planning efforts, (3) continued access to
financial and commercial trading markets by a healthy utility, (4) retention of the benefits
and efficiencies of the integrated system, (5) improved ability to work with State policy
makers and address differences in policies among our States, and (6) mitigation of the
impacts on other jurisdictions of a single State s energy policies.
Has the Company attempted to quantify these benefits?
Yes. Although it is difficult to provide a point estimate, there are ranges of impacts that
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PacifiCorp
should be considered. For example Mr. Duvall's analYtic team produced divisional stand-
alone studies that estimated system integration benefits between $200 and $300 million
over the fourteen-year study period. Similarly, if PacifiCorp s credit quality was
significantly impaired over time as a result of continued disagreement among the States,
the potential for increased costs of debt and equity could result. A 100 basis point
increase in the Company s cost of equity is equal to an approximate $55 to $60 million
increase in total Company revenue requirement. On the commercial and trading side,
impairment of credit quality can negatively impact the Company s attractiveness as a
counterparty, potentially leading to tighter restrictions or trading limits imposed by other
market participants. While we consider these to be extreme possibilities, we remain
gravely concerned that a breakdown in the MSP could result in risks and costs to our
customers that they would not face if the states are able to agree.
Other Witnesses
What other witnesses are offering Supplemental Testimony?
Mr. Duvall's Supplemental Testimony describes various analyses that have been
conducted since the original Protocol was filed. In particular, he focuses on:
The greater understanding that has been gained of the "load growth" issue
and how it might be mitigated, and
The development and calculation of the MC Factor for allocating Mid-
Columbia Contracts
Mr. Taylor s Supplemental Testimony provides much of the technical support for the
classification and allocation provisions of the Revised Protocol, particularly:
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Pacifi Corp
The details of the embedded cost differential adjustment calculation
related to Hydro-Electric Resources, Mid-Columbia Contracts and
Existing QF Contracts;
Additional detail on the Treatment of Special Contracts; and
The forecasted State-by-State revenue requirement impacts of the Revised
Protocol.
Does this conclude your Supplemental Direct Testimony?
Yes.
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Pacifi Corp
Case No. P AC-02-
Exhibit No. 19
Witness: Andrea L. Kelly
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ACIFICORP
Exhibit Accompanying Supplemental Direct Testimony of Andrea L. Kelly
Protocol and Appendix A - Definition of Terms
July 2004
PacifiCorp
Exhibit No. 19 Page 1 of 20
Case No. PAC-02-
Witness: Andrea L. Kel1y
Introduction
This PacifiCorp Inter-Jurisdictional Cost Allocation Protocol is the result of
extensive discussions that have occurred among representatives of PacifiCorp,
Commission staff members and other interested parties from Utah, Oregon
Wyoming, Idaho and Washington regarding issues arising from the Company
status as a multi-jurisdictional utility. 1 These discussions were referred to as the
Multi-State Process, or MSP.
PacifiCorp commits that it will continue to plan and operate its generation
and transmission system on a six-State integrated basis in a manner that achieves a
least cost/least risk Resource portfolio for its customers.
The Protocol describes regulatory policies, which, if followed by all States on
a long-term basis, should afford PacifiCorp a reasonable opportunity to recover all of
its prudently incurred expenses and investments and earn its authorized rate of
return. The assignment of a particular expense or investment, or allocation of a share
of an expense or investment, to a State pursuant to the Protocol is not intended to
and should not, prejudge the prudence of those costs. Nothing in the Protocol shall
abridge any State s right and/or obligation to establish fair, just and reasonable rates
based upon the law of that State and the record established in rate proceedings
conducted by that State. It is the intent that the terms of the Protocol be enduring.
Parties who have supported the ratification of the Protocol do so in the belief that it
will achieve a solution to MSP issues that is in the public interest. However, a party
Key staff in California monitored the proceedings and received relevant
documents.
PacifiCorp
Exhibit No. 19 Page 2 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
support of the Protocol is not intended in any manner to negate the necessary
flexibility of the regulatory process to deal with changed or unforeseen
circumstances, and a party s support of the Protocol will not bind or be used against
that party in the event that unforeseen or changed circumstances cause that party to
conclude, in good faith, that the Protocol no longer produces results that are just
reasonable and in the public interest. Support of the Protocol shall not be deemed to
constitute an acknowledgement by any party of the validity or invalidity of any
particular method, theory or principle of regulation, cost recovery, cost of service or
rate design and no party shall be deemed to have agreed that any particular method
theory or principle of regulation, cost recovery, cost of service or rate design
employed in the Protocol is appropriate for resolving any other issues.
The Protocol describes how the costs and wholesale revenues associated with
PacifiCorp s generation, transmission and distribution system will be assigned or
allocated among its six State jurisdictions for purposes of establishing its retail rates.
Definitions of terms that are capitalized in the Protocol are set forth in
Appendix A.
A table identifying the allocation factor to be applied to each component of
PacifiCorp s revenue requirement calculation is included as Appendix B.
The algebraic derivation of each allocation factor is contained in Appendix C.
A description and numeric example of how Special Contracts and related
discounts will be reflected in rates is set forth in Appendix D.
A listing of FERC accounts relied upon in the definition of "Annual
Embedded Costs" is set forth in Appendix E.
PacifiCorp
Exhibit No. 19 Page 3 of 20
Case No. P AC-02-
Witness: Andrea L. Kelly
Each State s allocated share of each Mid-Columbia Contract and the method
for calculating the shares is set forth in Appendix F.
II.Proposed Effective Date
The Protocol will be effective and apply to all PacifiCorp retail general rate
proceedings initiated subsequent to June 1 , 2004.
III.Classification of Resource Costs
All Resource Fixed Costs, Wholesale Contracts and Short-term Purchases
and Sales will be classified as 75 percent Demand-Related and 25 percent Energy-
Related. All costs associated with Non-Firm Purchases and Sales will be classified
as 100 Percent Energy-Related.
IV.Allocation of Resource Costs and Wholesale Revenues
Resources will be assigned to one of four categories for inter-jurisdictional
cost allocation purposes:
A. Seasonal Resources
B. Regional Resources
C. State Resources, or
D. System Resources.
There are three types of Seasonal Resources, one type of Regional Resource
and three types of State Resources. The remainder are System Resources which
constitute the substantial majority ofPacifiCorp s Resources. Costs associated with
each category and type of Resource will be allocated on the following basis:
Seasonal Resources
PacifiCorp
Exhibit No. 19 Page 4 of20
Case No. P AC-02-
Witness: Andrea L. Kelly
Costs associated with the following three types of Seasonal Resources
will be allocated as follows:
fumple-Cycle Combustion Turbines (SCCTs : All Fixed Costs
associated with SCCTs will be allocated based upon the
SSGCT (Seasonal System Generation Combustion Turbine)
Factor. All Variable Costs associated with SCCTs will be
allocated based upon the SSECT (Seasonal System Energy
Combustion Turbine) Factor.
Seasonal Contracts: All Costs associated with the Seasonal
Contracts will be allocated based upon the SSGP (Seasonal
System Generation Purchases) Factor.
Cholla IV/ APS: All Fixed Costs associated with the Cholla
Unit 4 and the seasonal exchange provided for in the APS
Contract will be allocated based upon the SSGCH (Seasonal
System Generation Cholla) Factor. All Variable Costs
associated with Cholla Unit 4 and the seasonal exchange
provided for in the APS Contract will be allocated based upon
the SSECH (Seasonal System Energy Cholla) Factor.
Following the expiration of the APS Contract, Cholla Unit 4
will be allocated as a System Resource and no longer allocated
as a Sellsonal Resource.
The MSP Standing Committee will review Seasonal Resources
criteria and allocation. Items to be considered include the seasonal
patterns of Resource operation to determine seasonality, the treatment
of associated off-system sales, the value of operating reserves
provided from Seasonal.Resources, criteria to define seasonal
PacifiCorp
Exhibit No. 19 Page 5 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
Exchange Contracts and methods for allocating the costs of seasonal
exchange returns.
Regional Resources
Costs associated with Regional Resources will be assigned and
allocated as follows:
H ydro- Endowment
Owned Hydro Embedded Cost Differential
Adiustment.The Owned Hydro Embedded Cost Differential
Adjustment is calculated as the Annual Embedded Costs - Hydro-
Electric Resources, less the Annual Embedded Costs - All Other
multiplied by the normalized MWh's of output from the Hydro-
Electric Resources used to set rates (Hydro less All Other). The
Owned Hydro Embedded Cost Differential Adjustment will be
allocated on the DGP factor and the inverse amount will be allocated
on the SG factor.
Mid-Columbia Contract Embedded Cost Differential
Adiustment:The Mid-Columbia Contract Embedded Cost Differential
Adjustment is calculated as the Annual Mid-Columbia Contracts
Costs, less the Annual Embedded Costs - All Other, multiplied by the
normalized MWh's of output from the Mid-Columbia Contracts
(Mid-C less All Other). The allocation of Mid-Columbia Contracts to
each State is established pursuant to Appendix F. The Mid-Columbia
Embedded Cost Differential Adjustment will be allocated on the MC
factor and the inverse amount will be allocated on the SG factor.
Unless otherwise recommended by the MSP Standing
Committee, as long as the Oregon parties that originally supported
PacifiCorp
Exhibit No. 19 Page 6 of 20
Case No. PAC-02-
Witness: Andrea 1. Kelly
ratification of the Protocol continue to support the use of the Protocol
for purposes of establishing the Company s Oregon revenue
requirement, PacifiCorp will not propose or advocate any material
change in the Protocol provisions related to Hydro-Electric
Resources, Mid-Columbia Contracts and Existing QF Contracts.
Provided, however, the foregoing provision shall not prevent the
Company from complying with any Commission order.
State Resources
Costs associated with the three types of State Resources will be
assigned as follows:
Demand-Side Management Programs:Costs associated with
Demand-Side Management Programs will be assigned on a
situs basis to the State in which the investment is made.
Benefits from these programs, in the form of reduced
consumption, will be reflected through time in the Load-Based
Dynamic Allocation Factors.
Portfolio Standards : Costs associated with Resources acquired
pursuant to a State Portfolio Standard, which exceed the costs
PacifiCorp would have otherwise incurred acquiring
Comparable Resources, will be assigned on a situs basis to the
S tate adopting the standard.
Qualifying Facilities (QF) Contracts:
a. Existing QF Contracts Embedded Cost Differential
Adiustment:The Existing QF Contracts Cost Differential
Adjustment is calculated as the Annual Existing QF
Contracts Costs for each State, less the Annual Embedded
PacifiCorp
Exhibit No. 19 Page 7 of20
Case No. P AC-02-
Witness: Andrea L. Kelly
Costs - All Other, multiplied by the normalized MWh's of
output from the respective State s Existing QF Contracts
(State QF less All Other). The Existing QF Contract
Embedded Cost Differential Adjustment will be allocated on
a situs basis and the inverse amount will be allocated on the
SG factor.
b. New OF Contracts: Costs associated with any New
QF Contract, which exceed the costs PacifiCorp would have
otherwise incurred acquiring Comparable Resources, will be
assigned on a situs basis to the State approving such contract.
System Resources
All Resources that are not Seasonal Resources, Regional Resources or
State Resources are System Resources. Generally, all Fixed Costs
associated with System Resources and all costs incurred under
Wholesale Contracts will be allocated based upon the SG Factor.
Generally, all Variable Costs associated with System Resources will
be allocated based upon the SE Factor. Revenues received by the
Company pursuant to Wholesale Contracts will be allocated based
upon the SG Factor. A complete description of the allocation factors
to be utilized is set forth in Appendix B.
Load Growth
In concert with the 2004 IRP cycle, the Company and parties will
analyze and quantify potential cost shifts related to faster-growing
States.In addition, a multi-state workgroup will track key factors
2 This issue will be monitored through studies that compute the costs
allocated to each State for two cases: (a) with currently projected load growth
(continued. . .
PacifiCorp
Exhibit No. 19 Page 8 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
including actual relative growth rates, forecast relative growth rates
costs of new Resources compared to costs of existing Resources, and
other factors deemed relevant to this issue. No later than nine months
after filing the 2004 IRP, the Company, in consultation with the MSP
Standing Committee and other parties, will file a report with the
Commissions regarding this issue. Included in this report will be a
description of one or more options for a structural protection
mechanism, detailed with sufficient specificity to allow timely
implementation in the event that the studies show a material and
sustained net harm to customers in any jurisdiction.
The MSP Standing Committee is charged with developing one or
more ameliorative mechanisms that could be implemented in a timely
manner in the event that the studies show a material and sustained net
harm to particular States from the implementation of the IRP. The
MSP Standing Committee should consider the impact of load growth
in light of all other relevant factors. Potential mechanisms to be
studied include tiered allocations, treatment of Seasonal Resources, a
structural separation of the Company, temporary assignment of the
costs of some new Resources to fast-growing States, and the inclusion
of measures of recent load growth in the computation of al1ocation
factors.
( . . .
continued)
together with a least-cost, least-risk mix of Resource additions to meet that growth
and (b) with the fastest-growing State growing at the average growth projected for
the remaining States, again with a least-cost, least-risk mix of Resource additions.
PacifiCorp
Exhibit No. 19 Page 9 of 20
Case No. P AC-02-
Witness: Andrea L. Kelly
Refunctionalization and Allocation of Transmission Costs and Revenues
If the Company is required to refunctionalize assets that are currently
functionalized as "transmission" to "distribution , the cost responsibility for any
such refunctionalized assets will be assigned to the State where they are located. Any
refunctionalization will be implemented under the guidance of the MSP Standing
Committee.
Costs associated with transmission assets, and firm wheeling expenses and
revenues, will be classified as 75 percent Demand-Related, 25 percent Energy-
Related and allocated among the States based upon the SG (System Generation)
factor. Non-firm wheeling expenses and revenues will be allocated among the States
based upon the SE Factor.
VI.Assi2nment of Distribution Costs
All distribution-related expenses and investment that can be directly assigned
will be directly assigned to the state where they are located. Those costs that cannot
be directly assigned will be allocated among States consistent with the factors set
forth in Appendix B.
Allocation of Administrative and General CostsVII.
Administrative and general costs, costs of General Plant and costs of
Intangible Plant will be allocated among States consistent with the factors set forth in
Appendix B.
VIII. Allocation of Special Contracts
Revenues associated with Special Contracts will be included in State
revenues and loads of Special Contract customers will be included in all Load-Based
PacifiCorp
Exhibit No. 19 Page 10 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
Dynamic Allocation Factors. Special Contracts mayor may not include Customer
Ancillary Service Contract attributes. In recognition that Special Contracts may take
different forms, Appendix D provides a written description and numeric example of
the regulatory treatment of Special Contracts and associated discounts.
IX.AIJocation of Gain or Loss from Sale of Resources or Transmission
Assets
Any loss or gain from the sale of a Resource (other than a Freed-
Resource) or a transmission asset will be allocated among States based upon the
allocation factor used to allocate the Fixed Costs of the Resource or the transmission
asset at the time of its sale. Each Commission will determine the appropriate
allocation of loss or gain allocated to that State as between State customers and
PacifiCorp shareholders.
Implementation of Direct Access Proerams
Allocation of Costs and Benefits of Freed-Up Resources
1. Loads lost to Direct Access Where the Company is required to
continue to plan for the load of Direct Access Customers, such
load will be included in Load-Based Dynamic Allocation Factors
for all Resources.
2. Loads of customers permanently choosing Direct Access or
permanently opting out of New Resources Where the Company
is no longer required to plan for the load of customers who
pennanently choose direct access or permanently opt out of New
Resources, such loads will be included in Load-Based Dynamic
Allocation Factors for all Existing Resources but will not be
PacifiCorp
Exhibit No. 19 Page 11 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
included in Load-Based Dynamic Allocation Factors for New
Resources acquired after the election to permanently choose
Direct Access or opt out of New Resources. An effective date for
this process will be established at such time as customers
permanently choose Direct Access or opt out, and this process will
be implemented under the guidance of the MSP Standing
Committee.
3. In each State with Direct Access Customers, an additional step
will take place for ratemaking purposes to establish a value or cost
(which could include a transfer of Freed-Up Resources between
customer classes within a State) resulting from the departure of
the departing load; other States do not implement the second step.
Freed-Up Resource Sale Approval
Any proposed sale of a Freed-Up Resource for purposes of
calculating transition charges or credits will be subject to applicable
regulatory review and approval based upon a "no-harm" standard.
States implementing Direct Access Programs that involve the sale of
Freed-Up Resources will endeavor to propose a method for allocating
the gain or loss on a sale to Direct Access Customers in a manner that
satisfies the "no-harm" standard in respect to customers in the other
States. The parties agree that they will not advocate a sale of Freed-
Up Resources to be consummated if the proposed allocation of the
gain or loss from the sale would cause the Company to distribute
more than the total gain on a sale or recover less than the full amount
of the total loss on a sale.
PacifiCorp
Exhibit No. 19 Page 12 of20
Case No. P AC-02-
Witness: Andrea L. Kelly
Allocation of Revenues and Costs from Direct Access Purchases
and Sales
Revenues and costs from Direct Access Purchases and Sales will be
assigned situs to the State where the Direct Access Customers are
located and will not be included in Net Power Costs.
Loss or Increase in LoadXI.
Any loss or increase in retail load occurring as a result of condemnation or
municipalization, sale or acquisition of new service territory which involves less than
five percent of system load, realignment of service territories, changes in economic
conditions or gain or loss of large customers will be reflected in changes in Load-
Based Dynamic Allocation Factors. The allocation of costs and benefits arising from
merger, sale and acquisition transactions proposed by the Company involving more
than five percent of system load will be dealt with on a case-by-case basis in the
course of Commission approval proceedings.
Commission Re2ulation of ResourcesXII.
PacifiCorp shall plan and acquire new Resources on a system-wide least cost
least risk basis. Prudently incurred investments in Resources will be reflected in
rates consistent with the laws and regulations in each State.
XIII. Sustainabilitv of Protocol
Issues of Interpretation
If questions of interpretation of the Protocol arise during rate proceedings
and/or audits of results ofPacifiCorp s operations, parties will attempt to resolve
PacifiCorp
Exhibit No. 19 Page 13 of 20
Case No. P AC-02-
Witness: Andrea 1. Kelly
them with reference to the intent of the parties who have supported the ratification of
the Protocol.
MSP Standing Committee
1. An MSP Standing Committee will be organized consisting of one
member or delegate of each Commission. The chair of the MSP
Standing Committee will be elected each year by the members of the
Committee.
2. The MSP Standing Committee will appoint a Standing Neutral, at
the Company s expense, to facilitate discussions among States
monitor issues and assist the MSP Standing Committee.
3. At least once during each calendar year, the Standing Neutral will
convene a meeting of the MSP Standing Committee and interested
parties from all States for the purpose of discussing and monitoring
emerging inter-jurisdictional issues facing the Company and its
customers. The meetings will be open to all interested parties.
4. The MSP Standing Committee will consider possible amendments
to the Protocol that would be equitable to PacifiCorp customers in all
States and to the Company. The MSP Standing Committee will have
discretion to determine how best to encourage consensual resolution
of issues arising under the Protocol. Its actions may include, but will
not be limited to: a) appointing a committee of interested parties to
study an issue and make recommendations, or b) retaining (at the
Company s expense) one or more disinterested parties to make
advisory findings on issues of fact arising under the Protocol.
5. The MSP Standing Committee has the immediate assignments of:
( a) developing one or more mechanisms that could be implemented in
PacifiCorp
Exhibit No. 19 Page 14 of20
Case No. PAC-02-
Witness: Andrea L. Kelly
a timely manner in the event that load growth studies show a material
and sustained net harm to particular States from the implementation
of the IRP; and (b) reviewing Seasonal Resources criteria and
allocation, including seasonal patterns of Resource operation to
determine seasonality, treatment of associated off-system sales, the
value of operating reserves provided from Seasonal Resources,
criteria to define seasonal Exchange Contracts and methods for
allocating the costs of seasonal exchange returns.
6. The work of the MSP Standing Committee will be supported by
sound technical analysis. A party supporting ratification of the
Protocol will work in good faith to address issues being considered by
the MSP Standing Committee.
Protocol Amendments
Proposed amendments to the Protocol will be submitted by PacifiCorp
to each Commission for ratification. The Protocol will only be
deemed to have been amended if each of the Commissions who have
previously ratified the Protocol ratifies the amendment. PacifiCorp
will not seek Commission ratification of any amendment to the
Protocol unless and until it has provided interested parties with at
least six months advance notice of its intent to do so and endeavored
to obtain consensus regarding its proposed amendment. A party
initial support or acceptance of the Protocol will not bind or be used
against that party in the event that unforeseen or changed
circumstances cause that party to conclude that the Protocol no longer
produces just and reasonable results. Prior to departing from the terms
of the Protocol, consistent with their legal obligations, Commissions
PacifiCorp
Exhibit No. 19 Page 15 of20
Case No. PAC-02-
Witness: Andrea L. Kel1y
and parties will endeavor to cause their concerns to be presented at
meetings of the MSP Standing Committee and interested parties from
all States in an attempt to achieve consensus on a proposed resolution
of those concerns.
Interdependency among Commission Approvals
The Protocol has been developed by the parties as an integrated, inter-
dependent, organic whole. Therefore, final ratification of the Protocol
by any of the Commissions of Oregon, Utah, Wyoming and Idaho, is
expressly conditioned upon similar ratification of the Protocol by the
other mentioned Commissions, without any deletion or alteration of a
material term, or the addition of other material terms or conditions.
Upon any rejection of the Protocol, or any material deletion
alteration, or addition to its terms, by anyone or more of the four
Commissions, the Commissions who have previously conditionally
adopted the Protocol shall initiate proceedings to determine whether
they should reaffirm their prior ratification of the Protocol
notwithstanding the action of the other Commission or Commissions.
The Protocol shall only be in effect for a State upon final ratification
by its Commission. The Company will continue to bear the risk of
inconsistent allocation methods among the States.
PacifiCorp
Exhibit No. 19 Page 16 of 20
Case No. P AC-02-
Witness: Andrea L. Kelly
Protocol - Appendix A
Defined Terms
For purposes of this Protocol, the following terms will have the following meanings:
Annual Embedded Costs - All Other" means PacifiCorp s total normalized annual
production costs expressed in dollars per MWh (not including costs associated with Hydro-
Electric Resources, Mid-Columbia Contracts and Existing QF Contracts) as recorded in the
FERC Accounts listed in Appendix E to the Protocol.
Annual Embedded Costs - Hydro-Electric Resources" means PacifiCorp s total
normalized annual production costs, expressed in dollars per MWh, associated with Hydro-
Electric Resources as recorded in the FERC Accounts listed in Appendix E to the Protocol.
Annual Mid-Columbia Contract Costs" means annual net costs incurred by
PacifiCorp under the Mid-Columbia Contracts, expressed in dollars per MWh.
APS Contract" means the Long-Term Power Transactions Agreement between
PacifiCorp and Arizona Public Service Company dated September 21 , 1990, as amended.
Coincident Peak" means the hour each month that the combined demand of all
PacifiCorp retail customers is greatest. In States using an historic test period, Coincident Peak is
based upon actual, metered load data. In States using future test periods, Coincident Peak is
based upon forecasted loads.
Company" means PacifiCorp.
Commission" means a utility regulatory commission in a State.
Comparable Resource" means Resources with similar capacity factors, start-up costs
and other output and operating characteristics.
Customer Ancillary Service Contracts" means contracts between the Company and a
retail customer pursuant to which the Company pays the customer for the right to curtail service
so as to lower the costs of operating the Company s system.
Appendix A
PacifiCorp
Exhibit No. 19 Page 17 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
Demand-Related Costs" means capital and other Fixed Costs incurred by the Company
in order to be prepared to meet the maximum demand imposed upon its system.
Demand-Side Management Programs" means programs intended to improve the
efficiency of electricity use by PacifiCorp s retail customers.
Direct Access Customers" means retail electricity consumers located in PacifiCorp
service territory that either: a) purchase electricity directly from a supplier other than PacifiCorp
pursuant to a Direct Access Program or b) elect to have all or a portion of the electricity they
purchase from PacifiCorp priced based upon market prices rather than the Company s traditional
cost-of-service rate. If a State implements a Direct Access Program pursuant to which Freed-
Resources are transferred between customer classes, such transfers shall be considered Direct
Access Purchases and Sales.
Direct Access Program" means a law or regulation that permits retail consumers
located in PacifiCorp s service territory to purchase electricity directly from a supplier other than
PacifiCorp.
Direct Access Purchases and Sales" means Wholesale Contracts and Short-Term
Purchases and Sales entered into by PacifiCorp either to supply customers who have become
Direct Access Customers or to dispose of Freed-Up Resources.
Energy-Related Costs" means costs , such as fuel costs that vary with the amount of
energy delivered by the Company to its customers during any hour plus any portion of Fixed
Costs that have been deemed to have been incurred by the Company in order to meet its energy
requirements.
Existing QF Contracts" means Qualifying Facility Contracts entered into prior to the
effective date of this Protocol, but not such contracts renewed or extended subsequent to the
effective date of this Protocol.
Appendix A
PacifiCorp
Exhibit No. 19 Page 18 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
Existing Resources" means Resources whose costs were committed to prior to Direct
Access Customers making an election to permanently forego being served by the Company at a
cost-of-service rate.
Exchange Contracts" means Wholesale Contracts pursuant to which PacifiCorp
accepts delivery of power at one place and/or point in time and delivers power at a different
place and/or point in time.
FERC" means the Federal Energy Regulatory Commission.
Fixed Costs" means costs incurred by the Company that do not vary with the amount of
energy delivered by the Company to its customers during any hour.
Freed-Up Resources" means Resources made available to the Company as a result of
its customers becoming Direct Access Customers.
General Plant" means capital investment included in FERC accounts 389 through 399.
Grant County" means Public Utility District No.2 of Grant County, Washington
Hydro-Electric Resources" means Company-owned hydro-electric plants located in
Oregon, Washington or California.
Intangible Plant" means capital investment included in FERC accounts 301 through
303.
Load-Based Dynamic Allocation Factor" means an allocation factor that is calculated
using States' monthly energy usage and/or States ' contribution to monthly system Coincident
Peak.
Mid-Columbia Contracts" means the Power Sales Contract with Grant County dated
May 22, 1956; the Power Sales Contract with Grant County dated June 22, 1959;the Priest
Rapids Project Product Sales Contract with Grant County dated December 31 , 2001; the
Additional Products Sales Agreement with Grant County dated December 31 , 2001; the Priest
Rapids Project Reasonable Portion Power Sales Contract with Grant County dated December 31
2001; the Power Sales Contract with Douglas County PUD dated September 18, 1963; the Power
Appendix A
PacifiCorp
Exhibit No. 19 Page 19 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
Sales Contract with Chelan County PUD dated November 14, 1957 and all successor contracts
thereto.
Net Power Costs" means PacifiCorp s fuel and wheeling expenses and costs and
revenues associated with Wholesale Contracts, Seasonal Contracts, Short-Term Purchases and
Sales and Non-Firm Purchases and Sales.
New QF Contracts" means Qualifying Facility Contracts that are not Existing QF
Contracts.
New Resources" means Resources that are not Existing Resources as established
pursuant to Paragraph XA2 of the Protocol.
Non-Firm Purchases and Sales" means transactions at wholesale that are not
Wholesale Contracts, Seasonal Contracts, Short-Term Purchases and Sales or Direct Access
Purchases and Sales.
Portfolio Standard" means a State law or regulation that requires PacifiCorp to
acquire: (a) a particular type of Resource, (b) a particular quantity of Resources, (c) Resources
in a prescribed manner or (d) Resources located in a particular geographic area.
Protocol" means this PacifiCorp Inter-Jurisdictional Cost Allocation Protocol.
Qualifying Facility Contracts" means contracts to purchase the output of small power
production or cogeneration facilities developed under the Public Utility Regulatory Policies Act
of 1978 (PURP A) and related State laws and regulations.
Resources" means Company-owned and leased generating plants and mines, Wholesale
Contracts, Seasonal Contracts, Short-Term Purchases and Sales and Non-firm Purchases and
Sales.
Seasonal Contract" means a Wholesale Contract pursuant to which the Company
acquires power for five or less months during more than one year.
Seasonal Resource" means: (a) a SCCT owned or leased by the Company, (b) any
Seasonal Contract or c) Cholla Unit 4.
Appendix A
PacifiCorp
Exhibit No. 19 Page 20 of 20
Case No. PAC-02-
Witness: Andrea L. Kelly
Short- Term Purchases and Sales" means physical or financial contracts pursuant to
which PacifiCorp purchases, sells or exchanges firm power at wholesale and Customer Ancillary
Service Contracts that are less than one year in duration.
Simple-Cycle Combustion Turbines" or "SCCTs" means simple-cycle combustion
turbine generating units.
Special Contract" means a contract entered between Pacifi Corp s and one of its retail
customers with prices, term and conditions different from otherwise-applicable tariff rates.
Special Contracts may provide for a discount to reflect Customer Ancillary Services Contract
attributes.
Special Contract Ancillary Service Discounts" means discounts from otherwise
applicable rates provided for in Special Contracts.
Standing Neutral" means an independent party, with experience in electric utility
ratemaking, retained by the MSP Standing Committee to facilitate discussions among States
monitor issues and assist the MSP Standing Committee as required.
State Resources" means Resources whose costs are assigned to a single State to
accommodate State-specific policy preferences.
System Resources" means Resources that are not Seasonal Resources, Regional
Resources, State Resources or Direct Access Purchases and Sales and whose associated costs and
revenues are allocated among all States on a dynamic basis.
State" means Utah, Oregon, Wyoming, Idaho, Washington or California.
Variable Costs" means costs incurred by the Company that vary with the amount of
energy delivered by the Company to its customers during any hour.
Wholesale Contracts" means physical or financial contracts pursuant to which
PacifiCorp purchases, sells or exchanges firm power at wholesale and Customer Ancillary
Service Contracts that have a term of one year or longer.
Appendix A