20150512Reply Comments.pdf

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An IDACORP Comoanv
JULIA A. HILTON
Gorporate Counsel
[e-mail]
May 11 ,2015
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VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case Nos. IPC-E-14-41and PAC-E-14-11
Exchange of Certain Transmission Assets - ldaho Power Company and
PacifiCorp's Reply Comments
Dear Ms. Jewell:
Enclosed for filing in the above matters please find an original and seven (7)
copies of ldaho Power Company and PacifiCorp's Reply Comments.
JAH:csb
Enclosures
1221 W. ldaho 5t. (83702)
PO. Box 70
Boise, lD 83707
Very truly youls,
Julia A. Hilton
JULIA A. HILTON (lSB No. 7740)
ldaho Power Company
1221 West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
ihilton@ idahopower. com
Attorney for ldaho Power Company
DANIEL E. SOLANDER (lSB No. 8931)
WONNE R. HOGLE (lSB No. 8930)
Rocky Mountain Power
201 South Main Street, Suite 2400
Salt Lake City, Utah 84111
Telephone: [phone]
Facsimile: (801 ) 220-3299
daniel. solander@pacifi corp. com
Yvonne. hoq le@pacificorp. com
Attorneys for Pacifi Corp
IN THE MATTER OF THE APPLICATION
OF PACIFICORP DBA ROCKY MOUNTAIN
POWER AND IDAHO POWER COMPANY
FOR AN ORDER AUTHORIZING THE
EXCHANGE OF CERTAIN TRANSMISSION
ASSETS
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NOS. IPC-E-1441
PAC-E-14-11
IDAHO POWER COMPANY
AND PACIFICORP'S REPLY
COMMENTS
ldaho Power Company ("ldaho Powe/') and PacifiCorp dlbla Rocky Mountain
Power and Pacific Power (collectively referred to as "PacifiCorp") (together, the
"Parties," singularly, "Party"), in response to the Comments of the ldaho Public Utilities
IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS. 1
Commission ("Commission") Staff ("Staff') and the Comments of the lndustrial
Customers of ldaho Power ("lClP"), hereby submit the following Reply Comments.
I. PROCEDURAL BACKGROUND
On December 19,2014, the Parties filed a joint Application with the Commission
requesting approval of the exchange of certain transmission assets ("Proposed
Transaction"). Pursuant lo ldaho Code S 61-328, 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 wi!! 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 propefi in the public service.
On April 22,2015, Staff and ICIP filed Comments responding to the Parties' request.
II. DISCUSSION
A. Joint Response to Staffs Comments Recommendino Approval of the
Proposed Transaction Pursuant to ldaho Code S 61-328.
1. Staff Recommends Approval of the Proposed Transaction Pursuant
to ldaho Code S 6{-328.
Staff conducted a detailed review of the joint Application and testimony of the
Parties, discovery responses, and analyzed all aspects of the Proposed Transaction,
including but not limited to the following: the assets transferred that are part of the
Proposed Transaction, the terms of the Joint Purchase and Sale Agreement ('JPSA')
and Joint Ownership and Operating Agreement ('JOOA'), reliability and operational
benefits related to the Proposed Transaction, avoided capital investments, transmission
IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS - 2
capacity improvements, financial considerations, and rate reporting. Staff states that
based on its comprehensive review of the Proposed Transaction, the transaction
complies with ldaho Code S 61-328 and should be approved by the Commission. Staff
Comments at 13.
2. Proper Regulatory Treatment of the Benefits Associated with the
Proposed Transaction.
Staff proposes immediate changes to retail rates to account for the financial
benefits of the Proposed Transaction. Staff recommends that the financial benefits
should be flowed back to customers via the Power Cost Adjustment ("PCA") for ldaho
Power retail customers or the Energy Cost Adjustment Mechanism ("ECAM") for
PacifiCorp retail customers upon approva! of the Proposed Transaction. Currently, the
PCA and ECAM track the annual deviations between transmission wheeling expenses
incurred by each Party as compared to their respective normalized levels of third-party
transmission expenses included in base rates. These costs are a result of purchased
power and surplus sales transactions and represent payments by PacifiCorp and ldaho
Power to other third parties for the use of the third-parties' transmission systems to
wheel power to or from the wholesale market transaction source or destination. On the
other hand, transmission wheeling revenues received from third parties represent the
recovery portion of the cost of owning, operating, and maintaining the transmission
system used by the Parties to whee! power to facilitate their own purchase and sale
transactions. Transmission wheeling revenues are not related to third-party
transmission wheeling expenses. ln fact, the Parties' respective Open Access
Transmission Tariff ("OATT") formula rates explicitly exclude third-party transmission
IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS - 3
expenses because they are not expenses related to the Parties' own transmission
systems.
Retai! customers receive the benefit of third-party wheeling revenues as a
revenue credit in base rates. The test-year level of transmission wheeling revenues is
set at the time of a general rate case to offset the test-year amount of transmission
investments and expenses (or revenue requirement) customers are paying for and is
applied as a revenue credit to retail customers' base rates. Current test-year levels of
transmission revenues included in base rates reflect the transmission plant and
expenses based on a 2011 test year for both ldaho Power and PacifiCorp. Because
neither ldaho Power nor PacifiCorp update base rates annually for changes in
transmission rate base and transmission expenses, it is inappropriate to track only
changes in transmission revenues through the Parties' respective power cost
mechanisms without a corresponding tracking of changes in transmission costs. ln fact,
in Order No. 32821, the Commission acknowledged that although it is reasonable to
include both transmission revenues and expense differences in ldaho Power's PCA, the
Commission agreed it cannot occur unti! a base Ievel of transmission revenues is
established in Idaho Power's next general rate case to properly track any deviations. ln
re Authoity to lmplement PCA Rafes, IPC-E-13-10, Order No. 32821 , May 31 , 2013, at
13.
lf the Commission finds it necessary to reflect in rates the revenue requirement
changes associated with the transaction, it is important to note that PacifiCorp is
currently under-earning and that revenue deficiencies exist for ldaho Power in 2015.
Therefore, if immediate changes to retai! rates are made, customers' rates may initialty
IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS - 4
increase. As demonstrated in Exhibit Nos. 1 and 8, it is over the 1O-year period from
2015-2024 that both Parties' present value revenue requirement impacts will show
financial benefits in retail customer rates. Also, importantly, the revenue requirement
analyses performed by ldaho Power assumed a change in ldaho Power's OATT formula
rate to reflect the termination of the legacy transmission agreements to become
effective October 2015. This assumption requires Federal Energy Regulatory
Commission ("FERC") approval of ldaho Power's OATT rate computation for the
October 2015 - September 2016 OATT collection period. lf ldaho Power's proposed
October 2015 OATT formula rate determination is not approved, the Iegacy
transmission agreements contract demandsl may remain in the OATT formula rate
denominator for an additional year until October 2016, resulting in a lower OATT rate
and under recovery of transmission system costs for ldaho Power during that interim
period. lf the Commission wishes to track differences in transmission revenues from
some base amount as proposed by Staff, it should allow for a symmetrical tracking of
any increases or decreases.
3. Gompliance Filings and Documentation.
ln its Comments, Staff recommends the Parties file with the Commission all final
documents pertaining to the asset transfer, including the documents relating to the true-
up at closing, the finaljournal entries, as well as the updated list of the Parties' common
equipment. Both Parties accept Staffs recommendation and will file the fina!
documents listed above. Staff also recommends an annualfiling from each Party; ldaho
1 See Staffs Comments at 10-11. While Staff correctly identified the formula rate impacts
following the termination of the legacy transmission agreements in Equation 2, Staffs illustration of how
the loads and revenues are treated in ldaho Power's formula rate currently is incorrect. The correct
Equation 1 is Revenue Requirement / (Total Load + Legacy Contract Demand).
IDAHO POWER COMPANYAND PACIFICORP'S REPLY COMMENTS - 5
Power's annual filing will detail the change in transmission revenue as a result of the
change in its OATT formula rate and PacifiCorp's annual filing will detail the change in
wheeling expenses as a result of the asset transfer and the change in Idaho Power's
OATT formula rate. The Parties agree to provide separate reports within the first year
after closing with ldaho Power's report showing the changes in transmission revenues
and PacifiCorp's report showing the change in wheeling expenses as a result of the
asset exchange. However, because the impact of the asset exchange on the OATT
formula rate and wheeling expenses will be more difficult to measure beyond the first
year after closing, and because ldaho Power's annual OATT formula rate change is
publicly available, the Parties do not see the need for ongoing annual reports.
Staff also recommends that PacifiCorp and ldaho Power submit a new
transmission loss allocation methodology for review when it is completed. Because the
transaction between the Parties terminates the legacy transmission agreement that
outlines how losses are repaid for the services provided and defines loss repayment for
transmission and generator main step-up transformer losses, Section 9.5 of the JOAA
requires that the Parties develop an OATT-based losses methodology on or before the
closing and to submit the methodology to FERC for approval. The Parties agree to
submit the same methodology to the Commission for informational purposes only.
B. lClP's Comments Failed to Demonstrate the Proposed Transaction Does
Not Meet the Requirements of ldaho Gode S 61-328.
lClP's position is that the requirements ol ldaho Code S 61-328 are not satisfied
because the Proposed Transaction is complex and therefore creates a risk of increased
rates for ldaho Power customers. lClP Comments at 1. Accordingly, lClP requests
that (1) the Commission defer taking action until approval of the Proposed Transaction
IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS - 6
by FERC; (2) the Commission consider "countervailing benefits"; and (3) ldaho Power
and its shareholders share any identified "countervailing benefits" with customers. lClP
Comments at 1.
lClP has failed to support its contention that the Proposed Transaction is
complex and creates an actua! or potential risk of increased rates for ldaho Power
customers. Access to the Parties' analyses, supporting documentation, and rationale
for the Proposed Transaction has been readily available to lClP since December of
2014. Further, as part of the Commission's approval process, lClP availed itself of the
opportunity to request information and clarification on the details of the Proposed
Transaction, which the Parties responded to. ln spite of its active participation, lClP
offered no meaningful analysis, evaluation, or other evidence in its Comments to
support its underlying contention that the Proposed Transaction is complex and must, or
at least has the potentia!, to result in adverse impacts on ldaho customers. By contrast,
Staff conducted a comprehensive review of the record, as described in Section A, and
concluded the proposed transaction was in the public interest. Moreover, Staff did not
express any concerns that the complexity of the transaction alone created an undue risk
for customers.
lClP's requested mitigation measures are also without merit. Section 2.9 of the
JPSA clearly states that closing of the transaction is contingent on obtaining all
necessary regulatory approvals from five state jurisdictions and FERC, each of which
has independent jurisdiction over the approval of different aspects of the Proposed
Transaction. The JOOA states clearly that its terms are void without the approval and
closing of the JPSA (Section 2.1). Put simply, the Proposed Transaction and the terms
IDAHO POWER COMPANYAND PACIFICORP'S REPLY COMMENTS - 7
of the JPSA and JOOA are only effective and implemented upon approval and closing.
lClP's request that the Commission defer taking action until approval of the Proposed
Transaction by FERC is unnecessary and without legal, regulatory, or practical effect.
Moreover, any deferral by the Commission would result in unnecessary delay to the
detriment of the Parties who have satisfied their burden under tdaho Code S 61-328.2
lClP made certain contentions with respect to the identification of "countervailing
benefits" and suggested such benefits should be shared with customers. Specifically,
lClP recommends "immediate inclusion of the near-term benefits of the transaction."
lClP Comments at 5. As described in the Parties' Joint Response to Staff Comments in
Section A.1 above, benefits should flow to customers through the normal regulatory
processes and the Commission should not depart from standard regulatory ratemaking
principles. The Commission should reject lClP's contention for failing to establish why
the Proposed Transaction is inconsistent with ldaho Code S 61-328.
II!. CONCLUSION
The Parties have entered into a transaction under the JPSA and the JOOA to
reallocate their respective ownership interests to meet their respective load service
obligations and improve operational efficiency. The joint Application requests approval
of the exchange of certain transmission assets pursuant lo ldaho Code S 61-328. Staff
performed a thorough review of the transaction and recommended approval of the
exchange of the transmission assets. Both Parties estimate retail customer benefits as
' ln its Comments, lClP states that there is "significant opposition to the transaction in the parallel
FERC proceeding." lClP Comments at 2. This characterization is misleading and provides no basis for
delay. The only party to formally protest the transaction was the Northwest & Intermountain Power
Producers Coalition, which raised a number of issues that demonstrate its fundamental misunderstanding
of the Proposed Transaction, legacy agreements, and FERC open access principles. The only other
parties to submit comments were the Bonneville Power Administration, City of Seattle, and Powerex, with
the City of Seattle intervening out-of-time and raising concerns outside the scope of the FERC proceeding
and more properly addressed in a future rate case before FERC.
IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS - 8
a result of the transaction and find it is appropriate to share those benefits with
customers through normal regulatory processes, which, for both ldaho Power and
PacifiCorp, is during each utility's next general rate case. Therefore, as set forward in
their previously filed joint Application and testimony, the Parties request the
Commission issue its Order approving the exchange of certain transmission assets
between PacifiCorp and ldaho Power pursuant to ldaho Code S 61-328.
Respectfully submitted this 11th day of May 2015.
Attorney for ldaho Power Company
DANIEL E. SOLANDER
WONNE R. HOGLE
Attorneys for Pacifi Corp
\
IDAHO POWER COMPANYAND PACIFICORP'S REPLY COMMENTS - 9
CERTIFICATE OF SERVICE
! HEREBY CERTIFY that on the 11th day of May 2015, I served a true and
correct copy of IDAHO POWER COMPANY AND PACIFICORP'S REPLY COMMENTS
upon the following named parties by the method indicated below, and addressed to the
following:
Gommission Staff
Daphne Huang
Deputy Attorney General
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-0074
PacifiCorp
Daniel E. Solander
Yvonne R. Hogle
Rocky Mountain Power
201 South Main Street, Suite 2400
Salt Lake City, Utah 84111
lndustrial Gustomerc of ldaho Power
Peter J. Richardson
RICHARDSON ADAMS, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, ldaho 83707
Dr. Don Reading
6070 Hill Road
Boise, Idaho 83703
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