20110418reconsideration_order_no_32224.pdf

Office of the Secretar
Service Date
April 18, 2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF PACIFICORP DBA ROCKY MOUNTAIN ) CASE NO. PAC-E-I0-07
POWER FOR APPROVAL OF CHANGES TO )
ITS ELECTRIC SERVICE SCHEDULES ) ORDER NO. 32224
)
On May 28, 2010, PacifiCorp dba Rocky Mountain Power ("Rocky Mountain" or
"Company") fied an Application for authority to increase its rates for electric service for the
Company's 70,000 Idaho customers. On Februar 28, 2011, the Commission issued its final
Order No. 32196 setting new rates and increasing the Company's annual revenues by $13.75
milion, or an average rate increase of 6.78%.
PETITIONS FOR RECONSIDERATION/CLARIFICATION
On March 11, 2011, Community Action Parnership Association of Idaho ("CAP AI")
filed a Petition for Clarfication/Reconsideration of Order No. 32 i 96. CAP AI sought
clarification whether the Company's funding of the "Low-Income Conservation Education
Program" was a one-time expense or an anual expense. Rocky Mountain filed a timely Cross-
Petition to CAP AI's Petition. On March 23, 2011, CAP AI filed an Answer to Rocky Mountain's
Cross-Petition for Reconsideration.
On March 17, 2011, Monsanto Company ("Monsanto") fied a timely Petition for
Clarification. In its Petition, Monsanto sought clarification of the Commission's final Order
concerning the economic value of Monsanto's "interrptible products" that offset the rates
applicable to Monsanto. Monsanto is PacifiCorp's largest electric customer.
On March 21, 2011, Rocky Mountain fied a timely Petition for Clarification and
Reconsideration of Order No. 32196. The Company urged the Commission to reconsider and/or
clarify several issues. Rocky Mountain also requested an opportunity to present "additional
evidence" on certin issues. On March 28, 2011, Commission Staff submitted an Answer to
Rocky Mountain's Petition. Staff agreed with Rocky Mountain that some of the issues raised by
the utilty merit reconsideration but opposed reconsideration of other issues. Monsanto also filed
a timely Answer to Rocky Mountain's Petition for Clarficationleconsideration. On April 1,
2011, Rocky Mountain submitted a reply to Monsanto's Answer.
ORDER NO. 32224 1
After reviewing the Petitions, the Answers and Cross-Petitions, our prior Order No.
32196 and the record, we grant the three Petitions for Clarification and clarify our prior Order
pursuant to Idaho Code § 61-624. We also grant in part and deny in par Rocky Mountain's
Petition for Reconsideration. As set out in greater detail below, we find it just and reasonable to
increase the Company's anual revenue requirement by $595,368 to $14,351,096, or an average
rate increase of 7.07%. Id.
PROCEDURAL HISTORY
The procedural history ofthis proceeding is set out in final Order No. 32196. Briefly,
Rocky Mountain fied its Application for a general rate increase in May 2010. In September
2010, Staff conducted two public workshops to provide information about the case and to answer
customer questions. In December 2010, the Commission conducted five public hearings with
public testimony provided by about 100 people. The Commission also conducted its first
technical hearing in this proceeding in November 2010 where nearly 50 technical witnesses
testified for the paries.
Nearly four months after Rocky Mountain fied its direct case, the Company fied
supplemental testimony, regarding the economic value of Monsanto's interrptible products.
Monsanto fied a Motion to Dismiss the Case or Strike the Supplemental Testimony. After oral
argument, the Commission found that Rocky Mountain had failed to follow a prior Commission
Order "to address (Monsanto's) interrptible product valuation in the context of (this) general
rate case. . .." Order No. 32098 at 3 quoting Order No. 31097 at 9. Consequently, the
Commission scheduled a second technical hearing in February 2011 to address the issues of
Monsanto's interrptible products. After the second technical hearing, the Commission on
Februar 28, 2011, issued final Order No. 32196 addressing and deciding the issues in this
proceeding. That final Order is the subject of the various Petitions fied by the paries.
ISSUES FOR RECONSIDERATION AND CLARIFICATION
A. Legal and Procedural Standards for Reconsideration
Reconsideration provides an opportunity for any interested person to bring to the
Commission's attention any matter previously determined and thereby affords the Commission
with an opportunity to rectify any mistake or omission. Washington Water Power Co. v.
Kootenai Environmental Allance, 99 Idaho 875, 879, 591 P.2d 122, 126 (1979). In accordance
with Commission procedural Rule 331, answers to petitions and cross-petitions "must be filed
ORDER NO. 32224 2
according to the procedures for cross-petitions for reconsideration." IDAPA 31.01.01.331.05.
The Commission may grant reconsideration by reviewing the existing record, by allowing
written briefs, or by conducting an evidentiar hearing. Id., IDAP A 31.01.01.311.03.
If reconsideration is granted, "the matter must be reheard, or written briefs, comments
or interrogatories must be fied, within thirteen (13) weeks after the date for filing petitions for
reconsideration." Idaho Code § 61-626(2). On April 7,2011, the Commission granted CAP AI's
Petition for Clarficationleconsideration. Order No. 32220. The Commission found that the
existing record is sufficient to resolve CAP AI's Petition. Id. at 3.
B. CAPAI's Petition Regarding the $50,000 for
Low-Income Conservation Education Programs
In its Petition for Clarificationleconsideration, CAP AI argues that the Company
mischaracterized the Company's $50,000 expense for the Low-Income Conservation Education
Program as a "one-time" commitment. CAP AI Petition for Clarification or Reconsideration at 1,
14. CAP AI states that the record, including Staff testimony offered by Mr. Curtis Thaden,
confirms CAP AI's interpretation that the $50,000 should be an anual expense devoted to
conservation education. Id. at 4-5; PAC-E-I0-07 Technical Hearing Transcript at 2093. CAPAI
insists that the settlement stipulation in the Company's prior rate case (PAC-E-08-07) requires
that Rocky Mountain provide $50,000 anually to two Community Action agencies to fund their
energy conservation programs. Id. at 1. CAPAI was unaware of Rocky Mountain's position
until the Company fied its rebuttal testimony. Id. at 2, n.l.
CAP AI acknowledges that it has not implemented the education program in a timely
maner but "this fact has been and is being aggressively remedied by CAP AI." Id. at 7.
However, CAP AI requests that the Commission clarify that the program wil be fuded on an
anual basis so that CAP AI can take on the "challenge of competently administering the program
in a manner consistent with the spirit and intent of the 08-7 Stipulation (Settlement Agreement)."
Id. CAP AI emphasizes that annual fuding for the education program is consistent with the
funding obligations previously approved by the Commission for Idaho Power and A vista. Id. at
10-11.
Rocky Mountain answers CAP AI's claim by fiing a Cross-Petition for Clarification
and Reconsideration and asks the Commission to "reject CAP AI's position that the Company (is)
committed to ongoing, annual funding of $50,000." The Company requests that the Commission
ORDER NO. 32224 3
"issue a finding that the funding commitment was for a total of $50,000." Rocky Mountain
Cross-Petition at 1-2. The Company states that "CAPAI had more than adequate notice of
Rocky Mountain Power's position regarding the Conservation Education program in Case No.
PAC-E-08-07. . . ." Id. at 5. Moreover, CAPAI has been delinquent in developing and using the
fuds already allocated to such programs. Id. at 2-3.
Although the education program was to be submitted to Rocky Mountain by May
2009, the first invoice from the two agencies were not submitted until May 2010 in the amount
of$7,500. Id. at 2.
CAPAI fied a reply to Rocky Mountain's Cross-Petition and urged the Commission
to strike the Cross-Petition because it "relies entirely on hearsay, speculation, misstatement of
facts and lack of foundation." Reply at 1. CAP AI suggests that if the Commission desires to
develop a more detailed record on this issue, the Commission could reopen "the 08-7 docket,
establish. . . a separate proceeding in this docket, or open a new docket." Id. at 5.
Commission Findings: In Order No. 32220, the Commission granted CAPAI's
Petition for Reconsideration/Clarification. The Commission granted the Petition "for the limited
purpose of determining whether the $50,000 for Low-Income Conservation Education programs
referenced in the Commission-approved settlement in Case No. PAC-E-08-07 represented an
annual award or a 'one-time' payment." Id. at 3.
The relevant portion of the stipulated Settlement Agreement reached in the
Company's last general rate case (PAC-E-08-07) reads as follows:
8. The Paries agree that the demand-side management programs proposed
by Rocky Mountain Power in Docket No. PAC-E-08-01 are prudent.
Further, the Paries agree that a total of $50,000 of demand-side
management program funds wil be made available to Southeastern Idaho
Community Action Agency and Eastern Idaho Community Action
Partnership to be used to support conservation education as a component
of Rocky Mountain Power's low income weatherization program,
Schedule 21. Parties agree that it is the responsibilty of the Community
Action Partnership Association of Idaho to propose said education
program to Rocky Mountain Power by May 1, 2009 and that the proposal
wil contain fuding proportioning the $50,000 been the two agencies,
objectives and any savings estimates to assist in program evaluations and
reporting requirements. The Parties agree that the low income
weatherization program (Schedule 21) and the conservation education
component of the program is in the public interest and is determined to be
cost-effective even though the explicit quantification of benefits may not
ORDER NO. 32224 4
be possible, and fuhermore, the Paries agree to support the justification
and recovery of these costs though the demand-side management
surcharge funding.
Staff Exhibit No. 101 (PAC-E-08-07) at 4-5 (Feb. 25, 2009) (emphasis added). The Settlement
Agreement was approved in Order No. 30783.
Staff witness Thaden testified that the $50,000 contribution was an "anual funding
amount." Tr. at 2095, 2093 (emphasis added). No one questioned this statement on cross-
examination. On rebuttal Rocky Mountain's witness Coughlin testified that the $50,000 funding
for the education program was a "one-time commitment." Tr. at 1061. On cross-examination by
both CAP AI and the Staff, Ms. Coughlin remained adamant that paragraph No. 8 of the
Settlement Agreement quoted about only provides for a one-time commitment. Tr. at 1066-
1068; 1089.
After reviewing the parties' arguments and the record pertaining to the funding
commitment for the Low-Income Conservation Education Programs, we find that the paricular
language of the Settlement Agreement is susceptible to two different interpretations. On the one
hand, the word "total" may reasonably be construed to mean that the combined funding for the
two agencies is not to exceed the "total" amount of $50,000. On the other hand, the word "total"
might be interpreted as a total one-time commitment. Compounding this confusion was the fact
that Rocky Mountain did not expressly address this issue until its rebuttal testimony and that
efforts to implement the program were delayed. Indeed, the first invoice was not submitted until
May 2010 - more than a year after the Settlement Agreement was approved. Cross-Petition at 2;
Tr. at 1061.1 Based upon this record, we find it reasonable to grant CAPAI's request to "open a
new docket" to examine this issue.
We find that it is both reasonable and appropriate to revisit this issue in the
Company's next general rate case. The Commission takes official notice that Rocky Mountain
has already filed its advance notice that it intends to fie a new general rate case on or after May
29, 2011. Without reaching the merits of the issue, we generally believe that education programs
addressing energy conservation provide valuable information to low-income ratepayers. We
foresee that this issue wil receive careful attention from CAP AI, Rocky Mountain and Staff and
wil be fully resolved in next general rate proceeding.
1 Although it is not evidence, Rocky Mountain declares in its Cross-Petition that the two agencies biled the
Company for the remaining balance of the $50,000 in November 2010. Cross-Petition at 3.
ORDER NO. 32224 5
C. Monsanto's Interruptible Products
In its final Order, the Commission established a cumulative economic value (or
"credit") of $17 milion for the interrptible products2 offered by Monsanto to Rocky Mountain.
The Commission also urged the paries to enter into a new five-year energy sales contract, as
opposed to the customar three-year term the parties have negotiated in the past. Order No.
32196 at 67, Attach. C. In their Petitions, both Rocky Mountain and Monsanto ask the
Commission to clarify certain issues regarding the interrptible credit provided to Monsanto.
Once the disputed issues are clarified, the Commission expects the paries to enter into a new
contract. If the paries are unable to enter into a new contract, then the Commission wil set the
rates and conditions for service to Monsanto in a tariff schedule.
Monsanto generally asks the Commission to clarify three issues. First, should the
firm power energy charges and interrptible credit remain fixed throughout the five-year term of
the new contract, or are they subject to change during the five-year term. Monsanto Petition to
Clarify at 4. Monsanto argues that, except for the firm rate and interrptible credit declared by
the Commission in final Order No. 32196, the terms of its new five-year contract with Rocky
Mountain should not change. Second, consistent with the paries' prior contract, the interrptible
demand charge of $4.71 established in Order No. 32196 should apply to Monsanto's full load in
excess of 9 MW of firm power. Id. Third, should the paries continue to use the Dow Jones
index and not the Intercontintental Exchange (ICE) Day Ahead index.3
Likewise, Rocky Mountain asks the Commission to clarify whether the $17 milion
interrptible credit should be fixed throughout the term of the contract. Rocky Mountain Petition
at 26. Rocky Mountain believes that the Order implicitly fixes the $ i 7 milion valuation as
constant throughout the contract term and should not change when energy rates change. Id. at
27. Rocky Mountain also asserts that the Western Electricity Coordinating Council (WECC)
requires that an executed contract with Monsanto is a prerequisite before the Company is
2 A portion of the electric service that Rocky Mountain provides to Monsanto is "interrptible." This means that
under certain conditions the Company may temporarily suspend or interrpt service to Monsanto. The value of this
interrptibilty is a credit offset to the rates Monsanto pays for service.
3 After fiing its Petition, Monsanto withdrew its request that the Commission decide whether the parties should
continue to use the Dow Jones index and not the Intercontintental Exchange (ICE) Day Ahead index. Monsanto
Answer to Rocky Mountain Power's Petition for Clarification and Reconsideration and Cross-Petition for
Reconsideration at 2. Monsanto believes that it can work with the ICE Day Ahead index "based upon the
Company's representation that the ICE reporting service provides the same information as Dow Jones and is readily
available without cost." ¡d. Consequently, we need not address this issue.
ORDER NO. 32224 6
permitted to utilze the interrptibility Monsanto provides in order to meet its non-spinning
reserve requirements. Id. at 26.
Rocky Mountain asserts that the interrptible demand charge should only apply to
loads up to 162 MW. The Company maintains there is no evidence in the record supporting
Monsanto's position that the credit should apply to load in excess of 162 MW. Id. at 28-29. The
Company notes that if the credit were applicable to load in excess of 162 MW, nothing would
prevent Monsanto from "install(ing) new equipment (whether or not it was truly interrptible),
increasing its load to, for example, 400 MW, and everyhing above 9 MW would be entitled to
the interrptible credit." Id. at 29. If the credit is applicable to load above 162 MW, "it wil
result in a value that exceeds the Commission-ordered value of$17 milion." Id.
Commission Findings: The Commission agrees with the paries that the terms for the
interrptible credit set out in Order No. 32196 warrant clarification. The Commission's
valuation of the Monsanto credit was based upon current and forward looking estimates.
Accordingly, it was the Commission's initial expectation that the $17 milion valuation would
constitute a reasonable valuation of the interrptible credit for each year for at least the first three
years of the new contract or tariff. However, the Commission acknowledges the inherent risk of
under-valuing or over-valuing the interruptible credit if it remains static over time. Therefore,
we find that it is both reasonable and appropriate that the value of the Monsanto interrptible
credit remain subject to adjustment commensurate with the Commission-approved adjustments
of the Company's firm power and energy charges over time. While we are hopeful that the rates
and credits may remain stable for a number of years (via multi-year contract or other method),
we recognize that both elements may change.
Next, we clarify Order No. 32196 by unequivocally stating that the interrptible
credit established in that Order is applicable only to the first 162 MW of Monsanto's biling
demand and not on the entire Monsanto load. The record in this case clearly demonstrates that
the cumulative total of interrptible demand for Monsanto's interrptible products, system
integrity, economic curtailment and non-spinning reserves, is 162 MW. Tr. at 2889, 2926-27, et
seq. Monsanto tacitly acquiesced to this finding, stating "that the valuation of Monsanto's
products was indeed calculated on the basis of 162 MW. . . ." Monsanto Answer at 3. Allowing
Monsanto to apply the interrptible credit to the portion of its load above 162 MW is
ORDER NO. 32224 7
impermissible because it would significantly inflate the overall yearly value of the interrptible
credit.
The Commission hoped that the paries would reach an agreement and execute
another multi-year contract, as they have in the past through an "arms-length" bargaining
process. However, the technical hearing and subsequent negotiations between the paries
indicate that the paries may be incapable of reaching an accord without specific and detailed
guidance from the Commission. It is our hope that this clarification of our prior Order will
provide the parties with the necessary rates, terms and conditions to enter into a new contract.
Absent a contract, the Commission orders Rocky Mountain to incorporate the terms and
conditions consistent with our Orders into the Monsanto-Rocky Mountain Schedule 400 tariff.
The paries are free to arrive at specific terms and conditions that they find mutually
agreeable. Absent any modifications mutually agreed upon by Rocky Mountain and Monsanto,
the Commission finds that all pre-existing terms and conditions of the paries' prior contract as
clarified above should remain in place. Finally, the Commission notes that the paries have
agreed to use the ICE Day Ahead index proposed by the Company during ESA negotiations.
D. Populus to Terminal Transmission Line
Rocky Mountain's Petition challenges the Commission's finding that 27% of the
Company's Populus to Terminal Transmission Line ("Transmission Line") is not currently "used
and useful" to provide service to customers and should be classified as "plant held for future use"
("PHFU"). Rocky Mountain Petition at 6. Rocky Mountain also requests that the Commission
clarify that if it elects to affirm its prior finding that a portion of the Company's investment in the
Transmission Line must be temporarily excluded from rate base as PHFU, that the Company be
allowed to accrue a carrying charge equal to the Commission authorized rate of return "and (the
Line) will not be depreciated while recorded in ((PHFU))." Id.
1. Used and UsefuL. As support for its position that 100% of the Transmission Line
is curently "used and useful," Rocky Mountain cites Idaho Underground Water Users Ass'n v.
Idaho Power Co., 89 Idaho 147,404 P.2d 859 (1965) and the Joint Reply Comments fied by this
Commission and other regulatory agencies in FERC Docket No. AD09-8-000, November 23,
2009, supporting comments fied by the Northern Tier Transmission Group (NTTG). Id. at 7-8.
The Company asserts that the aforementioned Idaho Supreme Court case stands for the
proposition that utilties must not be "punished" for planning for reasonable future needs. Id.
ORDER NO. 32224 8
According to the Company, a 100% subscription rate on the Transmission Line is not
required or even advisable. Id. at 8. "The fact that certain facilities may be underutilzed from
time to time does not mean they do not provide value." Id., citng Cal. Indep. System Operator
Corp., 94 FERC ~ 61,148 (2008). Rocky Mountain argues that there is ample evidence in the
record demonstrating that the Transmission Line was built economically and adds value by
increasing system reliabilty and transfer capability. Id. at 9. Building a smaller Transmission
Line would be less cost-effective. Id. Furher, Idaho customers "benefit from the (Transmission
Line) because it allows the Company to use the least-cost dispatch of resources to serve loads
and manage power costs by selling excess energy off-system or importing lower-cost market
energy to serve load." Id. at 9-10.
The Company also argues that it was compelled to build the Transmission Line
because "new federal standards required the Company to increase system reliabilty or face
serious penalties." Id. at 10. Rocky Mountain claims that the transmission studies in its most
recent IRP revealed a "pressing need" to construct the Transmission Line "in order to maintain
reliabilty for Idaho customers." Id. at 11.
The Company declares that excluding 27% of its investment in the Transmission Line
from rate base is arbitrar and unreasonable because "there is nothing in the record to support a
conclusion that reducing the capacity of the project by 27% would result in a 27% reduction in
the cost of the project." Id. Rocky Mountain states that, given the Commission's finding that
1,022 MW of new capacity was currently "used and useful," out ofa capacity of 1,400 MW, the
amount included in rate base should be no less than the investment required to acquire that
amount of new capacity. Id. The amount excluded from rate base "should be based on cost that
would have been avoided by reducing the capacity of the (Transmission Line)." Id. at 12.
Building a smaller Transmission Line would have reduced its capacity "by half." Id. The
Company seeks Reconsideration "to determine the cost of the portion of the (Transmission Line)
capacity that it finds to be currently used and useful if the Commission refuses to allow 100% of
the costs to be recovered in rates." Id. at 13.
Rocky Mountain states that once investment in property is presented for recovery by
the Company and disallowed by the Commission, it then "becomes nonutilty property." Id. at
14. The Commission lacks authority to compel the utilty to make "nonutility property"
available to the public or hold it in reserve. Id. Rocky Mountain goes so far as to suggest that
ORDER NO. 32224 9
such action constitutes a regulatory taking. Id., citing Boise Tower Assoc., LLC v. Hogland, 147
Idaho 774, 215 P.3d 494 (2009).
2. Caring Charge and Depreciation. If the entire cost of the Transmission Line is
not placed into the rate base, the Company seeks clarification regarding a caring charge and
depreciation on the excluded amount. Id. The Commission can "incentivize the Company to
record the disallowed portion as plant held for future use if it allows a carring charge on it" and
clarifies that the PHFU "balance does not depreciate while in that account." Id.
The Company argues that a carrying charge is warranted on the 27% disallowed from
immediate rate base recovery. It stated that the situation regarding the Transmission Line is
analogous to construction work in progress ("CWIP"). Id. "If no caring charge is permitted,
the Company wil not be fairly compensated. . . ." Id. If the Company is not allowed to delay
depreciation on the 27% or implement a caring charge then it "wil be forced to contract the
associated capacity or otherwise seek means to obtain a return on the investment." Id. at 15.
Rocky Mountain warns that if Idaho needs added transmission capacity in the future then it wil
likely be at it a higher cost, "if the transmission capacity wil be available at all." Id.
3. Staff Answer. In its Answer to Rocky Mountain's Petition for Reconsideration,
Staff states that the Commission's finding that a portion ofthe Transmission Line is not currently
"used and useful" is well supported by the record. Order No. 32196 at 37-38 and citations
therein. The Commission specifically found that only 1,022 MW of the Transmission Line's
1,400 MW is currently used and the unused portion wil not be fully utilzed until other segments
of the Gateway transmission system are completed. Id. at 38. Staff also asserts that no carying
charge should accrue on that portion of the Transmission Line held for future use. Id. Staff did
agree with the Company that the Commission should clarify its prior Order to reflect that
depreciation is not required to be taken on the Transmission Line in PHFU until it is included in
rate base. Id.
Commission Findings: The Commission denies Rocky Mountain's Petition for
Reconsideration of the Commission's finding that 27% of the Transmission Line is not currently
"used and useful" and grants clarification on the issues of allowing a carrying charge and taking
depreciation on the portion of the Transmission Line placed into PHFD. Tr. at 772, 779-80, 786,
807-08.
ORDER NO. 32224 10
A utility "is entitled to recoup in its rates its overhead costs, but the actual amount
necessary to compensate the company is addressed to the sound discretion of the commission,
and absent an abuse of that discretion, the commission's ruling wil not be set aside." Utah
Power & Light Co. v. Idaho PUC, 105 Idaho 822, 826, 673 P.2d 422, 426 (1983). A significant
portion of the evidence (testimony and exhibits) and argument presented in the instant case,
including Rocky Mountain's Petition for Reconsideration and Clarification, is devoted to
whether and what portion of the Transmission Line is curently available, let alone "used and
usefuL." The Commission has dutifully examined the evidence on this issue and rendered its
decision in accordance with all of the evidence available in the record.
As set out in Order No. 32196, there is substantial and competent evidence that the
entire Transmission Line is not "presently 'used and useful' in its entirety." Or~er No. 32196 at
37 (emphasis added). The Order provides many references to the testimony of witnesses that the
line was built to meet both present and future needs. Id. For example, the Company stated in a
response to a Staff production request "the full benefits of the capacity upgrade will not be
realized until additional (transmission line) segments are built as par of Energy Gateway
(transmission system). Id., Tr. at 1953. The Company tacitly admitted that no more than 1,040
MW of the 1,400 MW total capacity can be used at present. Id. at 38; Tr. at 2185,1. 13; 1962,11.
11-12.
"The project (Populus to Terminal) wil not be fully utilzed unless or until Energy
Gateway is completed." Tr. at 1956. The Commission's decision to temporarily exclude a
portion of the Transmission Line from rate base is fuher bolstered by the fact that, until other
segments of the Energy Gateway Projected are completed, only 700 MW of the Transmission
Line's potential capacity is presently available. Tr. at 1957.
Idaho Code § 61-502A prohibits the Commission from granting a retur on property
held for future use which is not curently used and usefuL. In pertinent part, this statute states:
The commission is hereby prohibited. . . from setting rates for any utilty that
grants a return on . . . property held for future use and which is not currently
used and useful in providing utilty service.
Idaho Code § 61-502A. This statute is clear and unambiguous. Only when property is put into
service and becomes used and useful should ratepayers be required to pay for the capital expense
associated with the property. The Company is currently authorized to receive a retur on 73% of
ORDER NO. 32224 11
the cost of the Transmission Line and wil receive a full and fair return on the remainder of its
investment if and when it presents evidentiar support for moving the balance of the investment
(27%) into rate base.
Contrary to the Company's argument, the Commission has not denied recovery of a
full portion of the investment made in the Transmission Line. Recovery has simply been
deferred until such time as the Transmission Line is fully utilzed and available to the benefit of
Idaho ratepayers. This is exactly the type of scenario that the PHFU account was meant to
address. The Company does not lose out on the 27% of the investment in the Transmission Line
that is curently slated for the PHFU account. If, at some later date, Rocky Mountain is able to
present sufficient evidence which confirms that 100% of the Transmission Line is "used and
useful" this Commission wil include that additional amount in Idaho rate base.
Moreover, Rocky Mountain's assertion that the Commission's deferral of a portion of
the rate recovery for the Transmission Line constitutes a 'regulatory taking' does not comport
with the curent state of the law. The Commission has not caused Rocky Mountain "to suffer a
physical invasion" of its property, nor has it deprived the Company of '''all economically
beneficial use'" of its Transmission Line. Boise Tower Assocs. v. Hogland, 147 Idaho 774, 783,
215 P.3d 494, 503 (1999)(citing Lingle v. Chevron Us.A., 544 U.S. 528, 537, 125 S.Ct. 2074,
2081 (2005)). Indeed, the Commission has authorized a return on 73% of the capital
investment.
Next, we find that using the capacity allocation of the Line is a reasonable means of
allocating the amount added to rate base (73 % of the capital costs), and the amount allocated to
PHFU (23%) at this time. In our Order below, we rejected Staffs position to allocate 50% of the
costs to PHFD. Many of the costs in this case are based on allocations among the six states
served by Rocky Mountain and its sister affiliates. Order Nos. 14683, 15408, 16491; see also
Order Nos. 25640, 26876, and 27100. At the urging of the Company, the Commission in 2005
approved a multi-state allocation system that, "allocate(s) and assign(s) generation transmission
and distribution costs to PacifiCorp's six retail jurisdictions." Order No. 29708 at 9. For
example, under the "Revised Protocol" transmission costs are allocated among the states based
on the "SE" factor, where the costs of transmission assets are allocated 75% to demand and 25%
to energy. Id. at 4. Thus, the use of allocation methodologies is a traditional tool for ratemaking.
ORDER NO. 32224 12
Finally, as we have noted previously, the Company has filed a notice that it intends to
fie a new rate case as soon as next month. If the Company wants to pursue the PHFU issue, we
believe the new case is an appropriate proceeding in which to do so.
We do grant clarification of Order No. 32196 regarding the caring charge and the
issue of depreciation. Consistent with Idaho Code § 61-502A, we do not approve a carrying
charge on the amount of the Transmission Line held for future use. As to depreciation, we agree
with Rocky Mountain that "no depreciation of the investment occurs" on that portion of the plant
held for future use. Petition at 15.
E. Labor Costs
Rocky Mountain believes that "the Commission erred by disallowing $993,515 of
known labor costs." Id. at 15. The Company states that these are known costs that were put into
effect in 2008 and 2009, "or known and measurable changes in expenses occurring during the
2010 test period." Id. As a result, the Commission's ruling "set the test period labor costs at an
actual 2008 level for costs that will be incurred in 2011." Id. at 16. Correcting this error would
increase the Company's labor expense by $95,597 on an Idaho allocated basis. Id. at 20.
Rocky Mountain asserts that the State of Idaho awarded a 3% increase in state
employee wages in 2009 and points to this assertion as evidence that the Company's base wage
increases were reasonable. Id. Rocky Mountain reiterated its argument made at the first
technical hearing that its union employees are paid commensurate with a collective bargaining
agreement that was negotiated and entered into prior to the current economic recession. Id. at
18.
In its Answer, Staff agrees with Rocky Mountain's labor adjustment. Staff Answer at
2. According to Staff, it used the wages paid during 2008. Id. However, Staff did not adjust its
wage calculation to account for "annualized" wage increases granted in 2008 to reflect those
increases as if they were in place for a full 12 months. Id. Staff agrees with the Company that
correcting this error would increase the Company's wage expense by $1,660,215 on a total
Company basis, or $95,597 on an Idaho-allocated basis. Id. Staff acknowledges that the
annualized 2008 amount better reflects the Januar 1, 2009 level of salaries and wages. Id.
Staff did dispute the Company's assertion that the State of Idaho awarded a 3%
increase in wages to its employees in June 2009. Id. Staff stated that in 2009 there were only
838 State employees who received a raise, which is approximately 3% of all State of Idaho
ORDER NO. 32224 13
employees. Id. at 2-3. In fact, Idaho Governor Butch Otter ordered state agencies to reduce
payroll costs by 5% in 2009. Id. at 3. Finally, Staff cited 5.7581% as the appropriate wage and
benefit and SERP allocation to Idaho. Id. Staff also agrees that the pension adjustment should
be allocated using the "SO" factor. Id.
Commission Findings: The Commission denies Rocky Mountain's Petition for
Reconsideration challenging the exclusion of $993,515 in labor expenses. We stand by our
previous finding that while the Company may elect to award wage increases to its employees,
"we wil not allow recovery of that expense from its Idaho customers." Order No. 32196 at 19.
The Commission finds that Rocky Mountain has failed to present any evidence which would
compel us to revisit the issue of wage increases. Instead, the Company has made spurious and
false assertions regarding alleged wage increases received by state of Idaho employees during
2009.
The Commission grants Rocky Mountain's Petition for Reconsideration pertaining to
the annualization of Idaho jurisdictional labor expenses during the 2010 test year. Correcting
this issue increases the labor expense by $95,597 for Idaho. We also adjust the SERP allocation
and use the "SO" factor for pensions. Therefore, we order that the calculation of the Company's
revenue requirement deficiency, laid out fully in Order No. 32196 at page 41, be adjusted to
reflect these changes pursuant to Idaho Code § 61-624.
F. Wind Integration Costs
Next, the Company asks the Commission to reconsider its findings on wind
integration costs. The Commission found that the Company failed to present a "verifiable study
depicting its wind integration costs." Order No. 32196 at 30. The Commission rejected the
Company's attempt to use integration costs developed for PURPA projects or BPA. While the
Commission acknowledged that integration costs are real, the Commission concluded that the
Company did not calculate its integration costs "with verifiable accuracy" and disallowed $34.2
milion from base net power costs. The Commission suggested the Company and other paries te
study this issue and work toward a resolution. "Until then the Company must look to the
(Energy Cost Adjustment Mechanism) to recover wind integration costs." Id.
The Company argues that the Order failed to explain why the PURP A $6.50 per
MWh integration rate is applicable to qualifying facilties (QFs) but does not apply to
"Company-owned or non-qualifying facilties." Petition at 21. Rocky Mountain alleges that the
ORDER NO. 32224 14
$6.50 per MWh is a conservative estimate "compared to the Company calculated costs in the
past and in the present . . ." and that the Commission erred in finding that the Company did not
produce a verified wind study. Id. at 21-22. "(T)he appropriate remedy is not to disallow these
(wind integration) costs but to set wind integration costs at $6.50 per megawatt-hour. . . ." Id. at
22.
The ECAM process is not an "adequate alternative to recover 100% of wind
integration costs" because the ECAM is not properly designed to capture these costs. Id. at 23.
The ECAM allows only a 90% recovery. Id. The Company requests a hearing to provide
additional evidence consisting of several different wind integration studies cited as a footnote to
its Petition. Id., fn. 10. Further, the Company believes that the "Commission incorrectly valued
the amount of the exclusion" at $34.2 milion. Id. at 24. The correct amount is $32.8 milion,
Addendum A of Exhibit No. 71 of the Company's rebuttal case. Id.
Finally, the Company believes that the Commission erred in finding that Rocky
Mountain neglected to recover certain wind integration costs from its wholesale transmission
customers. Id. Rocky Mountain avers that it is prohibited by FERC from extracting a wind
integration charge from its wholesale transmission customers as par of its Open Access
Transmission Tariff (OATT). Id.
Staff agrees that the adjustments to net power supply costs for wind integration, CAL
CAISO fees and Call Option Contracts were incorrectly allocated by the Commission using the
"SE" factor. Staff Answer at 3. Staff acknowledges that the "SG" factor is consistent with the
allocation of these costs in the Company's case and should be used for these adjustments. Id.
Staff states that the removal of $1,367,359 in wind integration costs appears as "a
double removal" of those costs in the final Order. Id. However, this inadvertent removal was
parially offset by an integration charge of $285,007 that was included in the Company's rebuttal
for the "Top of the World" purchase contract. Id. According to Staff, inclusion of this charge is
not consistent with the methodology approved for wind integration costs in net power supply
cost. Id. Staff calculates the net amount of these adjustments as $1,082,352. Id. Staff supports
the Commission's decision to exclude wind integration costs from base power supply costs. Id.
After Reconsideration, Staff believes that the revised wind integration adjustment should be
approximately $33.1 millon. Id.
ORDER NO. 32224 15
Commission Findings: Rocky Mountain's Petition for Clarification of the
disallowance of wind integration costs from base net power costs is parially granted. The
Commission finds that Rocky Mountain has provided suffcient evidence on Reconsideration
that $1,082,352 should have been included in the Company's base net power costs.
We affirm our findings that the remainder of the wind integration costs be excluded
from base net power costs. This adjustment will result in a new base power supply for ECAM
puroses of$I,024,788,968 (1,082,352+1,023,706,616) for the Company.
The Company is entitled to a recovery of its wind integration costs but the Company
failed to adequately prove its own (as opposed to others' costs) integration costs. As we stated in
our prior Order, the Company should develop a verifiable wind integration study that
demonstrates its own costs and mitigates the "over recovery of (integration) costs." ¡d.
The Commission acknowledges the potential, referenced by Rocky Mountain in its
Petition, p. 23, that a portion of the wind integration costs will evade recovery in the ECAM
process. However, we find that if wind integration costs are included in base rates there is at
least an equal risk of the Company experiencing a windfall attributable to the over recovery of
those costs. Wind integration costs may be real but due to their amorphous and speculative
nature they are often not amenable to precise calculation. In short, the Commission finds that in
this instace it is fair, just and reasonable to ask the utility and not its customers to bear the risk
of recovery.
G. Revenue Requirement Calculation
In its Order, the Commission accepted Staff s recommendation that interest not be
included in the regulatory accounts. Order No. 32196 at 59-60. In its testimony, Staff
"recommended no carring charge on the regulatory asset." Id. Rocky Mountain seeks
clarfication that the interest referred to by Staff in its testimony pertains to a carrying charge and
"not interest paid to or received from the IRS. . . ." Id.
The Company's Petition also included an attachment, as Addendum A, "listing of
calculation errors in the Order discovered in a review of the Jurisdictional Allocation Model
("JAM") and Regulatory Adjustment Model ("RAM") used by the Commission to support the
Order." ¡d. at 31. Rocky Mountain requests that the Commission fix these alleged errors on
reconsideration, amounting to an increase of $432,314 to the Company's anual revenue
requirement. ¡d. Alternatively, the Company states that it wil "accept the establishment of a
ORDER NO. 32224 16
regulatory asset to defer the impact of these changes from Januar 1,2011 until the effective date
of the Company's next general rate case." Id.
Staffs Answer accepts five of the Company's proposed corrections revenue
requirement. These five corrections (load control; use of the "SG" factor; wind integration
adjustments; wage allocation of 5.7581 %; and pension adjustment using the "SO" factor) will
increase the Company's revenue requirement. Staff Answer at 3. Staff calculates the corrected
revenue requirement as $14,351,096 or 7.07%. Id. Staff agrees that the $261,233 reversal
related to the Idaho Irrgation Load Control Program was overlooked as welL. ¡d.
Commission Findings: The Commission grants Rocky Mountain's Petition with
regard to the revenue requirement established by the Commission in Order No. 32196. Upon
fuher examination, it is evident that the Company's revenue requirement should be adjusted to
reflect certain corrections regarding the Company's known labor expenses; the Idaho situs
allocation of$261,233 in costs associated with the Irrigation Load Control Program; and the five
items in Addendum A to Rocky Mountain's Petition.
In its Petition, Rocky Mountain alleges that the Commission based its decision on
"public perception" and allowed this ratemaking proceeding to become a "political referendum."
Rocky Mountain Petition at 5. The Commission strongly disagrees with the Company's
characterization of the ratemaking process. Our decisions are based on the evidence in the
record- most of which was presented in the technical hearings. We are bound by statute and its
own rules to provide the public with an opportunity to express their concerns pertaining to the
Company's Application to increase its rates. Public paricipation in the process is essential, but
not dispositive of the issues presented.
H. Return on Equity
Rocky Mountain argues that the Commission's award of 9.9% return on common
equity (ROE) was erroneous because it invented a new standard based on "poor economic
conditions." ¡d. at 31-32. The Company believes that the Commission's ruling violates the
Bluefield and Hope decisions cited in its Order because, inter alia, it does not "authorize a retur
sufficient to maintain financial integrity and attract capitaL. . .." ¡d. at 32. Rocky Mountain
believes that market conditions (i.e., rising bond rates) have changed since the December 2010
hearing and therefore the Commission's decision wil not allow the Company to recover a
suffcient amount when the rates are actually in effect. Id. The ROE chosen by the Commission
ORDER NO. 32224 17
is "below even the midpoint of its range. . ." and inappropriately relied on public comments
regarding the state of the Idaho economy. Id. at 32-33.
Commission Findings: The Commission denies Rocky Mountain's Petition
regarding reconsideration of the ROE authorized in Order No. 32196. The Commission's
decision to allow a 9.9% ROE is based on expert testimony and exhibits available in the record.
As we noted previously and Rocky Mountain acknowledged in its Petition, the Commission is
mindful of its legal duties and obligations in accordance with the United States Supreme Court
decisions in Bluefield and Hope. Order No. 32196 at 10. However, the direction that regulated
utilties like Rocky Mountain are permitted to earn a return that is "sufficient to maintain
financial integrity" and "attract capital under reasonable terms" does not lead, as the Company
has suggested, to a guaranteed minimum rate of return.
Rocky Mountain claims that "the Commission chose an allowed ROE below even the
midpoint of its range. . .." Rocky Mountain Petition at 32. The Company's bold claim fails to
acknowledge that, in matters pertaining to the determination of appropriate rates of return for
regulated utilities, the Idaho Supreme Court has declared that the Idaho Constitution allows the
Commission a "broad zone of reasonableness" from which to establish appropriate rates of retur
(i.e., ROE):
The Constitution permits a 'broad zone of reasonableness in rates of return,
and we wil not hold that any rate of retur lower than the precise average rate
of return of comparable companies or beneath the rate of retur that expert
witnesses testify is necessary under the 'capital attraction' or 'comparable
earings' test is necessarily beyond the 'broad zone of reasonableness
permitted by the Constitution.
Intermountain Gas Co. v. Idaho Public Utilities Comm 'n, 97 Idaho 113, _,540 P.2d 775,_
(1975). As we observed in our prior Order, the authorized 9.9% ROE was within the ranges
proposed by Staff and Monsanto witnesses. Order No. 32196 at 11. Thus, our 9.9% is within
the "broad zone of reasonableness" mandated by the Idaho and U.S. Supreme Cours.
In its ratemaking decisions, the Commission is not bound "to the service of any single
formula or combination of formulas. . . ." Industrial Customers of Idaho Power v. Idaho PUC,
134 Idaho 285, 290, 1 P.3d 786, 791 (2000) (quoting City of Los Angeles v. Public Utilities
Comm 'n, 542 P.2d 1371, 1383 (CaL. 1975) (citation omitted)). Rather, once a fair hearing is
ORDER NO. 32224 18
given and proper findings are made the Commission is free to make "pragmatic adjustments
which may be called for by particular circumstaces. . . ." Id.
The Commission is fully aware of the benefits and limitations of the Energy Cost
Adjustment Mechanism (ECAM) and PHFU. Rocky Mountain Petition at 32. Nevertheless, the
Commission finds that Company concerns are overstated. As we noted earlier in this Order,
Rocky Mountain has not been permanently deprived of the opportunity to obtain a full recovery
on its investment in the Transmission Line.
FINDINGS OF FACT ON CONCLUSIONS OF LAW
Rocky Mountain is an "electrical corporation" and "public utilty" according to the
definition of those terms found in Idaho Code §§ 61-119 and 61-129, and is therefore subject to
the Commission's jurisdiction.
As set out in greater detail above, the Commission finds that certain adjustments to
final Order No. 32196 are warranted and that Order is amended to reflect the adjustments
pursuant to Idaho Code § 61-624.
With the changes reflected in the body of this Order, we conclude that the adjusted
rates are fair, just and reasonable.
ORDER
IT IS HEREBY ORDERED that CAPAI's Petition for Clarification and/or
Reconsideration is parially granted. The Commission orders that the parties address the
duration of the funding for Low-Income Conservation Education Programs wil be addressed in
Rocky Mountain Power's next general rate case.
IT is FURTHER ORDERED that Monsanto's Petition for Clarification is granted.
The Commission orders that the $17 milion valuation for Monsanto's interrptible products
established in Order No. 32196 is subject to revision as are the Schedule 400 base firm rates.
IT is FURTHER ORDERED that the $17 milion interrptible credit is applicable
only to the first 162 MW of Monsanto's billng demand and not the entire Monsanto load. If
Monsanto and Rocky Mountain are unable to agree to a new Energy Sales Agreement, the
Commission orders Rocky Mountain to submit a new Schedule 400 that includes the provisions
of the previous Commission approved contract between the paries. The new Schedule 400 tariff
shall be redacted in a maner so as to adequately preserve the confidentiality of the paries
involved.
ORDER NO. 32224 19
IT IS FURTHER ORDERED that Rocky Mountain Power's Petition for Clarification
and Reconsideration is granted in part and denied in part. The Commission denies
Reconsideration on the following issues: (1) the 27% of the costs of the Populus to Terminal
Transmission Line placed into plant held for future use; (2) carrying charges on the 27% of plant
held for future use; and (3) the return on equity of9.9%.
IT IS FURTHER ORDERED that Rocky Mountain's Petition is granted in part and
denied in part on the following issues: (l) the exclusion of wind integration costs from base net
power costs; (2) the exclusion of certain labor expenses; and (3) the Addendum A issues
regarding the revenue requirement discussed above. The Commission orders that an additional
$1,082,352 shall be included as part of Rocky Mountain Power's base net power costs. The
inclusion of this amount shall result in a new base power supply for ECAM puroses of
$1,024,788,968 for the Company
IT IS FURTHER ORDERED that $95,597 on an Idaho jurisdictional basis in known
labor expenses, and $261,233 pertining to the Idaho Irrigation Load Control Program shall be
included as par of the revenue requirement calculation for the Company. The Commission
denies reconsideration on the issue of the Company's wage increases to its employees for 2009-
2010. Rocky Mountain's corrected revenue requirement shall be $14,351,096 or a 7.07% overall
increases in rates.
IT IS FURTHER ORDERED that Rocky Mountain fie conforming taiff schedules
to reflect the adjusted revenue requirement in this case. The revised rates shall be spread across
the Company's various schedules and customer classes in conformance with Attachment A,
attached to this Order. The rates contained in these revised tariffs shall be effective seven days
from the service date of this Order.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any pary aggrieved by this
Order or other final or interlocutory Orders previously issued in this Case No. PAC-E-I0-07 may
appeal to the Supreme Cour of Idaho pursuant to the Public Utilties Law and the Idaho
Appellate Rules. See Idaho Code § 61-627.
ORDER NO. 32224 20
DONE by Order of the Idaho Public Utilties Commission at Boise, Idaho this / &' ,.
day of April 2011.
PAUL KJELLANDER, PRESIDENT*
,
MACK A. REDFO
~¡J~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~iO~.tJeweIÏ
Commission Secretar
O:P AC-E-I 0-07_ np _Reconsideration
. Commissioner Kempton paricipated in the deliberation of this matter and concurred in this Order prior to the end
of his term.
ORDER NO. 32224 21
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t
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A
p
p
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(1
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(2
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(3
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25
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a
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In
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28
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a
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33
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kW
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35
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38
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43
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p
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s
c
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p
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l
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C
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p
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m
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kW
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t
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c
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53
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k
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R
a
t
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54
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H

k
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a
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m
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W
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56
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v
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m
b
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r
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A
p
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57
HL
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k
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k
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59
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m
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(K
W
)

60
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b
l
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h
t
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l
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7,

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1
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l

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n
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c
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a
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r
a
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a
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d
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t
o

i
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p
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b
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y

c
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m
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N/
A
No

C
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(C
)
(C
)
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