20150515Reply Comments.pdf

ROCKY MOUNTAIN
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May 15,2015
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201 South Main, Suite 23fl)
Salt Lake City, t tah 84111
Jean D. Jewell
Commission Secretary
Idatro Public Utilities Commission
472W. Washington
Boise, fD $702
Re: CASE NO. PAC-E"14-10
IN THE MATTER OT'THE APPLICATION O['ROCI(Y MOT]NTAIN POWER
FOR APPROVAL OF THE TRANSACTION TO CLOSE THE DEER CREEK
MII\IE AI\D T'OR A DET'ERRED ACCOI]NTING ORDER
Dear Ms. Jewell:
Please find enclosed an original and seven (7) copies of Rocky Mountain Power's Reply
Comments responding to Staffcomments and joint comments of Monsanto Company and
PacifiCorp Idatro Industrial Customers in the above referenced matter. Confidential information
is provided under separate cover.
Informal inquiries may be directed to Ted Westoq Idaho Regulatory Manager at (801) 220-
2963.
Very truly yours,,W{ t//,u*-/a.
Jeftey K. Larsen
Vice President Regulation
Enclosures
CC: Service List
Yvonne R. Hogle (8930)
201 South Main Street, Suite 2400
Salt Lake city, utah 84111
Telephone No. [phone]
Facsimile No. [phone]
E-mail: [e-mail]
Attorneyfor Rocky Mountain Power
In the Matter of the Application of Roclry
Mountain Power for Approval of a
Transaction to Close Deer Creek Mine and
for a Deferred Accounting Order
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BEFORE THE IDAIIO PUBLIC UTILITIES COMMISSION
Case No. PAC-E-14-10
ROCKY MOUNTAIN POWER'S
REPLY COMMENTS
RESPONDING TO STAFF
COMMENTS AND JOINT
COMMENTS OF MONSANTO
COMPANY AND PACIFICORP
IDAHO INDUSTRIAL
CUSTOMERS
Pursuant to the Notice of Scheduling Order No. 33221 ("Notice"), issued by the Idaho
Public Utilities Commission ("Commission") February 6,2015 in this Case, PacifiCorp, d.b.a.
Rocky Mountain Power ("Rocky Mountain Power" or "Company") hereby files its reply
comments ("Reply Comments"), in response to the comments ("Staff Comments") filed by the
Staff of the Idaho Public Utilities Commission ("Staff') and to the joint comments ("Joint
Comments") filed by Monsanto Company and the PacifiCorp Idaho Industrial Customers ("Joint
Parties"). In support ofthe Reply Comments, the Company states as follows.
PROCEDURAL BACKGROUND
On December 15, 2014,the Company filed an Application (l) seeking approval to close
the Deer Creek mine; (2) for an accounting order authorizing the Company to defer the ensuing
costs, losses and balances related to the Transaction to a regulatory asset;l and (3) seeking
Commission determination that the Company's decision to consummate the Transaction is
prudent. Pursuant to ldaho Code $ 67-328, an electric utility must obtain approval from the
Commission before it sells or transfers ownership in any generation, transmission, or distribution
plant.
Before authorizing the transaction, the public utilities commission
shall find: (a) That the transaction is consistent with the public
interest; (b) That the cost of and rates for supplying service will not
be increased by reason of such transaction; and (c) That the
applicant for such acquisition or transfer has the bona fide intent
and financial ability to operate and maintain said property in the
public service.
On April 23, 2015 and April 24, 2015, the Joint Parties and Staff, respectively, filed
Comments responding to the Company's Application. The Company files these comments in
response to the parties' Comments.
INTRODUCTION
The Transaction is the culmination of the Company's multi-year effort to protect
customers from rising costs and risks associated with the Deer Creek mine, while ensuring a
reliable supply of coal to the Company's Huntington plant. As compared to the alternatives, the
Transaction saves hundreds of millions of dollars for customers by capping pension liabilities,
selling certain mining assets, executing a replacement coal supply agreement ("CSA") with
favorable pricing and risk-mitigation provisions, and establishing a significant negotiated
reduction in the Company's retiree medical obligation related to the mine.2 Indeed, there is
ample evidence on the record for the Commission to find that the Transaction is prudent and in
I As in previous filings, the "Transaction" includes the Company's decision to close the Deer Creek mine, withdraw
from the United Mine Workers of America 1974 Pension Trust "1974 Pension Trust," settle the retiree medical
obligation, sell certain mining assets, and enter into new and amended coal supply agreements for its Huntington and
Hunter generating plants.
2 Direct Testimony of Cindy A. Crane, CaseNo. PAC-E-14-10,p.32,lines 14-19 (December 15,2Ol4).
the public interest. Among other compelling reasons, [i]t "results in a lower cost option than
continuing to invest in and operate the Deer Creek mine through2}lg.'3
The closure of the Transaction necessitates a finding as to the deferred accounting of the
related costs, balances, and losses. Idaho Code $ 6l-524 provides the Commission with wide
discretion in this regard, and the accounting treatment proposed by the Company in its
Application is reasonable given the significant benefits to customers of moving forward with the
Transaction. The Company should not be penalized for acting on an opportunity that will
provide significant benefits to customers. Certain of the proposals advanced by Staff and also by
the Joint Parties would do just that.
While Staffs position largely aligns with the Company's recommendations, Rocky
Mountain Power recommends that the Commission reject the following Staffrecommendations:
(l) deny continued amortization of the Deer Creek Mine investment and other mining assets at
the current rate of depreciation through the Energy Cost Adjustment Mechanism ("ECAM"); (2)
deny a one-time, non-precedential modification to the ECAM for no application of the 90110
sharing band for other Transaction-related net power costs and replacement fuel costs; (3) deny
carrying charges and amortization periods as proposed in the Company's Application; and (4)
deny additional return on the unrecovered investment in the Deer Creek Mine and related assets
in the next general rate case.
Rocky Mountain Power also recommends that the Commission reject Joint Parties'
extreme positions and recommendations to: (l) delay a finding that the Transaction is prudent
until the next general rate case; (2) use the "depreciation reserve methodology" to assign some of
the responsibility of the unrecovered plant to the Company; (3) amortize the deferred account
3 Comments of the Commission Staff, Case No. PAC-E-14-10, p.4 (April 24,2014); see also Direct Testimony of
Cindy A. Crane, p. 31, line 14 -p.32,line2.
balances over seven or nine years; (4) deny carrying charges as proposed in the Company's
Application; (5) delay approval of deferred accounting related to the withdrawal from the 1974
Pension Trust; (6) deny deferral of costs related to construction work in progress ("CWIP") and
preliminary survey and investigation expenditures ("PS&f; (7) deny deferred accounting for
expenses related to union supplemental unemployment and medical costs, non-union severance
costs, and miscellaneous closing costs, including labor; (8) reduce Transaction costs that flow
through the ECAM in an amount equal to the Idaho-allocated return on the Mining Assets
already reflected in rates until removed from rates in the next general rate case; and (9) defer the
projected reduction in fuel inventory and credit it against the inventory write-off, and credit any
excess thereof against the remaining regulatory assets.
ARGUMENT
RESPONSE TO STAFF COMMENTS
I. The Commission Should Adopt the Company's Recommendations with
Respect to the Prudence of the Transaction and the Establishment of
Regulatory Assets for All Costs, Balances and Losses Requested, as
Supported by Staff.
Recognizing that the Transaction provides significant net benefits to customers, Staff
appropriately recommend "that the Commission find the Company's decision to consummate the
sale to be prudent and in the public interest.'/ Specifically, Staff supports the proposal to close
the Deer Creek Mine and sell the Mining Assets to Bowie as it "results in a lower cost option
than continuing to invest in and operate the Deer Creek Mine throu gh 2019."s Staff agrees that
the Transaction "is consistent with the public interest" and that "the proposed sale is the best way
to limit increasing costs of the Deer Creek Mine . Staff recommended the creation of
n Id.,p.4 (April 24,2015).
s Comments of the Commission Staff, Case No. PAC-E-14-10, p. 4 (April 24,2014).
6 hd.,p.3.
regulatory assets for the unrecovered mine investment and related assets, the loss of the sale of
the Mining Assets, CWIP and PS&I, Transaction closure costs, the 1974 Pension Trust
Withdrawal Liability, and the Retiree Medical Obligation. This recommendation is reasonable
and consistent with the Company's Application. The Company should be able to establish
regulatory assets for costs, balances and losses that are related to a transaction that is prudent and
in the public interest. The Commission should, therefore, approve the Transaction as prudent
and in the public interest and the creation of regulatory assets for these items, consistent with
Staff s recommendations.
Staffdid not recommend offsetting the regulatory assets for the return on the unrecovered
investment in the Deer Creek Mine or for the change in fuel inventory, or for a sharing based on
depreciation reserve percentages of the unrecovered investment, Transaction closure costs,
United Mine Workers of America ("UMWA") medical settlement or the 1974 Pension Trust
withdrawal payments as proposed by the Joint Parties. While the Staff comments are broadly in
line with the Company's Application, the Company opposes the following Staff
recommendations.
II. StafPs Recommendation to Create a Separate Deferral for the Unamortized
Investment in the Deer Creek Mine and Related Assets Without Additional
Return on Investment In a Future General Rate Case Should Be Rejected
Because it is Punitive and Unreasonable.
While the Company does not necessarily oppose StafPs recommendation to apply the
g}ll} sharing band in the ECAM to the net power costs related to the Deer Creek MineT and the
Bowie CSAs and the creation of a deferral for the unamortized investment in the Deer Creek
Mine and related assets without sharing separate from the ECAM wherein all of the other
7 Staffspecifically excluded the depreciation of unamortized amounts fiom its recommendation to share at90ll0
percent pursuant to the ECAM.
Transaction-related net power costs and CSAs will flow through, the Company opposes Staff s
recommendation of no return on unamortized investment in the Deer Creek Mine and related
assets included in such separate deferral account at the conclusion ofa future general rate case.
This is unreasonable and punitive given the Company's diligence, planning and ability to secure
the Transaction. The Company is not seeking special recognition or reward for its efforts that
culminated in a very valuable deal for customers, but it should definitely not be punished for it.
All the Company is seeking is fair and equitable treatment.
Absent the Transaction, the Company would continue to eam a return on the Deer Creek
Mine assets and the other Transaction related Mining Assets and would fully recover the
investments through depreciation. As a result of the significant customer benefits demonstrated
through the Transaction, the Company should not be penalized for a decision that benefits
customers either through reduced recovery of investment or through a lack of refurn on
investment where owners basically are financing the benefits of the Transaction for customers
over time. For these reasons the Commission should reject Staff s recommendation of no
additional return on the unamortized investment in the Deer Creek Mine and related assets in a
future general rate case. Altematively, the Company recommends that the Commission not
make a determination on this issue until the next general rate case.
[I. StafPs Recommendations (a) Opposing Carrying Charges for All Deferrals
and (b) Extending Amortization Periods to Five Years are Unreasonable and
Should Be Rejected.
The Commission should reject Staff s recommendations opposing carrying charges for all
deferrals and extending amortization periods for the regulatory assets over a five year period
beginning with the next general rate case because they are unreasonable and arbitrary, as more
specifically explained in the Company's response to the Joint Parties' Comments below. If no
return on investment or carrying charge is applied after the next general rate case, then the
recovery of shareholder investment should occur as quickly as possible so that shareholders are
not penalized for a Transaction that provides benefits to customers. If the Commission does not
adopt the Company's ratemaking recommendations, the Company alternatively recommends that
ratemaking treatment of the regulatory assets be determined in the next general rate case.
RESPONSE TO JOINT PARTIES' COMMENTS
I. The Evidence Shows the Transaction is in the Public Interest and Prudent,
and There Is No Reason to Delay Such Findingl Moreoverr ldaho Law
Requires a Finding of Public Interest.
While the Joint Parties do not support a finding that the Transaction is prudent and in the
public interest, the Joint Parties indicate they are not "challenging in this proceeding the
prudence of the Company's actions with respect to moving forword with the Tronsaction."s
Despite this, they claim that "it is not necessary or desirable for the Commission to make a
prudence finding in this proceeding, outside of a general rate case and prior to all of the
Transaction costs being known."e The Joint Parties' sole argument supporting this
recommendation is that all of the Transaction costs are not yet known.lo
This argument does not support the Joint Parties' recommendation that the Commission
not make a prudence finding. First, the Joint Parties fail to explain how the Company can"move
forward'with the Transaction without obtaining Commission approval pursuant to Idaho Code $
6l-328. That provision requires a finding that the "transaction is consistent with the public
interest." Second, the Company has provided evidence demonstrating that the Transaction
results in over $200 million of net benefits to customers as compared to the alternatives of the
'Joint Comments of the Monsanto Company and the PacifiCorp Idaho Industrial Customers, Case No. PAC-E-l4-
10, p. 5 (April 23, 2015) (emphasis added).
e Id. p.5.
'o Id.
'oKeep Case" (i.e., maintaining the status quo) and the "Market Case."l1 The Company's detailed
analyses are reasonable and reliable and support the overall net benefits calculation.
To support the net benefits calculation, the Company provided work papers that account
for the mine's extensive infrastructure and estimated labor hours and subsequent workforce
required to close the mine, along with other reasonable and reliable assumptions to determine
projected costs. Any variations that may occur between the projected costs and actual costs will
not make a discernable difference relative to the net benefits. Finally, because the Transaction
includes conditions precedent requiring regulatory approval acceptable to the parties, there is no
question that deferring approval will impede the Transaction.l2
II. Deferral of Costs Is Not Single Issue Ratemaking.
The Company has requested approval of the Transaction and the ability to defer
Transaction-related costs for later consideration and recovery in a general rate case. It has not
requested approval to reset general rates or that a single-item surcharge be implemented to begin
recovering the costs. The application for deferral, therefore, does not constitute single-item
ratemaking. The deferral of costs is a normal tool available in the regulatory process to deal with
unique situations like the one presented in this case. In addition, absent the Company's request
for deferral, the Transaction-related costs would flow through fuel expense as recognized or
incurred and would impact the ECAM balances (although at a 90/10 sharing) and associated
ECAM cost recovery process all in one year.
III. The "Depreciation Reserve Methodology" Is Punitive and Ignores the
Significant Customer Benefits of the Transaction; In Any Event, the Cases
Cited Do Not Support the Claim that the Commission Has Historically
Relied on the Depreciation Reserve Methodology for Allocating Losses
Associated with the Disposition of Utility Property.
rr See Direct Testimony of Cindy A. Crane, p. 32, lines 6-9.
t2 See id., p. 2, lines 2l-23.
The Joint Parties' proposal to share the costs of the unrecovered mine investment, direct
closure costs, UMWA medical settlement and the 1974 Pension Trust withdrawal payments
based on the "Depreciation Reserve Methodology" is extremely punitive and ignores the
significant customer benefit provided by the Transaction and should be rejected. In effect, the
Joint Parties want 100% of the future benefits of the Transaction from the new CSA, but want
the cost of achieving the benefits shared with the Company's owners.
In any event, the Joint Parties mischaracterize the cases they cite to support their
contention that the Commission has historically used the depreciation reserve methodology to
allocate losses related to the disposition of utility property. First, in Case No. PAC-E-99-2, the
Commission specifically indicated that "the Company has not proposed nor do we make any rate
base adjustment in this case related to the /oss of Centralia as a Company-owned resource. We
will address the regulatory and rate base adjustments for Centralia in the Company's next general
rate case when removal of the resource can be viewed in context with all related revenue,
expense, supply and operational ramifications."l3 Similarly, the Commission in Case No. AVU-
E-99-6 stated, in response to a proposal from Potlatch Corporation to remove Centralia from rate
base immediately and to make related adjustments to the revenue requirement and rates of
Avista: "[W]e find the Company and Staff arguments against this change to be persuasive. We
will address the regulatory and rate base adjustments for Centralia in the Company's next general
rate case when removal of the resource can be viewed in context with all related revenue,
expense, supply and operational ramifications."l4 The Commission findings in the cases cited by
t3 See In re the Application of PacifiCorpfor an Order Approving the Sale of its Interest in (l) the Centralia Steam
Electric Generating Plant, (2) the Rate Based Portion of its Centralia Coal Mine, and (3) Related Facilities; for a
Determinqtion of the Amount of and the Proper Ratemaking Treatment of the Gain Associatedwith the Sale; and (4)
an EWG Determination, Case No. PAC-E-99-2, Order 28296, at 8 (March 2000) (emphasis added).
\a See In re the Apptication of Avista Corporationfor Authority to Sell lts Interest in the Coal-Fired Centralia
Power Plant, Case No. AVU-E-99-6, Order 28297, at 8 (March 2000).
the Joint Parties dealt only and specifically with the use of the depreciation reserve methodology
for allocating gains. Indeed, in one of those cases, the Commission explicitly found that it would
not make findings related to the losses, contrary to what the Joint Parties claim.
The Joint Parties ignore the significant net benefits and savings to customers in the
amount of over $200 million. The Company adamantly disagrees with the Joint Parties' one-
sided recommendation to take all of the benefits for customers while recommending that the
Company absorb a significant portion of the unrecovered mine investment andlor costs incurred
to facilitate the Transaction. This recommendation is inequitable and should be summarily
rejected. Nevertheless, if the Commission adopts it, it should also adopt a sharing of the
Transaction benefits by the same percentages offered by the Joint Parties.
IV. The Balances of the Deer Creek Mine and the Mining Assets Should
Continue to Be Amortized Consistent with the Current Rate of Depreciation
Reflected in Base Rates So that the Company May Fully Recover Its
Unrecovered Investment During the Same Period It Would Have Recovered
the Investment But for the Transaction.
It would be unreasonable and punitive for the Commission to order amortization periods
for the recovery of the unrecovered investment in the Deer Creek Mine and the Mining Assets
that are longer than the assets' current rate of depreciation reflected in base rates, as
recommended by parties in this case - particularly if continued rate base treatment of the
unrecovered investments at the Company's authorized rate of return is not assured. The Joint
Parties recommend that these amounts be amortized over seven years if the depreciation reserve
. methodology is used to address the losses, i.e., the unrecovered investment, or nine years if the
methodology is not used. Staffrecommends that the amounts be amortized over five years from
the time rates from the next general rate case are reset. However, if the Company were to do
nothing (i.e., not close on the Transaction, keep the mine open and operating, etc.), the Company
l0
would finish collecting its unrecovered investment in the Deer Creek Mine in 2019, consistent
with the remaining life of those assets. The parties' proposals to extend the amortization period
beyond that date ignores this fact and are unreasonable when viewed against this backdrop.
Adopting their proposals would discourage utilities from taking advantage of beneficial
opportunities for customers. Further, with their proposals they expect the Company's
shareholders to finance the assets for longer amortization periods, even though the Transaction
provides substantial benefits to customers, as compared to the status quo. Extending the
amortization period simply provides more benefits to customers at the Company's expense. For
these reasons, the Commission should reject contrary recommendations and approve the
Company's proposal to amortize the Deer Creek Mine and the Mining Assets as set forth in its
Application, including the Company's request for continued rate base treatment of the
unrecovered investments throughout the recovery period.
V. Carrying Charges
a. Allowing Carrying Charees on the Amounts for Unrecovered Investments that
Flow Through the ECAM Durine the Period When Balances Are Awaitine
Review and Collection Is Just and Reasonable.
The Commission should allow carrying charges on the amounts for unrecovered
investments that would qualifr as net power costs under the ECAM during the pending
collection period. During the period in which these costs are awaiting collection after the year in
which they are deferred to the ECAM, it is reasonable for the Company to collect the time value
of money, at the rate the Company currently collects for all other balances in the ECAM. The
Company is allowed to do so with all of its other net power costs that are also awaiting
collection. The costs from the Transaction should be no different, in particular in situations, such
as this one, where the Company's actions should be encouraged rather than discouraged.
ll
b. Allowins Carrying Charges at the Comnany's Overall Rate of Return on
Deferred Closure Costs during the Period When Balances Are Awaitins
Review and Collection. as Well as Durine Collection. Is Just and Reasonable.
The Commission should allow carrying charges on amounts related to closure costs that
will be deferred for later collection to the extent these costs have been funded as proposed in the
Company's Application. The Joint Parties' proposal (as well as Staff as mentioned above)
would limit the Company's ability to fully recover its costs to complete the Transaction. To fund
the closure costs, the Company must incur financing costs. As the Company seeks to share 100
percent of the benefits of the Transaction with customers, it would be unreasonable to not allow
the Company to fully recover the costs of completing the Transaction, including financing costs
for the time value of money. This Transaction will result in significant benefits for Idaho
customers. The Company should be allowed to accrue a carrying charge on costs incurred and
funded to complete the Transaction at the Company's current rate of return.
The cases cited by the Joint Parties as precedent for approving deferred accounts with no
carrying charge are very different from this case. In Case No. IPC-E-06-06, Idaho Power sought
deferral of costs incurred to develop the Grid West Regional Transmission Organization, the
development of which was unsuccessful. Here the Company has shown that the Transaction is,
by far, the best of the alternatives related to the Deer Creek Mine and Mining Assets, and it will
save customers hundreds of millions of dollars, relative to the "Market Case" and the "Keep
Case" (both as defined in the Application). Neither the Staff nor the Joint Parties dispute this
point. This situation is not, as suggested, an "attempt" to do something that might benefit Idaho
customers. The Company's analysis shows that this Transaction is in customers' best interests
because it will save customers hundreds of millions of dollars.
t2
In Case No. IPC-E-091-2I,ldaho Power sought deferral of costs related to the under-
recovery of transmission revenues from legacy transmission agreements not recoverable through
formula transmission rates. That situation is very different from this case. Faced with a
ballooning pension trust liability, significantly higher operating and fueling costs at the Deer
Creek Mine, and other difficult and potentially costly circumstances, the Company proactively
sought the Transaction. The Company was diligent and methodical in its planning with regard to
each of the components of the Transaction and was able to achieve a beneficial path forward, as
its detailed analyses show. It would be punitive to deny the Company the ability to recover its
financing costs for the Transaction under these circumstances. For these reasons, the
Commission should allow the Company to accrue a carrying charge equal to the Company's
overall rate of return or, in the alternative, at the Company's cost of debt, for all deferral balances
during the period when the balances are awaiting review and collection, as well as rate base
treatment of any unamortized balances during the collection period.
VI. Recovery of CWIP and PS&I Costs Is Reasonable Because the CWIP
Includes Project Costs Incurred in the Normal Course of Business.
The Company disagrees with the Joint Parties' recommendations to deny recovery of
CWIP and PS&I costs for several reasons. First, as noted, the components of the Transaction are
a package that will provide significant benefits to customers. Second, the CWIP the Company is
seeking to recover includes project costs incurred in the normal course of business, such as the
costs necessary to maintain the mine's conveyor belts. The PS&I costs are related to drilling.
All of these costs were necessarily incurred to support ongoing mine operations prior to a
determination to close or sell the mine. As such, if the Company were not pursuing the
Transaction, these projects would have been completed and the incurred costs would have been
placed in plant-in-service and recovered in the normal course of business. It is unreasonable to
13
prevent the Company from an opportunity to recover costs it otherwise would incur (and which
were unavoidable) merely because there was a later decision to close the mine. Furthermore, it is
important to note that virtually no work was performed on these projects in2014. The Company
made the prudent decision to put these projects on hold while the union and Bowie Resource
Partners LLC negotiations were occurring, rather than completing the projects and putting them
in service, only to have a higher balance of unrecovered plant. Given this, the Company should
not be penalized for having made the prudent decision to reduce costs. In addition to allowing an
opportunity for future recovery of the CWIP and PS&l balances, the Commission should allow
the Company to accrue a carrying charge on the CWIP regulatory balance at the Company's
overall rate of return or, alternatively, at the Company's authorized cost of debt until it is
included in base rates with rate base treatment upon the effective date of the next general rate
case.
VII. Deferral of Supplemental Unemployment and Medical Benefits for Union
Employees, Severance for Non-union Employees and the On-Going Labor and
Other Closure Costs Is Necessary If the Commission Deems the Transaction to Be
Prudent and in the Public Interest.
The Joint Parties' recommendation to deny the deferral of closure costs related to labor is
unreasonable. If the Commission approves the Transaction as prudent and in the public interest,
the Company must necessarily incur costs related to the labor required to close the Deer Creek
Mine and triggering of the 1974 Pension Trust withdrawal, which was a significant driver of the
Transaction. It is not unreasonable for these employees to receive supplemental unemployment,
medical and severance benefits. Moreover, the Company is contractually obligated to provide
the supplemental unemployment and medical benefits to union employees under the labor
agreement. For parties to argue that these labor costs are "discretionary" and should therefore
not be deferred is disingenuous. On the one hand, they acknowledge the "financial exposure to
14
ratepayers of failing to withdraw from the 1974 Pension Trust," and yet, on the other hand, they
recommend denial of the deferral of the very costs that must be incurred to close the Mine so that
the Company can withdraw from the 1974 Pension Trust to limit the admitted financial exposure
to customers.
As to the Joint Parties' argument that these costs were not unforeseen, are not known and
measurable, and do not have a material impact on the Company's financial integrity, the
Company was working throughout 2014 to negotiate a labor deal with the UMWA. The final
labor sefflement agreement was not reached until October2014 and provided for release of the
UMWA's jurisdiction over the Preparation Plant. This was a necessary prerequisite to trigger
withdrawal from the 1974 Pension Trust. The final union sefflement on retiree medical benefits
was not reached until December 8, 2014, and the Bowie documents were not executed until
December 12, 2014. Although the Company was working toward completing the different
components of the Transaction during 2014, it had no assurance that these would be successfully
resolved or when that might occur.
If the Commission decides that the Transaction is prudent and in the public interest, the
Company should be able to defer the costs necessary to close the Mine. The Joint Parties do not
provide a good reason for the Commission to deny this request. This is a unique situation that
provides significant savings and benefits to customers and should be encouraged not punished.
For the foregoing reasons, the Commission should reject their recommendations to deny deferral
of supplemental unemployment and medical benefits for union employees, severance for non-
union employees and the on-going labor and other closure costs related to the Transaction.
VIIL Deferral of the Pension Withdrawal Liability Is Not Only Required, But Is
Necessary to Avoid an Immediate Expense that Would Othenvise Be
Recoverable through the ECAM.
l5
In their comments, the Joint Parties also claim that deferral of the Pension Withdrawal
Liability is unnecessary and that, in any event, the liability recovered by the Company should be
limited to the perpetuity value to ratepayers of the annual withdrawal payments at the current
authorized rate of return, which they calculate to be ! million. The Joint Parties claim the
Company should simply continue paying the approximate $3 million annual payments in
perpetuity and only be able to defer a portion of the actual liability. In making these arguments,
the Joint Parties misunderstand what the Company proposes, and their recommendations would,
rather than benefitting customers, result in more cost to customers.
As already noted, the closure of the Transaction necessitates a finding as to the deferred
accounting of the related costs, balances, and losses, and ldaho Code $ 6l-524 gives the
Commission broad discretion in this regard to ensure that the proposed deferred accounting is
appropriate and in the public interest. Here, the Company's proposal is clearly in the public
interest and the most prudent course of action.
By withdrawing from the 1974 Pension Trust, the Company will be responsible to either
pay the annual liability payments in the approximate amount of $3.0 million per year, in
perpetuity, or negotiate a prepayment of the annual amount in a lump sum. In either case, if the
Pension Liability is not deferred as the Company proposes (and treated as a regulatory asset), the
Company would immediately have to record the full liability as a fuel expense on its books, and
that expense would be captured in the ECAM and thus reimbursed by customers albeit subject to
the sharing band. As such, under the Joint Parties' approach, customers would immediately face
increased rates to account for this liability, rather than having the issue deferred and amortized.
The Company's proposal, by contrast, is to defer the liability and continue paying the $3
million annual payments until the earlier of (l) the Company negotiating a prepayment of the
l6
annual installments in a lump sum at a favorable value to customers or (2) the plan terminates
and the liability and associated regulatory asset can be finally quantified. At that point, the
Company would adjust its liability to reflect the amount that is owed and would begin amortizing
the regulatory asset. Rates would then reflect recovery of the amortization and rate base
treatment of the portion ofthe unamortized balance funded by the Company.
Further, the Joint Parties' calculation of the Pension Withdrawal Liability is incorrect.
Accounting rules require the Company to reflect the full amount of the liability. At the time of
the filing the Company's Application, the withdrawal liability was estimated to be I
million. As Staff noted, GAAP rules require that this amount be recorded at its present value
using a risk-free rate.ls At the time of filing the Company's Application, the present value of the
withdrawal liability the 30-year treasury rate of 3.0844 percent (the rate projected for
November 30,2014) was approximately $! million.tu If the Commission were to adopt the Joint
Parties' approach, which undervalues the full extent of the withdrawal liability and does not
comply with accounting principles, the Company would have to immediately book the difference
between the amount suggested by the Joint Parties and the full liability amount as expense.
Since the pension costs are fuel-related, they would be captured in the ECAM and customers
would be responsible for 90 percent of the full liability in one year, causing significant customer
rate impact. Thus, the Company's proposal to defer the loss resulting from the Pension
Withdrawal Liability and continue recovery of the annual payments should be approved.
IX. The Joint Parties' Recommendations Related to the Return on Mining Assets
and the Fuel Inventory, as set forth in (a) and (b) Below, are Exercises of
Single-Issue Ratemaking and Should Be Rejected.
rs Comments of the Commission Staff, Case No. PAC-E-14-10,p.7,n.\ (Apil24,2015).
t6 Id.
usmg
t7
The Company's Application seeks approval of several deferrals to account for estimated
costs, balances, and losses that it will incur, to be trued-up when actuals are known, as a result of
entering into the Transaction. The Company's proposal does not result in changes to current
rates and preserves the ability to address the costs associated with the Transaction in a future
ratemaking proceeding. To the contrary, the Joint Panies make recommendations that are
exercises of single issue ratemaking and harmful to the Company.
a. Requiring a Reduction of the Transaction Costs that will Flow throueh the
ECAM in an Amount Equal to the Idaho-Allocated Return on the Mining
Assets Already Reflected in Rates until It Is Removed from Rates in the Next
General Rate Case Is Arbitrary and Asymmetrical and Should Be Rejected.
First, the Joint Parties recommend an immediate reduction of estimated costs that would
flow through the ECAM equal to the Idaho-allocated return on the mining assets that the
Company is currently collecting through rates. This is single-issue ratemaking and should be
rejected. As the Joint Parties state in their comments "[S]ingle-issue ratemaking ignores the
multitude of other factors that otherwise influence rates, some of which could, if properly
considered, move rates in the opposite direction from the single-issue change."lT Considering
some costs or revenues in isolation, as the Joint Parties recommend for the refurn on mining
assets here, might cause a commission to order a reduction to costs a utility is currently
collecting without recognizing counterbalancing savings in other areas or to the utility's overall
earnings level relative to its authorized rate of return.
b. Recoenizing the Projected Earnines on the Reduction in Fuel Inventory in the
Deferral and Crediting them Against the Inventorv Write-Off. and Requiring
the Excess to Be Credited Aeainst the Remainine Reeulatory Assets Is Single-
Issue Ratemakins and Should Be Rejected.
'' Joint Comments of the Monsanto Company and the PacifiCorp ldaho Industrial Customers, Case No. PAC-E-I4-
l0 (April 23, 2015), p. 5.
l8
Second, in exchange for the deferral of certain inventory write-offs the Company will
have as a result of the Transaction, the Joint Parties recommend that the reduction in fuel
inventory also be deferred and credited against the inventory write-off, and that any excess be
credited against the remaining regulatory assets. This too is single-issue ratemaking and should
be rejected for the same reasons cited above.
Fluctuations in inventory levels and plant in-service balances are normal. Idaho's
allocated rate base has increased over $85 million since rates were last adjusted. Singling out the
return on the Deer Creek unrecovered plant and fuel inventory while completely ignoring all
other capital investments made by the Company since rates were last set is single-issue
ratemaking.
The Transaction is a unique and beneficial opportunity for customers that merits unique
treatment. As shown, the Transaction generates over $200 million of reduced costs, i.e., savings
for customers. The Company only seeks equitable and reasonable treatment that will not
negatively impact the Company's earnings, and that will allow the Company to recover all
investment and costs incurred to deliver these customer savings. The Joint Parties'
recommendations regarding the refurn on mining assets and the fuel inventory are asymmetrical
and financially harmful to the Company. It would discourage utilities from taking advantage of
opportunities that could potentially deliver substantial benefits and savings to customers. For
these reasons, the Commission should reject the Joint Parties' recommendation and leave the
ratemaking treatment of the return on the mining assets and the reduction of fuel inventory until
the next general rate case.
X. The Company Does Not Oppose the Joint Parties' Recommendations
Regarding the Joint-Ownership, Royalty Costs, Waiver of Sharing Bands in
the ECAM and Retiree Medical Obligation.
t9
The Joint Parties have made recommendations in their Joint Comments that the Company
does not oppose.
First, the Joint Parties argue that, because other third parties who own interests in Hunter
Units I and 2 would receive some benefit from the Transaction, the Company's recovery should
be reduced to reflect the portion of the assets required to serve the non-Company-owned portion
of the Hunter Plant. The Company does not oppose this recommendation. Contrary to the Joint
Parties' suggestion, the Company always intended for its recovery to be adjusted to reflect the
portion of the Transaction costs that are allocable to non-Company ownership interests. Indeed,
as the Joint Parties note, the Company addressed this issue in discovery in this matter,
acknowledging that this adjustment would result in a 3.73Yo reduction in specified amounts.r8
The Joint Parties have stated that they "believe this adjustment is reasonable."le
Second, in their comments, the Joint Parties recommend that, given some uncertainty in
the exact amount of the royalty costs associated with the mine closure, the Commission should
require that the final recovery of these costs should be based on the royalties actually charged,
rather than estimates. The Company is not seeking to recover the estimated royalty amounts; the
intent has always been to only recover the actual amounts incurred when those amounts are
finally determined.2o
Third, in its Application, the Company is seeking to have the depreciation and operating
expenses of the mine and the mining assets (which are currently included in net power costs),
together with the costs and benefits of a replacement coal supply, be subject to the ECAM
" Joint Comments of the Monsanto Company and the PacifiCorp Idaho Industrial Customers, Case No. PAC-E-l4-
10,p.21.
'n Id.
20 The Company opposes the Joint Parties' recommendation to cap the royalty payments. Their recommendation is
based on a misunderstanding of the agreed upon terms in the Wyoming stipulation. The limitation agreed to in
Wyoming pertains only to those areas of the mine for which abandonment royalties were deemed by the Company
*!lofbeingincunedandthus!costsfortheseroyaltieswereincluiedintheCompany'sApplication. -
20
without application of the 90110 sharing band. In their comments, the Joint Parties propose a
"one-time, non-precedential exception that would grant RMP's request to flow the change in coal
supply costs associated with the Transaction through the ECAM without the 90/10 sharing
mechanism, as well as the amortization expense associated with the Deer Creek Mine and the
Mining Assets."2l The Company does not oppose this recommendation.
Finally, the Joint Parties note that the Company has requested deferral of approximately
$t million for Retiree Medical Obligations, fl million for an income tax regulatory asset, and fl
million for unrecovered asset retirement obligation costs. The Joint Parties do not oppose the
Company's proposed deferral of the Retiree Medical Obligations or the unrecovered ARO costs.
They recommend, however, that the proposed income tax regulatory asset deferral be approved
"to the extent it offsets what would otherwise be a duplicate tax benefit to customers, and RMP
maintains in its Response to Monsanto Data Request2.5."22 The Company does not oppose this
recommendation.
CONCLUSION
The Company has demonstrated that the Transaction is prudent and in the public interest
and the evidence fully supports that conclusion. As such, the Commission should approve the
Transaction, determine that it is prudent and in the public interest and authorize accounting
orders allowing the Company to defer costs, balances and losses related to the Transaction. In
addition, with the exception of the matters the parties agree upon, and given the unique nature of
the Transaction and the work and diligence undertaken by the Company to secure substantial net
benefits and savings for customers that resulted from these efforts, the Commission should reject
the Staff s and the Joint Parties' recommendations discussed above because they are (1) punitive,
2t \d.,p.23.2'ld.,p.27.
2t
asymmetrical, and employ single-item ratemaking that would not allow the Company a
reasonable opportunity to recover the costs incurred to facilitate this Transaction, (2) not
consistent with the fact that the Transaction is in the public interest and the best alternative
available for the Company to pursue, and (3) not consistent with accounting and regulatory
principles.
DATED this May 15, 2015.
RESPECTFI,JLLY SUBMITTED,
ROCKY MOI.'NTAIN POWER
R. JeffRichards
Yvonne R. Hogle
22
CERTIFICATE OF SERVICE
I hereby certify that on this I 5ft of May, 201,5 ,I caused to be served, via e-mail and
overnight delivery, a true and correct copy of the foregoing document in PAC-E-14-10 to
the following:
James R. Smith (E-mail oniy)
Monsanto Company
P.O. Box 816
Soda Springs, Idaho 83276
i im.r. smith@monsanto. com
Brad Mullins (C)
333 SW Taylor Street, Suite 400
Portland, OR97204
brmullins@mwanalytics. com
Ronald L. Williams (C)
Williams Bradbury, P.C.
1015 W. Hays St.
Boise 1D,83702
ron@williamsbradbury. com
Yvonne Hogle
Rocky Mountain Power
201 S. Main Street, Suite 2400
Salt Lake City, Utah 8411I
Yvonne.ho ele@nacifi corp.com
Jim Duke @-mail only)
Idahoan Foods
357 Constitution Way
Idatro Falls,ID 83742
[e-mail]
Randall C. Budge (C)
Racine, Olson, Nye, Budge & Bailey,
Chartered
201E,. Center
P.O. Box 1391
Pocatello, ID 83204-1391
[e-mail]
Ted Weston
Rocky Mountain Power
201 S. Main Street, Suite 2300
Salt Lake City, Utah 84111
Ted.weston(Doacificom. com
Data Request Response Center
PacifiCorp
825 NE Multnomah Steet, Suite 2000
Portland, Oregon 97232
datarequest@f acifi corp. com
Val Steiner (E-mail only)
Agrium Us Inc., Arlu-West lndustries
3010 CondaRd
Soda Springs, ID 83276-5301
val. steiner@.aeriurrr. com
Neil Price
Idaho Public Utilities Commission
Neil.price@.ouc. idaho. sov
Supervisor, Regulatory Operations