20121227final_order_no_32701.pdf

Office of the Secretary
Service Date
December 27, 2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF PACIFICORP DBA ROCKY MOUNTAIN ) CASE NO. PAC-E-12-08
POWER FOR A DEFERRED ACCOUNTING )
ORDER. ) ORDER NO. 32701
On May 3, 2012, PacifiCorp dba Rocky Mountain Power filed an Application with
the Commission seeking a deferred accounting order authorizing the creation of a regulatory
asset associated with the remaining book value of its Carbon plant. The Commission issued a
Notice of Application on May 23, 2012. A Notice of Modified Procedure was issued on
September 21, 2012, setting a comment deadline of November 20, 2012. Order No. 32648.
Commission Staff was the only person or party to file comments. By this Order, the
Commission approves Rocky Mountain Power's Application.
THE APPLICATION
Rocky Mountain Power requests a deferred accounting order authorizing the
Company to transfer the remaining plant balances from electric plant in service and accumulated
depreciation and establish a regulatory asset to recover these costs when the Carbon plant is
retired. The Company anticipates retiring the Carbon plant in early 2015 to comply with recently
finalized Environmental Protection Agency (EPA) standards. The Company would amortize the
regulatory asset through 2020 - the current assumed life of the plant.
Rocky Mountain Power anticipates that once the plant is retired, the Company will
book the net plant balance to be recovered to the regulatory asset account, along with any other
associated costs. Rocky Mountain Power maintains that the costs associated with alternatives to
comply with the EPA's recently finalized Mercury and Air Toxics Standards (MATS) are not
expected to be cost-effective. The current emissions profiles of the Carbon units do not meet
MATS limits for all pollutants regulated under that rule. The Carbon units have not been, and
cannot economically be, retrofitted with scrubbers, baghouses, or other significant emissions
control equipment investments that would foster the Carbon plant's ability to comply.
In addition to the MATS rules, Rocky Mountain Power has considered other
regulations in its long-term planning decisions for the Carbon plant, including National Ambient
Air Quality Standards (NAAQS) and long-term Regional Haze Rule planning. The Company
ORDER NO. 32701 1
anticipates that the Carbon plant will not be able to demonstrate attainment of the 1-hour
nitrogen oxides or 1-hour sulfur dioxide NAAQS, as would be expected to be required under any
major plant modification permitting process, primarily due to the unique geographic location of
the plant. The Carbon plant is located in the mouth of a canyon with no room to install
significant environmental retrofits.
The Company states that it previously assessed converting the Carbon plant to
natural gas as a fuel resource. However, a conversion would not achieve an acceptable
emissions profile for long-term environmental compliance. Rocky Mountain Power's economic
analysis also showed that it was not a viable least cost option, after accounting for risk and
uncertainty.
Rocky Mountain Power maintains that it continues to assess compliance solutions,
including assessing whether emerging technologies could save the Carbon plant from
decommissioning. The Company states that it will continue to assess the commercial viability
and cost of emerging technologies, as well as the ability of said technologies to support
compliance with other emissions regulations such as NAAQS and long-term Regional Haze Rule
planning to which Carbon would be subject. However, Rocky Mountain Power does not expect
to identify a least-cost option, accounting for risk and uncertainty, other than retiring the Carbon
plant.
The Company states that retiring Carbon may pose a complication with potential
transmission system impacts. Depending on the impacts, the Company may need to request an
extension of the initial April 2015 compliance deadline for the Carbon plant. If there is a need
for requesting an extended compliance schedule, Rocky Mountain Power will work within the
conditions included in the MATS regulations and seek administrative guidance to request an
appropriate compliance extension.
The Company reports that, as of December 31, 2011, the Carbon plant had a net book
value of approximately $55 million, with a depreciable life running through 2020. Rocky
Mountain Power reports its annual depreciation expense at approximately $3.7 million. The
Company requests that the Commission approve the transfer of the remaining plant balances for
the Carbon plant from FERC Account 101 (Electric Plant in Service) and FERC Account 108
(Accumulated Depreciation) and record a regulatory asset for the net amount in FERC Account
182.3 (Other Regulatory Assets) on the date the plant is removed from service. The Company
ORDER NO. 32701 2
also requests that the Commission approve the amortization of the newly created regulatory asset
beginning with the transfer date over the remaining depreciable life of the Carbon plant, or 2020.
Rocky Mountain Power states that Idaho's share of the regulatory asset would be established
based on the system generation (SG) allocation factor for the calendar year prior to the date the
plant is removed from service.
Rocky Mountain Power maintains that the transfer of the net plant balance of the
Carbon plant to a regulatory asset with amortization of the regulatory asset over the remaining
depreciable life of the plant will result in the continuation of equivalent levels of rate base and
annual expense and have minimal impact on customer rates.
The Company currently estimates the cost of decommissioning the facility and
remediating the site to be approximately $57 million. The Company states that it will be refining
that estimate over the coming months as its compliance assessment continues. Rocky Mountain
Power maintains that it will file a recommendation for amortization and recovery of these costs
in a future general rate case or other proceeding.
COMMENTS
In reviewing Rocky Mountain Power's Application, Staff considered several options
including the need to retire the plant, reasonable alternatives to retirement, transmission issues,
and customer impact of the Company's proposal. Staff believes, generally, a power plant may be
retrofitted with scrubbers, baghouses, or other significant emissions control equipment
investments that would foster the plant's ability to comply with environmental regulations. The
Carbon plant is unique in its mountainside location at the mouth of the narrow Castle Gate
Canyon in Utah, and has no room to install significant environmental retrofits. Staff maintained
that even if economically feasible abatement technologies emerge, Rocky Mountain Power may
still lack the physical ability to retrofit the Carbon plant.
An alternative to retirement of the coal-fired Carbon plant is to repower the plant
using natural gas. However, there is still the risk that even with conversion to natural gas, the
plant will not meet emissions standards and will have to be shut down. Staff recommended the
Company be directed to demonstrate that natural gas conversion is not a feasible solution for the
Carbon plant no later than its next general rate case. Staff believes it is unlikely that a technical
solution can be found in the near future, but supports the Company's willingness to identify a
least-cost option, accounting for risk and uncertainty, for extending the life of the Carbon plant.
ORDER NO. 32701 3
Staff views the assumed shutdown date of April 2015 as the earliest that the Carbon plant would
be retired. Staff recommended any retirement prior to 2015 require a filing with the Commission
demonstrating the prudence of such a decision.
Staff audited the remaining plant balances proposed to be transferred to the
regulatory asset account, including the capital additions made in 2008 and 2009. The audit
found that those additions were required to keep the plant functioning at an acceptable level until
its planned retirement in 2020 and should be included in the amount to be transferred. Rocky
Mountain Power's Application requests that the transferred amount be amortized over the
remaining depreciable life of the Carbon plant as if it has remained in service. Staff believes this
is reasonable and would have minimal impact on customers. Ultimately, Staff recommended the
Commission approve the Company's Application for deferred accounting treatment of the
remaining plant balance of the Carbon plant at the time of the plant's retirement.
FINDINGS AND CONCLUSIONS
Rocky Mountain Power is a public utility pursuant to Idaho Code § § 61-119 and 61-
129. The Commission has jurisdiction over this matter pursuant to Title 61 of the Idaho Code
and the Commission's Rules of Procedure, IDAPA 31.01.01.000 et seq. Based on our review of
the Company's Application and the audit and comments of Commission Staff, we approve
Rocky Mountain Power's request to transfer the remaining plant balances from electric plant in
service and accumulated depreciation and establish a regulatory asset to recover these costs when
the Carbon plant is retired.
The Company stated that it will continue to monitor compliance solutions including
assessing whether emerging technologies could save the Carbon plant from decommissioning.
While we find that it is just and reasonable to allow Rocky Mountain Power to establish a
regulatory asset associated with the remaining book value of its Carbon plant, we encourage
Rocky Mountain Power to continue to explore options and keep this Commission informed of
any potential alternative solutions.
ORDER
IT IS HEREBY ORDERED that Rocky Mountain Power's Application seeking a
deferred accounting order authorizing the creation of a regulatory asset associated with the
remaining book value of its Carbon plant is approved.
ORDER NO, 32701 4
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this a T44
day of December 2012.
EPA— - NiA I- VEWINA. ~&F?P
f?"DER. PRESIDENT
MACK A. REDFORD, dOMMISSIONER
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MARSHA H. SMITH, COMMISSIONER
ATTEST:
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Ccmmission secretary
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ORDER NO. 32701 5