20040212Application.pdf

James F. Fell
James C. Paine
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204-1268
(503) 294':9246
Idaho Public Utilities Commission
Office of the SecretaryRECEIVED
FEB 1 2 200~
Boise, Idaho
Attorneys for PacifiCorp
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Application of
P ACIFICORP for Exempt Wholesale
Generator Determinations Relating to
The Skookumchuck Hydroelectric Plant.
Case No. P4c."'E~tj~tI/
APPLICATION
PacifiCorp (or the "Company ) files this application with the Idaho Public Utilities
Commission (the "Commission ) pursuant to the provisions ofldaho Code ~ 61-501.
PacifiCorp has entered into an agreement to sell the Skookumchuck hydroelectric plant
(the "Skookumchuck Project") to 2677588 Washington LLC ("Washington LLC"), a limited
liability company formed by TransAlta USA Inc. ("TransAlta ). The Skookumchuck Project is a
small, 1 MW hydroelectric facility located in the vicinity of Centralia, Washington on property
adjacent to the Centralia Power Plant, a large coal-fired generating facility. Washington LLC
intends to operate the Skookumchuck Project as an exempt wholesale generator ("EWG") within
the meaning of section 32 ofthe Public Utility Holding Company Act of 1935 ("PUHCA"
PacifiCorp seeks a Commission Order making certain public interest findings required in
order for the Skookumchuck Project to qualify as an exempt facility and for Washington LLC to
qualify as an EWG under section 32 ofPUHCA1
1 Because the Skookumchuck Project is located in the State of Washington, Idaho
property transfer statute, Idaho Code 961-328, is not applicable to the contemplated sale.
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INTRODUCTION
Name and Address of Applicant
The full and correct name and business address of Applicant is:
PacifiCorp
825 NE Multnomah Boulevard
Portland, OR 97232
PacifiCorp requests that all notices, correspondence and pleadings with respect to this
Application be sent to:
For PacifiCorp:With a copy to :
Robert Lively
Manager, Regulation
PacifiCorp
201 South Main Street, Suite 2300
Salt Lake City, UT 84111
Telephone: [phone]
Facsimile: [phone]
E-mail: bob.1ively~pacificorp.com
James F. Fell
James C. Paine
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 87204
Telephone: [phone]
Facsimile: [phone]
E-mail: jffell~stoe1.com
Please also send electronic copies of data requests to datarequest~pacificorp.com.
Corporate Information
PacifiCorp was incorporated in the State of Oregon on August 11 , 1987. PacifiCorp is
authorized to transact business in the States ofldaho, Washington, Oregon, California, Utah and
Wyoming.
Description of Business
PacifiCorp is a public utility providing retail electric service to customers in the six
western states ofldaho, Washington, Oregon, California, Utah and Wyoming and wholesale
electric service throughout the Western United States.
Current Owners of Skookumchuck Dam and Hydroelectric Facility
The current owners ofthe Skookumchuck Project are: PacifiCorp; Public Utility District
No.1 ofSnohomish County, Washington; Puget Sound Energy, Inc.; City of Tacoma
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Washington; A vista Corporation; City of Seattle, Washington; and Public Utility District No.
of Grays Harbor County, Washington (collectively, the "Owners
Purchaser of the Dam and Hydroelectric Facility
Washington LLC is a Washington limited liability company and a direct wholly-owned
subsidiary of TransAlta. TransAlta is the indirect owner of the Centralia Power Plant and the
Centralia Coal Mine. In 2000, the Owners sold the Centralia Power Plant to a direct wholly-
owned subsidiary of TransAlta, TECW A Power Inc., and PacifiCorp sold the Centralia Coal
Mine to another direct wholly-owned subsidiary of TransAlta, TECW A Fuel Inc. TransAlta
Centralia Generation LLC, a direct wholly-owned subsidiary of TECW A Power Inc., owns and
operates the Centralia Power Plant as an EWG.
Skookumchuck Dam and Hydroelectric Facility
The Skookumchuck Project is an earth-fill dam and hydroelectric generating plant
located in the vicinity of Centra Ii a, Washington on property adjacent to the Centralia Power
Plant. The Skookumchuck dam was constructed in 1973 as a water storage facility for the
Centralia Power Plant. In 1991, a generating plant with a capacity of approximately one
megawatt was constructed at the dam. The Project was granted an exemption from licensing as a
hydropower facility by the Federal Energy Regulatory Commission ("FERC") pursuant to
16 U.c. ~2705(d), which allows exemptions for facilities less than 5 MW. The Project is
however, subject to dam safety regulation by the FERC.
II.SALE OF THE PROJECT
PacifiCorp proposes to sell and transfer to Washington LLC the dam, powerhouse, water
rights, land, easements and other assets of the Project, including certain fixtures, contracts and
other rights. The sale and transfer of the Project is governed by the Skookumchuck Facilities
Purchase and Sale Agreement between the Owners and Washington LLC, dated November 25
2003 (the "Sale Agreement"), which is attached as Exhibit No.1 to the prefiled direct testimony
of Randy A. Landolt.
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The aggregate sale price of the transaction is approximately $7.57 million, adjusted for
changes in PacifiCorp s Net Book Value of the Facilities from September 30 2003 to the
Closing Date. See Section 2.3(a) of the Sale Agreement. PacifiCorp s share of this amount is
47.5 percent. The sale price is determined in such a manner that PacifiCorp will receive its net
book value of the assets being transferred, with no appreciable gain or loss. Payment will be
made by wire transfer at closing.
PacifiCorp is informed that Washington LLC will continue operation of the Project to
provide cooling water supply to the Centralia Power Plant and that it will produce power from
the Project either as an EWG or as a qualifying facility under the Public Utility Regulatory
Policies Act of 1978. None of the electrical output of the Project will be used to serve
PacifiCorp s retail customers, except perhaps indirectly through the wholesale power markets.
III.JURISDICTION AND AUTHORITY
To qualify as an EWG, Washington LLC must be engaged exclusively in the business of
owning or operating an "eligible facility" and selling electric energy at wholesale. If the costs of
a generation facility were included in the rates of a regulated utility on October 24, 1992 (the
date of enactment of section 32 of PUHCA), then in order for the facility to be considered an
eligible facility," every state commission having jurisdiction over such rates must specifically
determine that allowing the facility to become an eligible facility (1) will benefit consumers
(2) is in the public interest, and (3) does not violate State law. 15 U.C. ~ 79z-5a(c). Thus, the
Commission and each ofPacifiCorp s other state regulatory commissions must make these
determinations regarding PacifiCorp s transfer of the Skookumchuck Project.
Compliance with State Law
Because the Project assets are located in the State of Washington, Idaho s property
transfer statute, Idaho Code ~ 61-328, is not applicable to the contemplated sale. Accordingly,
the sale of the Project to Washington LLC and allowing the generating facilities to become an
eligible facility will not violate Idaho State law.
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Benefits to Consumers
PacifiCorp proposes to transfer the Project to Washington LLC because a sale is a lower
cost option than continuing to invest in and operate and maintain the Project.
The Skookumchuck Project has an electrical capacity of 1 MW, but because the Project is
operated for purposes of supplying cooling water to the Centralia Power Plant, it has relatively
low energy output. Over the last eight years, the average annual production has been
000 megawatt-hours. The Project's bus bar cost in fiscal year 2003 (twelve months ending
March 31 , 2003) was approximately $250 per MWh. The facility is interconnected with the
distribution system ofPuget Sound Energy, Inc. ("PSE") and historically all of the power from
the Project has been sold to PSE.
As one of the Owners ofthe Project, PacifiCorp must pay its proportionate share of the
costs of the Project. The Company s analysis demonstrates that its customers will not be harmed
by the proposed transaction and will in fact benefit from it. To measure the impact on power
costs, the Company compared the forecast of future power costs to the cost of power generated
by the Project. While forecasts ofthe market price for power cannot predict the future with
certainty, the forecasts provide a reasonable framework to measure potential outcomes. Here
the forecasts predict that ratepayers will see lower costs if the Project is sold because the
projected cost of power from the Project substantially exceeds the projected cost of market
power. Moreover, the expected impact of the sale is to lower the Company s future revenue
requirement by removing the Project from the Company s rate base and revenue requirement.
The expected present value of the future reduction in Idaho revenue requirement is
approximately $700,000.
The proposed transaction eliminates the risk that PacifiCorp will be required to fund its
share of expenditures for ensuring the structural integrity ofthe Skookumchuck dam.
PacifiCorp s share of this investment is estimated to be $4 million. The benefits from the
proposed sale outweigh the risks of rising costs of continuing to own and operate the Proj ect.
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As shown by the Company s analysis, continued operation of the Project as a
hydroelectric project would be uneconomic, and such operation would not be in the public
interest. An alternative to the proposed sale would be discontinuing operation ofthe Project and
draining the reservoir created by the Skookumchuck dam, which would subject the Centralia
Power Plant to run-of-the-river operations. This alternative is likewise not in the public interest
as it would adversely impact the ability of the Centralia Power Plant, with over 1 300 MW of
generation capacity, to produce power.
Moreover, the sale will not harm the public interest because competitive markets will be
unaffected by the sale. It cannot reasonably be suggested that a 1 MW plant, with only
000 MWhs of annual production, could have a measurable impact on western electricity supply
or any impact on wholesale electricity prices.
The financial analysis and impact on customers of the sale are discussed in greater detail
in the prefiled testimony of Mr. Landolt and Mr. Johnson.
Public Interest Standard
The transfer of the Skookumchuck Project to Washington LLC is in the public interest
because it will benefit PacifiCorp s customers by lowering the Company s costs of providing
electrical service, for the reasons stated above. In addition, the transfer will give TransAlta
greater control of the water flows in the Skookumchuck River for providing cooling water to the
Centralia Power Plant, thus increasing the electrical output of the Centralia Power Plant for the
benefit of all electricity consumers.
IV.OTHER MATTERS
Timing of Approval
Washington LLC cannot process its EWG application with the FERC until all ofthe
Company s regulatory commissions have made the three determinations required by section 32
ofPUHCA. Accordingly, PacifiCorp respectfully requests that the Commission process this
matter and issue its Order as expeditiously as possible.
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Request for Modified Procedure
PacifiCorp respectfully suggests that the three determinations requested ofthe
Commission do not require a hearing to consider the issues presented by this application and
therefore requests that this application be processed under modified procedure pursuant to the
Commission s Rule 201 , IDAPA 31.01.01.201.
Exhibits to Application
The exhibits that accompany this Application are:
Application Exhibit No.1: Original cost, accumulated depreciation and net book
value of assets to be transferred as well as the proposedjoumal entries to record the transfer.
The prefiled direct testimony of Randy A. Landolt, PacifiCorp s Managing
Director of Hydro Resources, which describes the proposed sale, including how the sale is in the
public interest. The Sale Agreement, which is the instrument governing the contemplated sale is
included as Exhibit No.1 to the prefiled testimony of Randy A. Landolt.
The prefiled direct testimony of Craig P. Johnson, PacifiCorp s Regulatory
Consultant, describing the ratemaking impacts of the proposed sale.
RELIEF REQUESTED
PacifiCorp respectfully requests a Commission order:
(a)Determining that the proposed transfer of the Skookumchuck Project to
Washington LLC and allowing the Project to become an "eligible facility" within the meaning of
section 32 ofPUHCA (1) will benefit consumers, (2) is in the public interest, and (3) does not
violate Idaho State law; and
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(b) Granting such other relief as the Commission deems necessary and proper.
DATED: February rtJ 2004.
Respectfully submitted
Jame . Fell
James C. Paine
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Telephone: [phone]
Facsimile: [phone]
Of Attorneys for PacifiCorp
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PacifiCorp
Application Exhibit No. I
Docket No.
Proposed Entries to Record the Sale of Skookumchuck
Estimated Values as of December 5, 2003
roceeds from the sale of facilities to TransAltaDescription DebitCash $ 3,557,661
Accumulated Provision for Depreciation of Utility Plant
Credit
$ 3 557 661
Record sales expense
I Account I185 Temporary facilities131 Cash
Description Debit
$ 110 000
Credit
$ 110,000
Retire facilities from Electric Plant in Service
I Account I Description108 Accumulated Provision for Depreciation of Utility Plant101 Electric Plant in Service
Debit
$ 8 668 529
Credit
$ 8 668 529
Record the loss on sale and reflect the related tex ex enseAccount Description108 Accumulated Provision for Depreciation of Utility Plant282 Accumulated Deferred Taxes
409-411 Income Tax Expense
421.Loss on disposition of property185 Temporary facilities236 Taxes Accrued
Debit Credit
537 387
68,613
110,000
537 387