20150612Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER RAPER
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:NELL PRICE
DATE:JUNE 12,2015
SUBJECT:ROCKY MOUNTAIN POWER’S APPLICATION TO MODIFY THE
ENERGY COST ADJUSTMENT MECHANISM AND INCREASE RATES;
CASE NO.PAC-E-15-09.
PROCEDURAL BACKGROUND
On May 27,2015,Rocky Mountain Power,a division of PacifiCorp (“Rocky Mountain”
or “Company”),submitted an Application seeking a Commission order authorizing the Company
to:I)increase rates by S10.2 million,or 3.9 percent on average,effective January 1,2016,as
summarized in the Electric Service Schedules attached to the Application;and 2)modify the
Energy Cost Adjustment Mechanism (“ECAM”).Rocky Mountain requests that the
Commission process its Application through Modified Procedure.
On June 11,2015,the Commission issued an Order granting Petitions to Intervene filed
by Monsanto Company (“Monsanto”)and PaciflCorp Idaho Industrial Customers (“PIIC”).See
Order No.33321.
APPLICATION
Rocky Mountain provides retail electric service to approximately 75,435 customers in the
state of Idaho and is subject to the jurisdiction of the Commission.
I.Base NPC Update
Rocky Mountain begins its Application by recounting that base NPC was established in a
general rate case in 2011,based on 2010 loads.According to the Company,all of the NPC
components have changed increasing NPC by $129 million.Because these increased NPC are
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not reflected in base rates,Rocky Mountain believes that a significant portion of Idaho’s
allocation of NPC is being recovered through the ECAM.
Rocky Mountain asserts that it is more appropriate for these ongoing and permanent
power costs to be recovered through base rates rather than through the ECAM.Therefore,the
Company proposes to update the level of base NPC consistent with the level reported in the
Annual Results.The Company’s Annual Results demonstrate that base NPC are $1,514 million,
or $93.8 million on an Idaho-allocated basis,compared 10 S1,385 million,total Company NPC,
or $87.6 million on an Idaho-allocated basis,in its 2011 general rate case.By updating base
NPC and allowing that level of expense to be included in base rates beginning January 1,2016,
Rocky Mountain argues that the ECAM will be better aligned to track annual fluctuations in
NPC rather than long-term recovery of NPC currently being collected through the annual ECAM
surcharges.
The Company states that its proposed base rate increase of approximately $10.2 million is
derived from:(a)$2.8 million associated with updating base NPC from $1,385 million to $1,514
million,total Company,or $93.8 million on an Idaho-allocated basis;(b)$6.5 million for
renewable energy credits (“REC5”);(c)$0.2 million for renewable energy production tax credits
(“PTCs”);and (d)$0.7 million for the incremental amortization of the Deer Creek Mine
unrecovered investment (depreciation and depletion expense),as requested in the Company’s
application in Case No.PAC-E-14-I0 (“Deer Creek Mine Case”).
II.Proposed Modifications to the ECAM
Rocky Mountain proposes to make the following modifications to the current ECAM:1)
90/10 percent sharing band should be eliminated,allowing for 100 percent recovery of prudently
incurred NPC;2)The calculation method should be based on retail sales at meter,eliminating the
need for Staffs base rate over-collection adjustment;3)The LCAR should be eliminated;4)
DSM costs and S02 sales should no longer be tracked in the ECAM;5)Renewable energy
production tax credits (“PTC5”)should be included in the ECAM and treated similar to NPC;6)
If the amortization of the Deer Creek Mine unrecovered investment (depreciation and depletion
expense)is not included in base rates a temporary adder should be included in the ECAM until it
is included in base rates;7)The deferral period should be changed to correspond with the
calendar year and the filing date should be changed to April 1 with rates effective June I.
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Rocky Mountain proposes to eliminate the 90/10 sharing band in the ECAM because it
already proactively manages NPC.The Company believes that the sharing band is not an
appropriate incentive because the Company has little to no control over the volatility and
unpredictable nature of these costs.The Company believes that it has historically been penalized
by the sharing band.The Company claims that sharing bands and dead bands have been
eliminated in almost all other states.
The Company proposes to add the incremental Deer Creek Mine depreciation expense
that was collected through the ECAM into base rates with no sharing.This proposal is consistent
with the Company’s request in the Deer Creek Mine Case (PAC-E-14-10).It would allow the
Company to continue to coLlect depreciation expense related to the Deer Creek Mine through its
remaining depreciable life.
Rocky Mountain argues that its resource mix has changed since the approval of the
ECAM.The Company has become increasingly reliant on short term market purchases due to
more intermittent energy from the addition of QFs on the Company’s system and other owned
and contracted generation that serve its load.Due to requirements under the Public Utility
Regulatory Policies Act of 1978,the Company has added additional intermittent energy from the
purchase of energy from Qualifying Facilities,exposing the Company to the market and
increased NPC volatility.Intermittent energy is highly dependent on the weather,which is
entirely out of the Company’s control,making NPC more unpredictable.
The Company believes that its new hedging policy also supports modifications to the
ECAM.The Company updated its hedging policy by incorporating guidelines that allow a
reasonable percentage of natural gas and power requirements to remain open to short-term
market price exposure and for operational flexibility.
Rocky Mountain proposes to change the ECAM’s differential calculation method so that
it is based on retail sales at the meter,eliminating the need for the method developed by Staff,
known as the base rate over-collection adjustment.The Company also proposes to eliminate
tracking the LCAR,S02 sales,irrigation load control and DSM costs and from the ECAM.The
LCAR should be eliminated because it is asymmetrical in that it only considers changes in loads
(or sales going forward)but ignores changes in the actual underlying costs.Irrigation load
control and DSM costs were included in the ECAM as stipulated in the 2011 GRC due to the
uncertainty of the jurisdictional treatment of the irrigation load control program by the Multi
State Protocol (“MSP”)committee.MSP now dictates that DSM costs are situs assigned,thus
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eliminating the need to track these cost in the ECAM.The Company says that it has modified
the DSM program to make it more cost effective and aligned with the benefits received.The
DSM program cost should not be part of the ECAM.
Rocky Mountain believes that revenues from 502 sales have become immaterial and
irrelevant,citing that the 2015 ECAM Idaho S02 sales amounted to a S71 credit to customers.
The Company proposes tracking renewable energy production tax credits in the ECAM because
the credits are directly tied to the energy production of the qualil5’ing renewable generation
facilities,which can vary significantly from year to year.
The Company proposes to change the ECAM deferral period to coincide with the
calendar year (January to December)opposed to the current December through November
deferral period.The Company believes this change will make the ECAM easier to audit and
align the deferral period with that used in all the olher PacifiCorp jurisdictions.The Company
wishes to move the filing date from February 1 to April 1,with rates effective June 1 rather than
April 1.
III.Miscellaneous
Rocky Mountain states that it has provided notice of its Application to its customers
through the issuance of a press release sent to local media organizations and bill inserts included
in customer bills beginning in June.Copies of the Application were provided to many of the
Company’s major customer representatives.Copies of the Application will also be made
available for review at the Company’s local offices in its Idaho service territory and at the
Commission’s office or on its homepage.In accordance with Rule 121(e).(O and (g).Rocky
Mountain represents that the Application,testimony,exhibits and work papers support the costs
the Company seeks to recover.
COMMISSION DECISEON
Does the Commission wish to issue a Notice of Application?
Neil Price
M:PAC-E-I 5-09_np
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