20041129Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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-O2-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Stipulation and Agreement, Notice of Joint Motion for Acceptance of Settlement, Notice of
Modified Procedure and Notice of Comment /Protest Deadline issued on November 9 2004
submits the following comments.
BACKGROUND
The PacifiCorp Inter-jurisdictional Ta-sk Force on Allocations (PIT A) was formed as a
result of the merger of Utah Power and Light Company and Pacific Power and Light Company.
The PIT A process began in 1987 with the intent to develop an agreed upon allocation
methodology and included representatives from the various states and the Company. Several
allocation methods were agreed upon for interim use and modified when unfair results occurred.
As different allocation methods were adopted for ratemaking purposes in various states
STAFF COMMENTS NOVEMBER 23, 2004
PacifiCorp no longer had the opportunity to fully recover its costs. The largest shortfall was
created when the two largest state jurisdictions, Utah and Oregon, adopted different
methodologies. The Utah order in 1998 moved to a fully Rolled-In allocation method
(Rolled- In) that was different than the methodology adopted in Oregon. The collaborative PIT
process was no longer working.
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.
By Order No. 28978 in Case No. P AC-02-, 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 November 4 2004, PacifiCorp and Commission Staff filed a Joint Motion in Case
No. P AC-02-3 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 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.
REVISED PROTOCOL ANALYSIS
The Revised Protocol is the allocation method proposed for adoption in all state
jurisdictions to allocate and assign generation, transmission and distribution costs to PacifiCorp
six retail state jurisdictions. PacifiCorp will continue to plan and operate its system on a six-state
integrated basis to achieve a least cost, least risk resource portfolio for its customers. The
ST AFF COMMENTS NOVEMBER 23, 2004
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 method is essentially a dYnamic allocation method incorporating the majority of
components of a Rolled-In methodology with a few key exceptions: treatment of seasonal
resources, treatment of Company-owned hydro resources, treatment of the Mid-Columbia hydro
contracts, 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 75% 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: seasonal resources, regional
resources, state resources and system resources. Seasonal resources are defined as SCCTs
seasonal contracts and Cholla/ APS. 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 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., 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), which 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
STAFF COMMENTS NOVEMBER 23, 2004
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
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 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
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 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. An issue that could be heard in a rate case 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
STAFF COMMENTS NOVEMBER 23 , 2004
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.
To facilitate ongoing communications between the various states regulating PacifiCorp
and to address any unreasonable results produced from allocations using the Revised Protocol
allocation methodology, an MSP Standing Committee will be formed. The Standing Committee
will consist of one member or delegate from each Commission. The members will elect the
chair of the MSP Standing Committee each year. A Standing Neutral will be hired at the
Company s expense to facilitate discussions among States, monitor issues and assist the MSP
Standing Committee. Any proposed amendments to the Revised Protocol 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 for workgroups to 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 the other
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. In those states where it has not been formally adopted by order
the process is underway with the decisions to be forthcoming. A verbal update on the status in
other states will be provided when this matter comes before the Commission for decision.
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
STAFF COMMENTS NOVEMBER 23 , 2004
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. PacifiCorp indicates it intends to file a rate case
around January 2005. To mitigate the rate impacts, the parties have 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 ofPacifiCorp s Idaho revenue requirement calculated under the Rolled-
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-
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 will notify parties to this Stipulation in a timely manner of such
submittals and will provide a copy of such submittals to the undersigned parties upon request.
RECOMMENDATION
Staff recommends adoption of the Revised Protocol allocation methodology and
acceptance of the Stipulation terms as filed. Acceptance and adoption of both resolves the inter-
jurisdictional allocation issues. Such resolution is important to PacifiCorp and its customers.
Customers will benefit by eliminating or at least reducing the potential for negative decision
ST AFF COMMENTS NOVEMBER 23 , 2004
making by the Company or negative impacts on PacifiCorp. Potential impacts of inconsistent
allocation methodologies adopted in various states could have included:
loss ofPacifiCorp 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 FERC or the 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.
Respectfully submitted this d~('day of November 2004.
Scott Woodbury
Deputy Attorney General
Technical Staff: Terri Carlock
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STAFF COMMENTS NOVEMBER 23, 2004
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 23RD DAY OF NOVEMBER 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION ST AFF, IN
CASE NO. PAC-02-, BY MAILING A COpy THEREOF POSTAGE PREPAID
THE FOLLOWING:
SUE ROLFEE
MSP ADMINISTRATIVE COORDINATOR
825 NE MUL TNOMAH, SUITE 300
PORTLAND, OR 97232
JAMES F FELL
STOEL RIVES LLP
900 SW 5TH AVE
PORTLAND OR 97204
ANDREA KELL Y
DIRECTOR REGULATION
ACIFICORP
825 NE MUL TNOMAH
PORTLAND OR 97232
JAMES R SMITH
MONSANTO COMPANY
PO BOX 816
SODA SPRINGS ID 83276
RANDALL C. BUDGE
RACINE OLSON NYE BUDGE & BAILEY
PO BOX 1391
POCATELLO ID 83204-1391
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
ERIC L OLSEN
RACINE OLSON NYE BUDGE & BAILEY
PO BOX 1391
POCATELLO ID 83204-1391
SEc
CERTIFICATE OF SERVICE