20101001Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL

DATE: SEPTEMBER 30, 2010

SUBJECT: CASE NO. PAC-E-10-09 (PacifiCorp dba Rocky Mountain Power)
AMENDMENTS TO REVISED PROTOCOL ALLOCATION
METHODOLOGY

On September 15, 2010, PacifiCorp dba Rocky Mountain Power (PacifiCorp;
Company) filed an Application with the Idaho Public Utilities Commission (Commission)
requesting approval of amendments to the Revised Protocol allocation methodology previously
approved by the Commission in Order No. 29708, Case No. PAC-E-02-3.
BACKGROUND – REVISED PROTOCOL
PacifiCorp is an electrical corporation and public utility in Idaho and provides retail
electric service to more than 1.7 million customers in Idaho and five other western states.
PacifiCorp owns substantial generation and transmission facilities. Augmented with wholesale
power purchases and long-term transmission contracts, these facilities operate as a single system
on an integrated basis to provide service to all customers in a cost-effective manner. PacifiCorp
recovers costs of owning and operating its generation and transmission system in retail prices
established from time to time in state regulatory proceedings.
Because all of the Company’s generation and transmission resources are deemed to
be used to serve the Company’s customers in all of its state jurisdictions, the Company contends
it is necessary to determine what portion of the costs associated with each of the rate-based
resources ought to be allocated to customers in the state for which prices are being established.
If different state commissions make different decisions regarding what resources should be
DECISION MEMORANDUM 2
deemed to be in PacifiCorp’s rate base or if different state commissions adopt different policies
for allocating the costs of resources among states, the Company may not be afforded the
opportunity to recover its full cost of providing electric service.
Each of PacifiCorp’s state regulatory commissions has the ability to pursue policies
that it believes are in the public interest in its state. It is also important, however, the Company
contends, for PacifiCorp to be able to make business decisions in an environment where differing
state policies do not result in denying the Company a reasonable opportunity to recover its
prudently incurred costs. This, the Company states, would create a disincentive for PacifiCorp to
invest in its system.
On March 5, 2002, PacifiCorp petitioned the Idaho Public Utilities Commission to
initiate an investigation of inter-jurisdictional issues affecting the Company as a consequence of
its status as a multi-jurisdictional utility subject to the jurisdiction of six state regulatory
Commissions.
As a result of different cost allocation methods adopted for ratemaking purposes in
the Company’s various states of operation, PacifiCorp maintained that it was no longer being
provided the opportunity to fully recover its costs. By Order No. 28978, the Commission
established a docket for investigation, established an intervention deadline and approved a joint
Multi-State Process (MSP) for analyzing PacifiCorp inter-jurisdictional issues (Idaho Code § 61-
505) and established initial MSP scheduling (Idaho Code § 61-501).
On September 30, 2003, PacifiCorp filed a Motion, direct testimony and exhibits
seeking Commission ratification of an Inter-jurisdictional Cost Allocation Method – Protocol
(Protocol). On July 14, 2004, PacifiCorp filed a Revised Protocol and Supplemental Testimony.
On November 4, 2004, PacifiCorp and Commission Staff filed a Joint Motion requesting
acceptance and Commission approval of a Stipulation and Agreement (Stipulation) negotiated by
PacifiCorp, Staff, Monsanto Company, and AARP as full settlement of the inter-jurisdictional
cost allocation issues affecting PacifiCorp. Reference IDAPA 31.01.01.272-276. The Revised
Protocol was approved by the Idaho Public Utilities Commission on February 28, 2005. (Order
No. 29708, Case No. PAC-E-02-3).
Section XIII.B of the Revised Protocol establishes a Standing Committee for
continued dialogue among the states. While not abridging the integrity of Commission decision-
making processes within each respective state, the Standing Committee:
DECISION MEMORANDUM 3
● Monitors and discusses inter-jurisdictional allocation issues facing
PacifiCorp and its customers;

● Helps to organize and direct work group analysis of inter-
jurisdictional allocation issues;

● Ensures work group analysis is supported by sound technical
analysis;

● Shares views on possible amendments to the Revised Protocol, as
they may arise;

● Seeks consensual resolution of issues arising under the Revised
Protocol;

● Ensures wide dissemination of information regarding Standing
Committee meeting locations and dates and information relating to
its activities;

● Ensures and encourages open participation in Standing Committee
meetings by all interested persons; and,

● Appoints a Standing Neutral to facilitate discussions among the
states, to monitor issues and to assist the Standing Committee.

APPLICATION – 2010 PROTOCOL
Since the approval of the Revised Protocol, interested parties in Utah raised concerns
that the continued use of the Revised Protocol may result in a Utah-allocated revenue
requirement that is higher when compared to a revenue requirement allocated using the Rolled-In
methodology that was anticipated by the Public Service Commission of Utah when it originally
adopted the Revised Protocol. The Standing Committee and workgroups have been collaborating
since September 2009, to come up with potential solutions acceptable to all parties in the context
of the Revised Protocol allocation methodology, including the performance of various studies by
the Company at the request of the Standing Committee.
In July 2010, the Standing Committee reached an agreement in principle to amend the
Revised Protocol allocation methodology; such agreement to be known as the “2010 Protocol”
and provided by the Company as Exhibit No. 1 to the direct testimony of Ms. Andrea L. Kelly.
The 2010 Protocol describes how the costs and wholesale revenues associated with PacifiCorp’s
generation, transmission and distribution system will be assigned or allocated among its six-state
DECISION MEMORANDUM 4
jurisdictions for purposes of establishing its retail rates. If adopted, the 2010 Protocol will
remain in effect for Company filings made through 2016. The amendments are intended to allow
for greater movement to a Rolled-In allocation methodology, while retaining a Hydro
Endowment for the former Pacific Power & Light states of Oregon, California, Washington and
part of Wyoming.
The 2010 Protocol continues to identify state resources based on cost responsibility
and regional resources for the Hydro Endowment calculation. Besides using a Rolled-In
allocation methodology as the starting point, a significant change relates to the Embedded Cost
Differential (ECD). The scope of the ECD has been reduced and limited, using a comparison of
embedded costs based on resources in place on the Company’s system prior to 2005. The ECD
calculation has been based on projected pre-2005 resource costs and the value allocated to each
state is fixed and levelized over the term of the 2010 Protocol. For the duration of the 2010
Protocol a fixed dollar amount per year deviation would be applied to each state’s revenue
requirement under the Rolled-In allocation methodology. The deviation is composed of two
parts; a situs adjustment associated with the surcharge imposed under the Klamath Hydroelectric
Settlement Agreement to Oregon and California with a corresponding credit to the other states,
and the fixed levelized ECD.
As reflected in the 2010 Protocol, the assignment of a particular expense or
investment, or allocation of a share of an expense or investment, to a state pursuant to the 2010
Protocol is not intended, and should not, prejudge the prudence of those costs. Nothing in 2010
Protocol shall abridge any state’s right and/or obligation to establish fair, just and reasonable
rates based upon the law of that state and record established in rate proceedings conducted by
that state. Parties who have supported the ratification of the 2010 Protocol do so in the belief
that it will continue to achieve a solution to multi-state issues that is in the public interest.
However, a party support of the 2010 Protocol is not intended in a manner to negate the
necessary flexibility of the regulatory process to deal with changed or unforeseen circumstances,
any party support of the 2010 Protocol will not bind or be used against that party in the event that
unforeseen or changed circumstances caused that party to conclude, in good faith, that 2010
Protocol no longer produces results that are just, reasonable and in the public interest.
The requested amendments in the Revised Protocol allocation methodology, the
Company contends, result in a consistent and fair cost allocation method that assures the
DECISION MEMORANDUM 5
Company a reasonable opportunity to recover all of its prudently-incurred costs and supports
further system investment. Adoption of the changes, the Company contends, are just, reasonable
and in the public interest.
Rocky Mountain Power requests that the Commission complete its review and issue
an Order with respect to its Application no later than March 31, 2011.
COMMISSION DECISION
PacifiCorp has submitted for Commission approval proposed amendments to the
Revised Protocol inter-jurisdictional allocation methodology (2010 Protocol). Staff recommends
that the Commission issue a Notice of Application and establish an intervention deadline. Does
the Commission agree with the recommended procedure?

Scott Woodbury
Deputy Attorney General

bls/M:PAC-E-10-09_sw