20110330Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6864
RECi: 1\/i:.D,¡l-l . ,._'-
201 i MAR 30 PM 2: 44
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )
POWER FOR APPROVAL OF AMENDMENTS )
TO REVISED PROTOCOL ALLOCATION )METHODOLOGY )
)
)
CASE NO. PAC-E-IO-09
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
attorney of record, Neil Price, Deputy Attorney General, and in response to the Notice of
Modified Procedure, Notice of Comment/rotest Deadline and Notice of Reply Deadline issued
on January 12,2011 in Case No. PAC-E-1O-09, submits the following comments.
BACKGROUND
On September 15,2010, PacifiCorp dba Rocky Mountain Power (RMP; Company) filed
an Application with the Idaho Public Utilties 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-02-03. Rocky Mountain Power is a division
of PacifiCorp. The Revised Protocol is the method used by the Company to allocate generation,
transmission and other costs to its six jurisdictional states for purposes of establishing retail rates.
STAFF COMMENTS MARCH 30, 2011
STAFF ANALYSIS
The Revised Protocol is the allocation method curently used to allocate and assign
generation, transmission and distribution costs to PacifiCorp's six retail state jurisdictions. The
proposed amendments to Revised Protocol, hereafter in these comments and commonly referred
to as "2010 Protocol", wil be the new allocation methodology if approved by the states of Idaho,
Oregon, Utah and Wyoming. PacifiCorp wil 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
2010 Protocol like the 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 Idaho Commission when approving and thereby ratifying the Revised Protocol in
Order No. 29708 established a guideline of review. Staff believes the guidelines and
observations established in Order No. 29708 continue to be relevant and accurate in the review
of the amendments proposed for the 2010 Protocol.
The Commission notes that sooner or later a merged company should be treated
as one integrated company and not six separate jurisdictional entities. We note of
significance that the Company dispatches resources on a company or system-wide
basis. This method of resource utilzation, we believe seemingly argues for a
Rolled-In approach as to allocation of costs. Recognizing, however, that there are
some perceived inequities of this approach on the west side of the Company's
system, we find the Revised Protocol methodology to be a reasonable and
acceptable methodology.
Order No. 29708, p. 10.
A consistent allocation method is important. The following concerns remain relevant if a base
methodology is not adopted:
Potential impacts of inconsistent allocation methodologies adopted in various
states Staff contends, could have included:
Loss ofPacifiCorp's financial integrity with associated cost of capital impacts;
Loss of efficiencies or reliabilty if investments and operation and maintenance
expenditures are reduced; Limitation of individual state's abilty to implement
policy goals; Potential loss of states' jurisdiction to Federal Energy Regulatory
Commission (FERC) or the Securities Exchange Commission (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...
Order No. 29708, p. 7.
STAFF COMMENTS 2 MARCH 30, 2011
The Standing Committee and other participants to the Multi-State Process (MSP)
developed an agreement in principle that was presented on July 26, 2010 at a Commissioners'
Foru check-in conference calL. The statement provided by the Standing Committee at that
meeting stated:
Standing Committee paricipants of the MSP process have tentatively reached an
agreement in principle changing the Revised Protocol cost allocation
methodology. The initial premise for this new agreement is a Rolled-In cost
allocation methodology. The changed methodology continues to identify State
Resources based on cost responsibilty and Regional Resources for the Hydro
Endowment calculation. Besides using Rolled-In as the starting point, a
significant change relates to the Hydro Endowment quantified under the Embedded
Cost Differential (ECD). The ECD wil be reduced and limited using a
comparison based on Pre-2005 Resources. It is proposed that for 2011 through
2016, the ECD calculation wil be projected and a fixed dollar amount per year
deviation from Rolled-In analysis would be applied. The deviation is composed
of two parts; (1) a situs adjustme.nt charge for the Klamath Surcharge to Oregon and
California, with a corresponding credit to the other states, and (2) an adjustment to
reflect the Hydro Endowment ECD.
The amendments in the 2010 Protocol 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 par of Wyoming. The 2010
Protocol continues to identify state resources based on cost responsibilty and regional resources
for the Hydro Endowment calculation. Besides using a Rolled-In allocation methodology as the
staing 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.
The single most importt element conceptually is limiting the application of the hydro
ECD under the 2010 protocol to a comparison with the costs connected to other production
resources that were in place with the Company prior to the year 2005. See McDougal Exhibit
STAFF COMMENTS 3 MARCH 30, 2011
NO.6 for a list of those resources. Limiting the ECD adjustment is an important provision for
Idaho customers. The impact of the ECD was growing. When the Revised Protocol was
adopted, Staff expected the EDC to decline over time as hydro relicensing costs were incurred.
Actual events allowed the EDC to grow, resulting in greater benefits to the states of Oregon,
Wyoming, California and Washington. The states of Idaho and Utah therefore did not see the
expected reductions in the ECD leveL. Staff does not believe Idaho customers have been hared
to date due to the various caps for ratemaking puroses. However, these caps were expiring and
without a change Staff believes Idaho and Utah customers would be harmed in future rate setting
proceedings. Staff believes the changes in the 2010 Protocol correct this inequity, so Idaho
customers wil remain unhared.
Basic regulatory objectives should be and were considered by Staff when reviewing
PacifiCorp's Application to adopt the 2010 Protocol. They are as follows:
· The protocol should lead to allocations that are fair to PacifiCorp's Idaho ratepayers and
to the Company's ratepayers in each of the other states served by PacifiCorp.
· The protocol, when followed, should provide PacifiCorp with the opportity to recover
all of its prudently incurred costs.
· Explicit jurisdictional allocation methodologies predominately based on a consensus
methodology, is preferred to foster investor confidence and thus the abilty to attract
capital at a reasonable cost.
· Administration of the allocations protocol should be reasonably transparent, simple to
understad, and not be overly burdensome to administer.
· The allocations should lead neither to undue revenue requirement volatilty nor gross
unpredictabilty.
· The method should allow for states to independently pursue their energy policies.
Rolled-in methodologies have production, transmission, and selected other system-
defined non-production costs being allocated to jurisdictions as a function of their shares of the
system loads. Accordingly, their expanded loads causes the high growth states to pick up an
expanded share of the transmission and other system-non production costs, which are assumed to
be fixed. This translates directly to a reduced percentage share of the fixed system-non-
production costs borne by the slower-growth states. That reduction for the slower-growth states
makes up for their increased dollar allocation of production costs that resulted from the addition
of the high-cost new plants needed to accommodate the high-growth states' loads.
STAFF COMMENTS 4 MARCH 30, 2011
To remove some of the instabilty in the allocations results the Company is proposing to
project the hydro ECD adjustment over the entire six-year 2010 Protocol formal duration interval
and then levelize that discounted series to produce the flat anual allocation inputs. See
McDougal Exhibits NO.7 and 8 for a comparison of levelized versus unlevelized results.
Levelized numbers are also shown for the Klamath surcharge. There wil be a monetary benefit
to Idaho customers with the move toward Rolled-In as reflected in the 2010 Protocol. McDougal
Exhibit NO.9 is a graph showing the 2010 Protocol difference from Revised Protocol on a
percentage basis. In all but one year Idaho wil benefit and on an annualized basis the benefit
wil be received in each year.
All Class 1 DSM, including the Idaho Irrigation Load Control Program, are treated as
situs in the 2010 Protocol. A MSP workgroup continues to evaluate Idaho's request for an
amendment to the 20 i 0 Protocol to reflect the Idaho Irrigation Load Control Program as a
system cost. Agreement has not yet been reached. To be consistent with Order No. 32196 in
Case No. PAC-E-I0-07, Staff recommends a deviation be included in the Idaho Order for the
system allocation of these cost. Stâff believes any approval of the 2010 Protocol must have this
condition. The full positions of the paries wil not be repeated in these comments as they are
fully documented in PAC-E-I0-07.
Impact Studies
At the request of the Multi-State Process Stading Committee, the Company. used the
baseline study to complete several alternative studies ilustrating the impact of going from
Revised Protocol to a more rolled-in 2010 Protocol. The alternative studies included a structural
separation study, go-it-alone study, market price sensitivity study, and growth impact study:
Although the Company fulfilled the basic requirements set forth by the Standing Committee,
Staff believes a more consistent and thorough analysis in some areas would provide Idaho with
better information to evaluate the full impact of future changes.
Baseline Study
The baseline study was designed as an analytical tool that is used by the MSP
participants' to compare the revenue requirement given varying allocation methods. The
revenue requirement is calculated based on expectations of what wil occur in calendar years
2010 through 2019, and then jurisdictionally allocated according to Revised Protocol, Rolled-In,
STAFF COMMENTS 5 MARCH 30, 2011
and Modified Accord. Staff believes the baseline study is useful for comparing alternative
scenarios. The Integrated Resource Plan load growth forecast is the Company's planning
document for determining its future resource portfolio. This portfolio becomes the benchmark
for making resource assumptions in the structural separation, go-it-alone, and load growth study
comparisons.
Structural Separation and Go-It-Alone Analysis
The Structural Separation and Go-It-Alone Analysis were designed to estimate the cost
savings from continuing to plan and operate as a single integrated system. Structural Separation
assumes that PacifiCorp and Rocky Mountain Power would become separate entities and operate
on a balancing area basis, and the Go-It-Alone study assumes that each state jurisdiction would
become a separate entity. Staff believes there is value to the Structural Separation study because
the balancing area assumptions are quantifiable and realistic. However, Staff recognizes how
difficult it is to try measuring the outcome of the Go-It-Alone study without assumptions about
each jurisdiction's transmission alignment, abilty to dispatch resources, and access to wholesale
markets. Even though in the Company's view, "creating a set of assumptions on these issues that
would prove reasonably acceptable to all jursdictions would be impractical at this time," lack of
an approved allocation methodology could result in the need for the Standing Committee to
decide whether the results of a Go-It-Alone study are worth creating an agreed upon set of
assumptions. (Duvall Di., p. 8, L. 6-8)
Market Price Sensitivity Study
The Market Price Sensitivity Study was designed to evaluate the impact of volatile power
and gas prices on the Revised Protocol methodology. In order to measure the impact higher and
lower prices would have on each jurisdictions revenue requirement, the Net Power Costs (NPC)
were increased and decreased across the system by 20%. Staff supports the Company's Market
Price Sensitivity Study as a way to show how Revised Protocol is impacted by price volatilty,
but believes in the future it should consider incorporating this analysis into all of its alternative
studies. Evaluating each balancing area and jurisdiction's potential sensitivity to volatile market
prices wil more accurately measure the impact of load growth changes to Revised Protocol, and
more accurately value operating as a single integrated system. The Go-It-Alone analysis simply
values additional resource capacity at the cost of a new combined cycle combustion turbine
STAFF COMMENTS 6 MARCH 30, 2011
outlined in the 2008 IRP. A stochastic GRID model that incorporates IRP assumptions would
more accurately estimate the long term cost of additional resource capacity by balancing area and
jurisdiction. By not evaluating each jursdictions resource portfolio and potential long term price
sensitivity, the Company's $270 milion dollar benefit value of operating as a single integrated
system is only a high level evaluation and should not be used for other rate setting puroses.
Load Growth Study
The load growth study was designed to estimate the impact of load growth on the various
jurisdictions. Utah and Wyoming are projected to be the fastest growing states, so for the
purpose of this study, loa.d growth from calendar year 2010 through calendar year 2019 was
adjusted to match the average growthrate ofload in the other states. Next, using the 2008 IRP
as a base, several resources that were necessar to meet Utah and Wyoming's projected load
growth were removed to reflect the downward adjustment. Staff believes the Load Growth
Study is necessar as a way to show the slower growing states are not subsidizing the faster
growing states.
STAFF RECOMMENDATION
Staff recommends the 2010 Protocol be adopted with the modification for the Idaho
Irrigation Load Control Program. Costs associated with this program should be allocated on a
system basis.
Reporting requirements were established to allow Idaho paries to evaluate the ongoing
reasonableness of the Revised Protocol allocation methodology. Similar reporting should be
required under the 2010 Protocol. The Embedded Cost Differential (ECD) is calculated by
comparing the cost of pre-2005 hydro resources to the cost of "All Other" resources, therefore it
is important to closely evaluate the impact escalating prices might have on its resource decisions
and future ECD calculation. Staff recommends that a) the Company's general rate case filings
with the Idaho Commission include calculations of the Company's Idaho revenue requirement
under the 2010 Protocol, Revised Protocol, and the Rolled-In methods, and b) the Company shall
fie anual results of operations with the Idaho Commission including calculations of the
Company's Idaho allocated results of operations under the 2010 Protocol, Revised Protocol, and
STAFF COMMENTS 7 MARCH 30, 2011
the Rolled-In methods. All such submittls shall include and adequately exrHain all adjustments,
assumptions, work papers and spreadsheet models used by the Company in making such
calculations.
Respectfully submitted this ~ ~day of March 2011.
N~Neil Price .
Deputy Attorney General
Technical Staff: Terri Carlock
MattElam
i: umisc: comments/pace i o. 9nptcme comments
STAFF COMMENTS 8 MARCH 30, 2011
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 30TH DAY OF MARCH 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. PAC-E-I0-09, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
TED WESTON
ID REG AFFAIRS MGR
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
E-MAIL: ted.weston(fpacificorp.com
DATA REQUEST RESPONSE CENTER
E-MAIL ONLY:
datarequest(fpacificorp.com
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
E-MAIL: tony(fyanel.net
GARYKAJANDER
MONSANTO COMPANY
MAILZONE C2NF
800 N LINDBURG BLVD
ST LOUIS MO 63167
E-MAIL: gary.r.kajander(fmonsanto.com
MAURICE BRUBAKER
BRUBAKER & ASSOCIATES
E-MAIL: ONLY
mbrubaker(fconsultbai.com
MARKCMENCH
DANIEL E SOLANDER
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
E-MAIL: mark.moench(fpacificorp.com
daniel.solander(fpacificorp.com
ERIC L OLSEN
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204-1391
E-MAIL: elo(fracinelaw.net
RANDALL C BUDGE
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204-1391
E-MAIL: rcb(fracinelaw.net
JAMES R SMITH
MONSANTO COMPANY
E-MAIL: ONLY
jim.r.smith(fmonsanto.com
JorfrA
SECRETAR~
CERTIFICATE OF SERVICE