20050328_1135.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLAND ER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
ATE:MARCH 23, 2005
RE:IDAHO POWER'S APPLICATION TO RATE BASE THE NEW BENNETT
MOUNTAIN POWER PLANT AND INCREASE BASE RATES,
CASE NO. IPC-05-
On March 2, 2005 , Idaho Power filed an Application to recover its investment in the
new Bennett Mountain generating facility. More specifically, the Company seeks to rate base
$58 022 983 attributable to the cost of constructing the generating facility and the necessary
transmission and interconnection facilities. Idaho Power initially calculated that the addition to
rate base will result in an increase to its annual revenue requirement of$13,482 146. To recover
the proposed revenue increase, the Company initially suggested that rates for all existing
customer classes and its three special contract customers be uniformly increased by 2.6%. The
Company requested the increase to its base rates become effective June 1 , 2005 , which would
coincide with any rate change caused by the annual Power Cost Adjustment (PCA) mechanism.
On March 22, 2005 , Idaho Power filed an Amended Application. The Company
noted that it had used an incorrect "federal and state income tax rate" that overstated the
proposed increase in the Company s annual revenue requirement. Using the correct federal and
state income tax rate of 39.1 % approved by the Commission in its rate case Order No. 29601
now results in a proposed additional revenue requirement of $9,402 996. Amended Application
at 5. To recover this revenue amount, the Company proposed to increase its base rates by a
uniform percentage increase of approximately 1.84%. Id. at 5-, Revised Atch. 4.
BACKGROUND
In January 2004, the Commission issued Order No. 29410 approving Idaho Power
Application for a Certificate of Public Convenience and Necessity to construct and operate the
DECISION MEMORANDUM
Bennett Mountain Power Plant (Case No. IPC-03-12).1 As described in greater detail in Order
No. 29410, Bennett Mountain is a 162 MW natural gas-fired, simple-cycle power plant located
in Mountain Home. The plant was constructed by Mountain View Power, Inc. Williams
Northwest Pipeline will provide the natural gas necessary to fuel the plant. Mountain View will
also construct the natural gas pipeline necessary to interconnect with Williams.
In its prior Application for authority to construct the Bennett Mountain plant, Idaho
Power provided the Commission with a "Commitment Estimate" of the project's total capital
costs. The Commitment Estimate for the project was $54 million which included the firm bid
price of the project ($44.6 million) plus additional costs such as sales taxes, AFUDC, oversight
change orders, etc. Order No. 29410 at 4. The Commitment Estimate did not include the cost of
constructing or upgrading transmission facilities necessary to connect Bennett Mountain with the
existing transmission system, legally required equipment changes, and material changes in
assumed escalation forecast rates. Id. at p. 16. In September 2003 Idaho Power estimated that
the interconnection and/or transmission upgrades for the plant may cost between $5.11.6
million. Reasonable and prudent fuel costs for the Bennett Mountain Plant are to be recovered
through the PCA mechanism. Id.
THE PRESENT APPLICATION
A. Capital Costs
In the testimony that accompanies the Application Company witness Greg Said
states that the Bennett Mountain plant will be in commercial operation before June 1 , 2005. Said
Prefiled Testimony at 5. He stated that the total investment in the Bennett Mountain plant itself
is $50 298 492, which is well under the Commitment Estimate of $54 million. This figure
include the following components: $42 932,458 as Construction Work in Progress (CWIP);
358 291 for allowance of funds used during construction (AFUDC); and $7 366 034 for other
anticipated expenses to be booked during the months of February, March and April. Said
Prefiled at 7.
In addition to plant investment, the Company seeks recovery of its investment for
interconnection facilities and transmission upgrades in the amount of $7 724,491. Company
witness Said observed in his prefiled testimony that the $7.7 million for transmission and
1 The Commission issued Certificate No. 420 authorizing Idaho Power to construct the Bennett Mountain Plant.
Application, Exh. 2.
DECISION MEMORANDUM
interconnection facilities falls within the Company s cost-estimate range ($5.5 to 11.6 million)
contained in its September 2003 Application. Said Pre filed at 8-9. In summary, the Company
requests authority to rate base $58 022 983 ($50 298,492 for the plant and $7 724,491 for
interconnection and transmission facilities). Said Prefiled at
B. Proposed Rates
Based upon its rate of return of 7.852% authorized in the recently completed rate
case, Idaho Power calculates in its Amended Application that it is entitled to an additional annual
revenue requirement of $9.403 million. Exh 3 , page 1 , line 40. To recover this additional
revenue, the Company proposes a uniform averaged percentage increase of approximately 1.84%
for all existing customer classes. Amended Application at 5-, Revised Atch. 4. In addition, the
Company also proposes to increase its special contract rates by about 1.84% for the three special
contract customers (Micron (1.85%), Simplot, Dept. of Energy).Revised Atch. The
Company proposes that the increase in base rates become effective June 1 , 2005, to coincide
with any PCA rate change which may occur.
Idaho Power states in its Application that it had issued media releases and will notify
its individual customers by "bill stuffers." The Company also filed direct testimony and exhibits
of Greg Said to support its Application and Amended Application.
ST AFF ANALYSIS
In Order Nos. 29410 and 29422, the Commission found that in the ordinary course of
events Idaho Power can anticipate ratebasing $44.60 million for the plant. "Reasonable and
prudent cost incurred above that figure up to the Commitment Estimate of $54.0 million will be
reviewed in a subsequent proceeding." Order No. 29410 at 16. The Company has calculated its
proposed revenue increase based upon the Company s recently completed general rate case
except for the addition of the Bennett Mountain capital investment. The Company s rate case
was concluded in September 2004. Order No. 29601.
The Staff believes that this case may be properly processed under Modified
Procedure. Staff proposes and the Company has agreed that if this case is processed under
Modified Procedure, the Commission should set an extended comment period with comments
due May 6, 2005.
DECISION MEMORANDUM
COMMISSION DECISION
1. Does the Commission wish to process this Amended Application via Modified
Procedure or should this matter be set for hearing?
2. Because this matter involves a proposed increase to Idaho Power s base rates
does the Commission wish to schedule public workshops under Rule 125? If yes, does the
Commission desire to combine the workshop(s) with workshop(s) that may be set for PCA rates
(if there is a proposed PCA rate increase)?
3. If the Commission desires to process this case under Modified Procedure, does it
wish to establish an extended comment period with comments due May 6, 2005?
4. Anything else?
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DECISION MEMORANDUM