20041227Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:DECEMBER 17, 2004
SUBJECT:CASE NO. PAC-02-3 (PacifiCorp)
INTER-JURISDICTIONAL COST ALLOCATION METHODOLOGY
STIPULATION, AGREEMENT AND PROPOSED SETTLEMENT
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. PAC-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 9 61-505) and established
initial MSP scheduling (Idaho Code 9 61-501).
On September 30, 2003 , PacifiCorp filed a Motion, direct testimony and exhibits in
Case No. P AC-02-3 seeking Commission ratification of an Inter-jurisdictional Cost Allocation
Protocol (Protocol).
On July 14, 2004, PacifiCorp filed a Revised Protocol and Supplemental Testimony
in Case No. PAC-02-3. The Revised Protocol is the culmination of an extended series of joint
multi-state process (MSP) meetings, technical workshops and telephone conferences for
analyzing PacifiCorp s inter-jurisdictional cost allocation issues. MSP meetings were attended
by representatives of some 18 entities from the 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
DECISION MEMORANDUM
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 seasonally specific 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.
On November 4, 2004, PacifiCorp and Commission Staff filed a Joint Motion in Case
No. PAC-02-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
DECISION MEMORANDUM
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
P acifi Corp.
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 higher revenue requirement of 2% or more to Idaho than under Rolled-, an alternate
allocation methodology that Idaho Staff would favor in the absence of agreement to the Revised
Protocol. The Stipulation limits the increase to 1.67% in the next rate case with no further
percentage increase through March 31 , 2009. 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 s 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 a Notice of Stipulation and
Agreement, Joint Motion for Acceptance of Settlement and Modified Procedure in Case No.
PAC-02-3. The comment deadline for stipulating parties and parties of record was November
, 2004. The comment deadline for the public was December 6 2004. The Commission Staff
and PacifiCorp were the only parties to file comments. (See attached.
DECISION MEMORANDUM
PacifiCorp recommends that the Commission find the Stipulation to be in the public
interest, accept the Settlement of the parties and ratify the Revised Protocol. Staff recommends
adoption of the Revised Protocol allocation methodology and acceptance of the Stipulation terms
as filed. The analyses of Staff and PacifiCorp are set forth in their respective comments.
COMMISSION DECISION
The Stipulation and Agreement and proposed Settlement of inter-jurisdictional cost
allocation issues in this case were entered into only after extensive MSP meetings and
opportunity for public input. The Commission is advised that the Revised Protocol under
consideration has already been approved by the Utah and Wyoming Commissions. The parties
to the proposed Settlement recommend acceptance of the Revised Protocol allocation
methodology and Stipulation terms. The stipulating parties contend that the Settlement is
reasonable, in the public interest and otherwise in accordance with law or regulatory policy.
(IDAP A 31.01.01.275.This matter was processed pursuant to Modified Procedure, i.e., by
written submission rather than by hearing. Does the Commission in its consideration of the
proposed Settlement continue to find Modified Procedure to be appropriate? (IDAP
31.01.01.274; 31.01.01.204.) Does the Commission find it reasonable to approve the Revised
Protocol allocation methodology and Stipulation terms as filed?
Scott D. Woodbury
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DECISION MEMORANDUM
JAMES F. FELL (ISB NO. 2274)
STOEL RIVES LLP
SUITE 2600
900 SW FIFTH AVENUE
PORTLAND, OR 97204
TEL: [phone]
FAX: [phone]
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Of Attorneys for PacifiCorp d/b/a
Utah Power & Light Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Investigation of
Inter-Jurisdictional Issues Affecting
PacifiCorp d/b/a Utah Power & LightCompany CASE NO. PAC-O2-
ACIFICORP COMMENTS IN
SUPPORT OF JOINT MOTION FOR
ACCEPTANCE OF SETTLEMENT
PacifiCorp (or the "Company ), the Staff of the Idaho Public Utilities Commission
(the "Commission ), Monsanto Company, and AARP have entered into a stipulation and
agreement (the "Stipulation ) pursuant to which they agreed, subject to the terms of the
Stipulation, to support Commission ratification of the Revised PacifiCorp Inter-Jurisdictional
Allocation Protocol (the "Revised Protocol") in this docket. The Stipulation and the Joint
Motion ofPacifiCorp and Staff for Acceptance ofSettlement were filed with the Commission
November 4 2004. A copy of the Revised Protocol was included as Exhibit A to the Stipulation.
Through these Comments, PacifiCorp urges the Commission to accept the Stipulation and
ratify the Revised Protocol.
BACKGROUND OF MSP
The Stipulation represents the culmination of PacifiCorp' s four-year quest to resolve a
number of longstanding issues arising from its status as a multi-state utility subject to the
jurisdiction of six regulatory commissions.
ACIFICORP COMMENTS IN SUPPORT OF JOINT MOTION FOR ACCEPTANCE OF
SETTLEMENT -
Portlnd3-1498791.20050394-00008
In December 2000, through a series of "SRP" filings, the Company proposed to
reorganize itself into six state distribution companies, a generation company and service
company. The SRP filings proved controversial-in large measure because of a concern that the
proposed restructuring would result in a loss of jurisdiction from state regulatory commissions to
the Federal Energy Regulatory Commission and the Securities and Exchange Commission.
Ultimately, a number of parties and some state commissioners suggested that the Company seek
other means of resolving inter-jurisdictional issues that did not require a legal restructuring of the
Company. The Company was strongly encouraged to initiate an informal process aimed at
achieving consensus among interested parties regarding these issues. To that end, in March
2002, the Company made an additional set of filings requesting that the Company s state
commissions initiate investigations and endorse a collaborative process to address inter-
jurisdictional issues facing PacifiCorp. These filings were broadly supported by the Company
state commissions, including the Idaho Commission in opening this docket, and gave rise to what
became known as the Multi-State Process or "MSP.
The Company had three fundamental objectives with respect to the MSP:
To establish inter-jurisdictional cost allocation mechanisms that would permit it to
continue to plan and operate its generation and transmission system on an integrated basis
To establish uniform inter-jurisdictional cost allocation methods among its six
jurisdictions that would provide it with a reasonable opportunity to earn a return on future
investments in generation and transmission facilities and
To preserve the ability of each of its jurisdictions to implement individual state
energy policies in a manner that does not unreasonably burden customers in other jurisdictions.
A number ofMSP meetings were held commencing in April 2002. All of the major
meetings were attended in person by in excess of 50 individuals representing some 18 entities
from the states of Oregon, Utah, Wyoming, Washington, and Idaho. Participants included
representatives of state policy staffs, advocacy staffs, industrial customers and consumer groups.
ACIFICORP COMMENTS IN SUPPORT OF JOINT MOTION FOR ACCEPTANCE OF
SETTLEMENT - 2
Portlnd3-1498791.20050394-O0008
A number of other people participated by telephone. Additionally, the Company participated in
a number of separate meetings with representatives from individual states or groups of states and
conducted various technical workshops. More formal hearings were conducted in some states to
review MSP progress. There were weekly telephone conferences and e-mail exchanges. There
was a dedicated web site for information sharing. Throughout the process, the Company
responded to a large number of formal and informal data requests from the parties.
The last large-group MSP meeting occurred in July 2003. At that time, the Company was
encouraged to take the analytical results of the MSP and all of the parties ' views into
consideration and develop a proposal that was most responsive. Accordingly, in September
2003 , the Company filed a proposed PacifiCorp Inter-Jurisdictional Cost Allocation Protocol
(the "Protocol") with the Oregon, Wyoming, and Idaho Commissions. These filings were
supported by substantial testimony and analyses.
Following those filings, additional discussions ensued with parties in Oregon and Utah
resulting in the Revised Protocol, which was filed with the Commission on July 15, 2004.
Since the filing of the Revised Protocol, in addition to the Idaho Stipulation
, "
all party
stipulations have been entered into in Utah and Wyoming and a stipulation has been entered into
with all parties to the Oregon proceedings other than the Industrial Customers of Northwest
Utilities. The Company is awaiting decisions from the Oregon and Utah Commissions. The
Wyoming Commission issued an order on October 19, 2004 accepting the Wyoming stipulation
and ratifying the Revised Protocol.
THE STIPULATION IS IN THE PUBLIC INTEREST
Idaho parties were active and highly constructive participants in the MSP. Idaho parties
recognized from the beginning of the MSP that reaching a resolution to the inter-jurisdictional
cost allocation issues confronting PacifiCorp was important for both the Company and its
customers. Absent a resolution of those issues, there was a significant risk that the Company
ACIFICORP COMMENTS IN SUPPORT OF JOINT MOTION FOR ACCEPTANCE OF
SETTLEMENT - 3
Portlnd3-1498791.20050394-00008
concerns about its ability to recover its prudently-incUlTed costs associated with new generation
resources would cause it to refrain from making long-tenn resource investments that would
minimize costs to customers. Also, absent a resolution of those issues, there was a risk that
policy initiatives undertaken in one state (for example, direct access legislation in Oregon) could
unreasonably burden PacifiCorp s customers in other states.
The Revised Protocol, if ratified by all ofPacifiCorp s state commissions, will establish
unifonn policies in respect to a number of critical issues. These include:
How the costs of new resources will be allocated among states.
How the costs of resources built to serve seasonal load will be allocated.
How the costs of Qualifying Facilities will be assigned.
How the consequences of direct access will be isolated to the state adopting the
program.
How the costs and benefits of special contracts with large industrial customers
will be allocated among states.
How the Northwest states' claim to a special entitlement to hydroelectric
resources will be recognized.
In addition, the Revised Protocol 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 emerging inter-jurisdictional issues. Meetings of the MSP
Standing Committee are to be open to all interested parties. Those meetings are expected to
assist in maintaining an ongoing consensus among PacifiCorp s states regarding inter-
jurisdictional issues, thereby preserving the accomplishments of the MSP.
Idaho parties concluded that the provisions of the Revised Protocol represented a
reasonable balance of the concerns raised by MSP participants and were generally supportive of
it. However, they observed that an unintended consequence of the Revised Protocol was that it
ACIFICORP COMMENTS IN SUPPORT OF JOINT MOTION FOR ACCEPTANCE OF
SETTLEMENT - 4
Portlnd3-1498791.2 0050394-00008
appeared to result in a higher Idaho revenue requirement in the early years of its operation
compared to the use of other allocation methods. Although the Revised Protocol is expected to
result in a lower Idaho revenue requirement in later years, Idaho parties nonetheless concluded
that it was critical that the expected near-term Idaho customer impacts be mitigated. 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-" method.
Therefore, as a result of the Stipulation, Idaho customers obtain the benefits arising from
the resolution ofMSP issues, while being insulated from any major near-term rate impacts
associated with it.
Idaho parties also recognized that circumstances might change such that it might not be
sensible for them to continue to support the Revised Protocol. Accordingly, the Stipulation
provides that if the results of using the Revised Protocol materially depart from PacifiCorp
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.
For the foregoing reasons, the Commission should find that the Stipulation is in the
public interest, accept the settlement of the parties and ratify the Revised Protocol.
Respectfully submitted this 17th day of November 2004.
STOEL RIVES LLP
Of Attorneys for PacifiCorp
PACIFICORP COMMENTS 1N SUPPORT OF JOINT MOTION FOR ACCEPTANCE OF
SETTLEMENT - 5
Portlnd3-1498791.2 0050394-00008
CERTIFICATE OF SERVICE
I hereby certify that I served the foregoing PacifiCorp Comments in Support of Joint
Motion for Acceptance of Settlement on the following named person(s) on the date indicated
below by
I!I mailing with postage prepaid
hand delivery
facsimile transmission
overnight delivery
to said person( s) a true copy thereof, contained in a sealed envelope, addressed to said person( s)
at his or her last-known addressees) indicated below.
Randall C. Budge
Racine Olson Nye Budge & Bailey
PO Box 1391
Pocatello, ill 83204-1391
Eric L. Olsen
Racine Olson Nye Budge & Bailey
PO Box 1391
Pocatello, ill 83204-1391
Sue Rolfe
Andrea Kelly
PacifiCorp
825 NE Multnomah
Portland, OR 97232
DATED: November 17, 2004.
CERTIFICATE OF SERVICE -
Portlnd3-1499744.1 0050394-00008
James R. Smith
Monsanto Company
PO Box 816
Soda Springs, ill 83276
Anthony J. Yanke
29814 Lake Road
Bay Village, OH 44140
Of Attorneys for PacifiCorp d/b/a Utah Power &
Light Company
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~k 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 A
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 9 61-505) and established
initial MSP scheduling (Idaho Code 9 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
STAFF 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.e., Oregon, Washington, California and part of
Wyoming), to those jurisdictions. The embedded cost differential adjustment adopted by the
Revised Protocol is based upon full (Le., 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 (SO) 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 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 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 fonnally 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
STAFF 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 ;;J~f'day of November 2004.
Scott Woodbury
Deputy Attorney General
Technical Staff: Terri Carlock
i :umisc :comments/paceO2.3swtc
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 STAFF, IN
CASE NO. PAC-02-, BY MAILING A COpy THEREOF POSTAGE PREPAID, TO
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 KELLY
DIRECTOR REGULATION
ACIFICORP
825 NE MUL TNOMAH
PORTLAND OR 97232
JAMES R SMITH
MONSANTO COMPANY
PO BOX 816
SODA SPRINGS ill 83276
RANDALL C. BUDGE
RACINE OLSON NYE BUDGE & BAILEY
PO BOX 1391
POCATELLO ill 83204-1391
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
ERIC L OLSEN
RACINE OLSON NYE BUDGE & BAILEY
PO BOX 1391
POCATELLO ill 83204-1391
SEc
CERTIFICATE OF SERVICE