20050228Final Order No 29708.pdf

Office of the Secretary
Service Date
February 28, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
OF INTER-JURISDICTIONAL ISSUES
AFFECTING P ACIFICORP DBA UTAH POWER & LIGHT COMPANY
CASE NO. P AC-02-
ORDER NO. 29708
On March 5, 2002, PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) petitioned the Idaho Public Utilities Commission (Commission) to initiate an
investigation of inter-jurisdictional issues affecting the Company as a consequence of its status
as a multi-jurisdictional utility subject to the jurisdiction of six state regulatory Commissions.
As a result of different cost allocation methods adopted for ratemaking purposes in
the Company s various states of operation, PacifiCorp maintains that it is no longer being
provided the opportunity to fully recover its costs. By Order No. 28978, the Commission
established a docket for investigation, established an intervention deadline and approved a joint
Multi-State Process (MSP) for analyzing PacifiCorp inter-jurisdictional issues (Idaho Code ~ 61-
505) and established initial MSP scheduling (Idaho Code ~ 61-501).
On September 30, 2003, PacifiCorp filed a Motion, direct testimony and exhibits
seeking Commission ratification of an Inter-jurisdictional Cost Allocation Method - Protocol
(Protocol). On July 14, 2004, PacifiCorp filed a Revised Protocol and Supplemental Testimony.
On November 4, 2004, PacifiCorp and Commission Staff filed a Joint Motion requesting
acceptance and Commission approval of a Stipulation and Agreement (Stipulation) negotiated by
PacifiCorp, Staff, Monsanto Company, and AARP as full settlement of the inter-jurisdictional
cost allocation issues affecting PacifiCorp. Reference IDAP A 31.01.01.272-276. The
Commission in this Order approves the Revised Protocol and the negotiated terms of the
settlement.
Inter-Jurisdictional Cost Allocation Method - Revised Protocol
The Revised Protocol (PacifiCorp Supplemental Testimony, Exhibits 19-25) is the
culmination of an extended series of joint multi-state process (MSP) meetings, technical
workshops and telephone conferences that analyzed PacifiCorp inter-jurisdictional cost
allocation issues. MSP meetings were attended by representatives of some 18 entities from the
ORDER NO. 29708
states of Utah, Oregon, Wyoming, Washington and Idaho. Participants included representatives
of state commission policy staffs, advocacy staffs, individual customers and consumer groups.
The Company s filing in Idaho is identical to contemporaneous filings made with the regulatory
commissions in Utah Oregon and Wyoming. In Washington, PacifiCorp filed the Revised
Protocol as part of the Company s rate case in that state.
The Revised Protocol filed by PacifiCorp is the Company s "MSP solution." The
Revised Protocol describes how PacifiCorp s generation, transmission and distribution costs will
be allocated or assigned to PacifiCorp s six retail jurisdictions. The Revised Protocol also
describes mechanisms for ensuring continued dialogue among interested parties regarding
PacifiCorp inter-jurisdictional cost allocation issues and procedures, and for resolving concerns
and inconsistent policies that may arise among the Company s state jurisdictions in the future.
PacifiCorp anticipates that ratification of the Revised Protocol will resolve current
differences among PacifiCorp s retail jurisdictions concerning needed new resources and cost
allocation methods. PacifiCorp contends that ratification will provide the Company assurance
that it will have a reasonable opportunity to recover prudent investments in new generation and
transmission facilities and required improvements to existing facilities. This, in turn, it states
will ensure that the Company s customers continue to receive safe and reliable electricity service
at reasonable prices.
Key elements of the Revised Protocol are: a hydro endowment reflecting the cost
difference of hydro-electric resources and certain contracts attributed to the former Pacific Power
and Light states; an assignment recognizing the cost difference of state-specific qualifying
facilities; and an allocation for specific seasonal resources. All other resources will continue to
be allocated based on the peak and energy requirements of each state on the integrated system.
In addition, the Revised Protocol addresses treatment of a number of items and
potential situations including: (i) refunctionalization and allocation of transmission costs and
revenues, (ii) treatment of the costs of special contracts, (iii) means of accounting for and
accommodating state specific policies, such as direct access, and (iv) the process and
infrastructure for resolving issues in order to further secure the sustainability of the allocation
methodology in the future.
The Revised Protocol method is essentially a dynamic allocation method
incorporating the majority of components of a Rolled-In methodology (all systemwide
ORDER NO. 29708
allocations) with a few key exceptions: treatment of seasonal resources, treatment of Company-
owned hydro resources, treatment of the Mid-Columbia hydro c9ntracts, and treatment of
Qualifying Facilities (QFs).
The classification of all resource fixed costs wholesale contracts and short-term
purchases and sales will continue to be classified as 75010 demand-related and 25% energy-
related. All non-firm purchases and sales will be classified as 100% energy-related.
The allocations of resources consist of four categories: (1) seasonal resources, (2)
regional resources, (3) state resources and (4) system resources. Seasonal resources are defined
as single cycle combustion turbines (SCCTs), seasonal contracts and the Chollal APS exchange.
The cost of seasonal resources primarily used during high load peak seasons will be more
heavily allocated to the jurisdictions using the resource in those peak months by matching the
seasonal generation patterns to the seasonal load patterns in each state.
Regional resources consist of Company-owned hydro and a portion of the Mid-
Columbia contracts. These costs will be assigned and allocated using an embedded cost
differential adjustment calculated as the difference between the cost per kilowatt-hour on
hydroelectric resources and the cost per kilowatt-hour for other resources. The Hydro
Endowment was designed to assign the majority of Company-owned hydro resources, originally
owned primarily by the former Pacific Power and Light (PP &L) territory (i., Oregon
Washington, California and part of Wyoming), to those jurisdictions. The embedded cost
differential adjustment adopted by the Revised Protocol is based upon full (i.e., fixed plus
variable) costs, not just the fuel costs. This is different from the Modified Accord allocation
approach (the previous consensus method adopted by various states) that utilized a fuel
adjustment mechanism to allocate hydro resources to the PP &L states. Also, unlike Modified
Accord, this endowment" has no predetermined time frame and will continue beyond the time
when hydro re-licensing costs exceed the fuel cost savings. For Mid-Columbia contracts, the
embedded cost differential is allocated system-wide using factors that provide a larger share to
Oregon and Washington than would otherwise be provided under system allocation factors.
State resources currently include demand side management (DSM) programs, state
portfolio standards, and PURP A qualifying facility (QF) contracts. DSM costs will be assigned
on a situs basis to the state where the investment is made. Benefits from these programs will
accrue to the respective states in the form of reduced consumption and load based dynamic
ORDER NO. 29708
allocation factors. Costs associated with resources acquired under a state portfolio standard that
exceed the costs that otherwise would have been incurred by PacifiCorp will be assigned to the
state adopting the standard. Existing QF contracts will be assigned using the embedded cost
differential adjustment. The differential is the annual cost of existing QF contracts for each state
less the annual embedded costs. The differential will be assigned on a situs basis with the
remainder allocated on the system generation (SG) factor. New QF contracts will be treated like
state portfolio standard resources with any excess costs assigned to the respective states.
System resources are all the remaining resources not categorized as seasonal
regional or state resources. The majority of all resources are system resources. Generally, all
fixed costs associated with system resources will be allocated on the SG factor, variable costs
will be allocated on the system energy (SE) factor, and any wholesale revenues will be allocated
on the SG factor.
Costs associated with transmission assets, firm wheeling expenses and revenues will
be classified as 75% demand-related and 25% energy-related. They will be allocated among the
states based on the SE factor. This allocation is consistent with Rolled-In where all plant is
allocated system wide but differs from Modified Accord where pre-merger plant is assigned
divisionally and post-merger plant is allocated system wide.
Distribution related expenses and investments that can be directly assigned would be
assigned to the state where they are located. Costs that cannot be directly assigned will be
allocated among the states. The majority of all distribution costs will be directly assigned.
Special Contracts will be treated differently from the prior allocation method for
Monsanto in Idaho where Monsanto was accounted for on a system basis. Appendix D of the
Revised Protocol discusses Special Contracts in greater detail. Revenues associated with the
Special Contract will be included in the state revenues and loads of the Special Contract
customers and will be included in all load-based dynamic allocation factors to allocate costs.
Any rate discounts allowed for Special Contract customer-provided ancillary services, including
reserves provided by interruptibility, would be allocated to the system to match the system
benefits received from the ancillary services.
Stipulation and Agreement - Proposed Settlement
On November 4, 2004, PacifiCorp and Commission Staff filed Joint Motion
requesting acceptance and Commission approval ofa Stipulation and Agreement (Stipulation)
ORDER NO. 29708
negotiated by PacifiCorp, Staff, Monsanto Company, and AARP as full settlement of the inter-
jurisdictional cost allocation issues affecting PacifiCorp as a consequence of its status as a multi-
jurisdictional utility subject to the jurisdiction of six state regulatory Commissions.The
stipulating parties request Commission approval of the inter-jurisdictional cost allocation
methods embodied in the Revised Protocol filed with the Commission on July 14, 2004, as a
means of achieving consistent allocation methods in the jurisdictional states served by
PacifiCorp.
Public workshops for PacifiCorp customers in eastern Idaho were held in Preston on
October 4, 2004 and in Rexburg on October 5, 2004. At the workshops Commission Staff
presented a summary of the Company s Petition, MSP, Revised Protocol and discussed its
participation in settlement negotiations.
Included in the Stipulation are rate mitigation measures intended to apply to
calculations of the Company s Idaho revenue requirement for any PacifiCorp rate filing made
through March 31 , 2009. In the near term through 2008, the Revised Protocol methodology
results in a 2% higher revenue requirement to Idaho than under Rolled-, an alternate allocation
methodology that Idaho Staff would favor in- the absence of agreement to the Revised Protocol.
The results to Idaho beyond 2008 are more favorable because future hydro relicensing costs will
be assigned directly to the Pacific Power & Light states, primarily Washington and Oregon. In
addition, Idaho customers will continue to benefit from the efficiencies of PacifiCorp
integrated six state system while PacifiCorp will be provided greater certainty for a recovery of
its prudently incurred costs.
The stipulating parties agree that the Stipulation and rate mitigation mechanism is in
the public interest and that all of the terms of the Stipulation are fair, just and reasonable. The
parties recommend that the Commission approve use in Idaho by PacifiCorp of the Revised
Protocol methodology and rate mitigation mechanism for purposes of inter-jurisdictional
allocation of the Company costs and Idaho results of operations in future regulatory
proceedings.
On November 9, 2004, the Commission issued Notices of Stipulation and Agreement
Joint Motion for Acceptance of Settlement and Modified Procedure. The deadline for filing
written comments for stipulating parties and parties of record was November 23 , 2004. The
ORDER NO. 29708
deadline for filing . written comments or protests by the public was
PacifiCorp and Commission Staff were the only parties to file comments.
PacifiCorp Comments
PacifiCorp urges the Commission to accept the Stipulation and ratify the Revised
Protocol. The Company contends that the Stipulation is in the public interest and if ratified by
all of PacifiCorp s State Commissions will establish uniform policies in respect to the following
December 6, 2004.
critical issues:
1. How the costs of new resources will be allocated among states;
2. How the costs of resources built to serve seasonal load will be allocated;
3. How the costs of QFs will be assigned;
4. How the consequences of direct access will be isolated to the state
adopting the program;
5. How the costs and benefits of special contracts with large industrial
customers will be allocated among states; and
6. How the Northwest states' claim to a special entitlement to hydroelectric
resources will be recognized.
The Revised Protocol, PacifiCorp states, provides for the establishment of an "MSP
Standing Committee" consisting of State commissioners or their delegates. The MSP Standing
Committee will oversee continuing analytical efforts associated with inter-jurisdictional issues
(such as the consequences of disproportionate load growth among States) and serve as a forum
for the parties to discuss and hopefully resolve any emerging inter-jurisdictional issues.
Meetings of the MSP Standing Committee, the Company states, are to be open to all interested
parties. The Company expects that those meetings will assist in maintaining an ongoing
consensus among the states in which it operates regarding inter-jurisdictional issues, thereby
preserving the accomplishments of the MSP.
Addressing the observed consequence of the Revised Protocol that the Idaho revenue
requirement is higher in the early years of its operation compared to the use of other allocation
methods, the Company notes that the filed Stipulation includes a provision mitigating the
expected near-term Idaho customer impacts. To that end, the Stipulation provides that until
March 31 , 2009, the Company s use of the Revised Protocol will not result in rates in Idaho that
exceed 101.67 percent of the amount that would result from use of the Rolled-In method. As a
result of the Stipulation, PacifiCorp contends that Idaho customers obtain the benefits arising
ORDER NO. 29708
from the resolution of MSP issues, while being insulated from any major near-term rate impacts
associated with it.
As an additional reason for approving the Stipulation, PacifiCorp notes that it was
recognized by Idaho parties that circumstances might change such that it might not be sensible
for them to continue to support the Revised Protocol. Accordingly, the Company notes that the
Stipulation provides that if the results of using the Revised Protocol materially depart from
PacifiCorp s current projections, or otherwise produce results that are not just, reasonable, and in
the public interest, any party may propose amendments to the Revised Protocol or propose that
the Commission depart from its terms.
Staff Comments
Revised Protocol Analysis
Commission Staff recommends adoption of the Revised Protocol allocation
methodology and acceptance of the Stipulation terms as filed. Acceptance and adoption of both
Staff contends, resolves the inter-jurisdictional allocation issues. Such resolution, it states, is
important to PacifiCorp and its customers. Customers will benefit by eliminating or at least
reducing the potential for negative decision-making by the Company or negative impacts on
PacifiCorp. Potential impacts of inconsistent allocation methodologies adopted in various states
Staff contends, could have included:
Loss of PacifiCorp s financial integrity with associated cost of capital
impacts;
Loss of efficiencies or reliability if investments and operation and
maintenance expenditures are reduced;
Limitation of individual state s ability to implement policy goals;
Potential loss of states ' jurisdiction to Federal Energy Regulatory
Commission (FERC) or the Securities Exchange Commission (SEC) for
inter-jurisdictional allocation decisions;
Potential reluctance to make generation plant capital investments but to
instead rely on the spot market for power purchases;
Proposed changes to PacifiCorp s structure that may have caused costs to
be higher than they otherwise would have been;
Ability for PacifiCorp, state regulators and parties in each state to focus
on other important issues including but not limited to transmission issues
resource adequacy and service quality.
ORDER NO. 29708
An issue that could be heard in a rate case under the Revised Protocol methodology,
Staff notes, is the potential cost shifts to Idaho customers other than Monsanto when Monsanto
rates are fixed during the contract period. If the cost studies utilized for any rate case and
Monsanto s contract negotiations are the same, there will be no cost shift concerns. If the cost
studies are not the same, any shortfall that would ordinarily be allocated to Monsanto but left
uncovered by contract could become an issue. This shortfall due to the timing difference could
be absorbed by PacifiCorp or requested for recovery from other customers in a subsequent rate
case.
Any proposed amendments to the Revised Protocol, Staff notes, will be evaluated by
the MSP Standing Committee and presented to the State Commissions for ratification of any
proposed changes. If concerns and proposed amendments to the Revised Protocol cannot receive
consensus with resolution of the concerns, the matter may be presented to the various
Commissions. The MSP Standing Committee is not a decision making body. It will focus on
fact finding and issue identification with recommendations and results to be made available for
state Commissioners to make any necessary decisions.The first course of action for the
Standing Committee will be to form workgroups that will further evaluate the impacts of
Seasonal classifications and other load growth issues to verify that costs from growing loads are
appropriately charged to the growing state(s).
Final ratification of the Revised Protocol is conditioned upon ratification by all states
without material change. In the event of change, the Commissions who have previously
conditionally adopted the Revised Protocol can initiate proceedings to determine whether the
prior ratification will be reaffirmed. Stipulations have been filed in all states (except California)
accepting the use of the Revised Protocol as the allocation methodology for accounting purposes
and for the results of operations.
Stipulation Analysis
The Stipulation negotiated and signed by PacifiCorp, Commission Staff, Monsanto
and AARP recommends adoption of the Revised Protocol in Idaho. The Stipulation also
addresses concerns specific to Idaho and establishes rate mitigation measures to protect Idaho
customers from drastic rate impacts from the implementation of the Revised Protocol.
The Stipulation supports use of the Revised Protocol in the calculation of revenue
requirement in all future PacifiCorp rate filings. To mitigate the rate impacts, the parties have
ORDER NO. 29708
agreed to support implementation of the Revised Protocol now with a cap of 1.67% to be applied
to revenue requirement calculations for filings through March 31 , 2009. The rate mitigation cap
is calculated as the lesser of PacifiCorp s Idaho revenue requirement calculated under the
Rolled-In allocation method multiplied by 101.67% or the Idaho revenue requirement resulting
from the Revised Protocol allocation methodology. Absent the cap, rate increases could be
greater in various years where Revised Protocol has more costs allocated to Idaho than under the
Rolled-In or Modified Accord allocation methods. The cap level of 1.67% allows Idaho to adopt
the Revised Protocol, reflect the impact in the next rate case at 1.67% above Rolled-In and see
no further percentage increases due to the change in allocation methodology.
Reporting requirements have been established to allow Idaho parties to evaluate the
ongoing reasonableness of the Revised Protocol allocation methodology. For 10 years following
the Idaho Commission s ratification of the Revised Protocol: a) the Company s general rate case
filings with the Idaho Commission shall include calculations of the Company s Idaho revenue
requirement under both the Revised Protocol and the Rolled-In methods, and b) the Company
shall file annual results of operations with the Idaho Commission which shall include
calculations of the Company s Idaho allocated results of operations under both the Revised
Protocol and the Rolled-In methods. All such submittals shall include and adequately explain all
adjustments, assumptions, work papers and spreadsheet models used by the Company in making
such calculations. The Company agrees to notify parties to this Stipulation in a timely manner of
such submittals and will provide a copy of such submittals to the Stipulation parties upon
request.
COMMISSION FINDINGS
The Commission has reviewed the filings of record including the supplemental
testimony of PacifiCorp witnesses, the Revised Protocol, the submitted Stipulation and the
related comments and recommendations of PacifiCorp and Commission Staff. The Commission
continues to find it reasonable to process the Stipulation and Agreement and Joint Motion for
Acceptance of Settlement pursuant to Modified Procedure, i., by written submission rather than
by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204.
The Revised Protocol is the allocation method proposed to allocate and assign
generation, transmission and distribution costs to PacifiCorp s six retail state jurisdictions.
PacifiCorp will continue to plan and operate its system on a six-state integrated basis to achieve a
ORDER NO. 29708
least cost, least risk resource portfolio for its customers. The Revised Protocol does not prejudge
issues of prudence, rate spread, rate design or cost recovery. Each state Commission continues
to establish fair, just and reasonable rates.
The Commission recognizes the years of work the Revised Protocol represents and
thanks the parties to the Stipulation for their effort. The Commission notes that sooner or later a
merged company should be treated as one integrated company and not six separate jurisdictional
entities. We note of significance that the Company dispatches resources on a company or
system-wide basis. This method of resource utilization, we believe seemingly argues for a
Rolled- In approach as to allocation of costs.Recognizing, however, that there are some
perceived inequities of this approach on the west side of the Company s system, we find the
Revised Protocol methodology to be a reasonable and acceptable methodology. Our continued
acceptance of the Revised Protocol for ratemaking purposes, of course, assumes no significant
departure from Revised Protocol by other states in their future proceedings.
CONCLUSIONS OF LAW
The Commission has jurisdiction over PacifiCorp dba Utah Power & Light Company,
an electric utility, and the issues presented in Case No. P AC-02-3 pursuant to the authority and
power granted it under Title 61 of the Idaho Code and the Commission s Rules of Procedure
IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission does hereby approve the Revised
Protocol Inter-Jurisdictional Cost Allocation methodology for allocation of costs in Idaho rate
cases, subject to the terms of the filed Stipulation and Agreement.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
ORDER NO. 29708
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :l
day of February 2005.
RSHA H. SMITH, COMMISSIONER
ATTEST:
~Q Cf~iD. Jewell
C mmlSSlon Secretary
bls/O:P ACE0203 sw2
ORDER NO. 29708