20121120Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
RECEIVEr1
7012N0y20 AMII:07
IOA1O PJL rrn irr-U I L.I
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 PACIFICORP DBA )
ROCKY MOUNTAIN POWER'S APPLICATION) CASE NO. PAC-E-12-07
FOR AN ACCOUNTING ORDER REGARDING )
COSTS INCURRED FOR NAUGHTON UNIT 3 ) COMMENTS OF THE
) COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on PacifiCorp
dba Rocky Mountain Power's Application.
BACKGROUND
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.
Naughton Unit 3 is a 330-MW thermal steam generation unit that began commercial
operation in 1971. It is one of three coal-fired generation units wholly owned by PacifiCorp at
the facility located near Kemmerer, Wyoming. The unit's economic life is expected to end by
December 2029.
If the Company continues to operate the unit, the Company must comply with current
Regional Haze (RH) rules and Best Available Retrofit Technology standards promulgated by the
EPA and enforced by the Wyoming Department of Environmental Quality through the State
STAFF COMMENTS 1 NOVEMBER 20, 2012
Implementation Plan (SIP). To operate the unit as a coal-fired unit beyond December 31, 2014,
the Company must install a selective catalytic reduction (SCR) system and a Pulse Jet Fabric
Filter (PJFF) system specified in the SIP.
In September 2011, the Company filed for a Certificate of Public Convenience and
Necessity (CPCN) with the Wyoming Public Service Commission (Docket no. 20000-400-EA-
11). The application sought authorization to construct the two control systems specified in the
SIP, along with environmental-related upgrades to the existing facility. In support of its
application, the Company analyzed different alternatives based on current economic conditions
in the months before submitting the application.
While the Wyoming CPCN proceedings were ongoing, the Company entered into a
December 1, 2011 engineering, purchasing, and construction (EPC) contract with a limited-
notice-to-proceed (LNTP) provision. The Company believed it needed to begin engineering and
design activities to complete the project on schedule. However, during the Wyoming
proceedings, the Company performed additional analysis using: a more rigorous analysis for
some of the alternatives, additional modeling assumptions, and updated forward natural gas price
forecasts. The updated analysis led the Company to determine that the most prudent course of
action was to convert Naughton Unit 3 to a natural-gas fired steam unit and to not install the
emission controls originally proposed in the CPCN application. The Company suspended the
EPC contract on February 27, 2012 and the contractor stopped all work on April 23, 2012. The
Company provided the results of the updated analysis to the Wyoming Commission in the
Company's Rebuttal Testimony in April 2012. The Company then moved to withdraw its
application on May 11, 2012. The Wyoming Commission granted the motion and dismissed the
matter on July 19, 2012. See Order Granting Motion to Withdraw Application in Wyoming
Commission Docket No. 20000-400-EA- 11.
Before suspending the EPC contract, the Company incurred $7,914,547 in necessary
costs related to Naughton Unit 3 environmental compliance project permitting, development,
engineering, and site assessment activities. (citing Application Attachment 1, detailing the
costs). With this Application, the Company seeks approval to transfer this amount from FERC
Account 107 (Construction Work in Progress) to FERC Account 182.3 as a regulatory asset.
Idaho's share of this amount is about $479,000 based on the current system generation allocation
factor. 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 COMMENTS 2 NOVEMBER 20, 2012
STAFF ANALYSIS
First, Staff submitted information requests to the Company to confirm that the
expenditures included in the overall requested amount for transfer were associated with the
project to meet its intended purpose. Staff's requests asked the Company to describe various
studies and other major activities performed by the Company's contractors. The requests also
asked the Company to describe how the work activities related to the overall project. After
thoroughly reviewing the Company's responses, Staff believes that the work performed was
associated with the overall project as originally intended.
Second, Staff audited expenditures in each cost category to determine that each expense
was reasonable compared to the scope of work completed by the contractor. The largest account
in the amount requested to be transferred ties directly to the Company's contract payments. Staff
obtained the EPC contractor's monthly status reports and a description of the activities the
contractor had completed before suspending work on the project. Staff believes the dollar
amounts incurred by the Company accurately represent the contract payments and work
performed.
Finally, Staff analyzed the application, exhibits, and testimony filed with the Wyoming
Commission in the Company's CPCN case (Docket No. 20000-400-EA-1 1) to determine if there
was sufficient justification to record the incurred costs as regulatory assets. Staff believes there
is sufficient evidence to allow the deferral of incurred costs as a regulatory asset.
Staff emphasizes that prudence of the expenditures will be evaluated when the Company
seeks rate recovery. At that time, Staff will continue to examine what the Company knew at the
time of the Wyoming CPCN application, and the method and assumptions the Company used to
perform its initial economic analysis justifying the expenditures.
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's request for an
accounting order authorizing it to transfer $7,914,547 from FERC Account 107 to FERC
Account 182.3 as a regulatory asset. Staff also recommends that the Commission not determine
prudency in this proceeding, but instead direct the Company to submit information documenting
prudency in support of rate recovery in the Company's next general rate case.
STAFF COMMENTS 3 NOVEMBER 20, 2012
Respectfully submitted this 2 day of November 2012.
V /) 14-
Karl T. Klein
Deputy Attorney General
Technical Staff: Mike Louis
Joe Terry
i:umisc/comments/pace 12.7kkmljt comments
STAFF COMMENTS 4 NOVEMBER 20, 2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 20TH DAY OF NOVEMBER 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. PAC-E-12-07, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
TED, WESTON
ID REGULATORY AFFAIRS MANAGER
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
E-MAIL: [e-mail]
DATA REQUEST RESPONSE CENTER
E-MAIL ONLY:
[e-mail]
YVONNE HOGLE
SENIOR COUNSEL
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
E-MAIL: Yvonne.hog1epacificorp.com
7
SECRETAR,
CERTIFICATE OF SERVICE