20120521Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

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

FROM: KARL KLEIN
DEPUTY ATTORNEY GENERAL

DATE: MAY 20, 2012

SUBJECT: ROCKY MOUNTAIN POWER’S APPLICATION FOR AN
ACCOUNTING ORDER RELATED TO NAUGHTON UNIT 3,
CASE NO. PAC-E-12-07

On May 3, 2012, PacifiCorp dba Rocky Mountain Power applied to the Commission
for an Order authorizing it to record a regulatory asset associated with its costs to meet emission
requirements at Naughton Unit 3. These costs consist of costs to develop, design, engineer and
procure environmental upgrades including Selective Catalytic Reduction (SCR) and Pulse Jet
Fabric Filter (PJFF) systems. The Company says Idaho’s share of the regulatory asset would be
about $479,000, and that it does not seek to recover that amount now. Rather, it will seek
recovery in its next general rate case. The Company asks the Commission to process its
Application under Modified Procedure.
THE APPLICATION
The Company has worked with state, tribal, and federal agencies to develop a
Comprehensive Air Initiative (CAI) to improve visibility in national parks and wilderness areas.
The CAI is designed to reduce power plant emissions in accordance with regional haze and other
air-quality regulations while balancing customer interests and the obligation to serve current and
reasonably projected demands. Application at 2-3.
With respect to the Naughton Unit 3 SCR and PJFF systems, the Company must meet
environmental requirements such as U.S. Environmental Protection Agency Clean Air Act
regional haze rules. The Company must also comply with Wyoming’s regional haze state
implementation plan (SIP) and best available retrofit technology (BART) analysis,
DECISION MEMORANDUM 2
determination, decision and permit MD-6042, Amended BART permit MD-6042A, and a related
settlement agreement which establishes a December 31, 2014 emissions control compliance and
SCR and PJFF systems installation deadline. See Application at 3.
The Company began its compliance-planning activities for Naughton Unit 3 in
response to Wyoming regulations requiring Naughton Unit 3 and similar emission sources to
submit a BART application by December 15, 2006 (the Company received a 1-month extension).
See Application at 4. Earlier, in November 2003, the Company began engineering assessments
and evaluating emission control equipment for Naughton Unit 3. The Company says these
assessments and evaluations, which it has continued to update and refine, were critical to
establishing an environmental compliance plan and to mitigate SCR and PJFF systems-
development risk. Id.
In 2010, the Company began executing its critical path schedule in order to meet the
December 2014 regional haze compliance deadline. Id. This included developing detailed
project procurement specifications and requesting proposals related to SCR and PJFF
engineering, procurement, and construction (EPC). Id. The Company entered a limited notice to
proceed (LNTP) EPC contract on December 1, 2011. Id. at 5. The LNTP contemplates detailed
engineering and design of time-critical systems, development of equipment procurement
specifications and preliminary three-dimensional modeling, development of project execution
deliverables and procedures, site subsurface assessments, site geotechnical investigations and
preliminary foundation design activities. Id. However, the Company subsequently learned that
the environmental improvements contemplated for Naughton Unit 3 were no longer
economically supported. Id. (citing Company’s April 9, 2012 rebuttal testimony filed in
Wyoming Docket No. 20000-400-EA-11). Accordingly, the Company suspended the EPC
contract LNTP activities as of the end of February 2012. Id.
The Company says it has prudently incurred $7,914,547.69 in necessary costs related
to Naughton Unit 3 environmental compliance project permitting, development, engineering, and
site assessment activities. Id. (citing Application Attachment 1, detailing the costs). With this
Application, the Company seeks to transfer this amount out of FERC Account 107 (Construction
Work in Progress) and record a regulatory asset in FERC Account 182.3 (other Regulatory
Assets). The Company says Idaho’s share of the regulatory asset will be established based on
the system generation (SG) allocation factor, resulting in about $479,000 allocated to Idaho. Id.
DECISION MEMORANDUM 3
The Company says it will seek to recover this regulatory asset in its next general rate case, and
that it would propose that amortization begin in that test period. Id. at 5-6.
STAFF REVIEW
Staff has reviewed the Application and recommends that it be processed under
Modified Procedure.
COMMISSION DECISION
Does the Commission wish to process the case under Modified Procedure?

M:PAC-E-12-07_kk