Idaho Public Utilities Commission

Case No. PAC-E-10-07, Order No. 32196

March 1, 2011

Contact: Gene Fadness (208) 334-0339, 890-2712

Commission issues final order in Rocky Mountain Power rate case

The Idaho Public Utilities Commission has released its final order in a Rocky Mountain Power (RMP) rate case that began last May. In late December, the commission issued an interim order that established new rates for all customer classes that became effective Jan. 1, 2011, but still had issues to resolve regarding the utility’s largest customer, the Monsanto Company plant in Soda Springs.

The 68-page order addresses the Monsanto issues and provides the findings to support the late December decision to grant the company an overall 6.78 percent increase in its annual revenue requirement, or $13.75 million. When the company filed its application last May, it asked for a 13.7 percent increase, or $27.7 million. After technical hearings, the company lowered its request to 12.3 percent or $24.9 million.

The 6.78 percent average increase is offset by a decision to reduce customers’ Energy Efficiency Charge from 4.72 percent to 3.4 percent, resulting in a net average increase for residential customers of about 5.5 percent. The net amount of actual increase varies by class of customer and by usage. For example, with the new two-tiered rate design approved by the commission in this case, a residential customer using RMP’s average consumption of 839 kilowatt-hours per month will realize a 1.5 percent decrease. The two-tiered rate structure increases rates as consumption increases, with residents paying more after the first 700 kWhs of use in the summer and after the first 1,000 kWh in the winter. The rates for the first tier are actually lower than the company’s previous rates.

From May to October, standard residential customers will pay 9.58 cents per kWh for their first 700 kWhs. The former May-October rate was 10.4 cents. For use exceeding 700 kWhs during summer, the new rate is 12.9 cents.

During the winter season (November through April) residential customers will pay 7.33 cents per kWh for the first 1,000 kWhs. The former winter rate was 8 cents. For use above 1,000 kWhs, the rate is 9.9 cents.

Part of the average 6.8 percent annual increase in rates is a customer service charge that varies according to customer class and is added to cover metering and billing expense. For most residential customers that charge is $5. The company requested $12.

Many of the customer comments opposed RMP’s proposal to increase the standard residential rate by 8 percent, while residential customers who are on the company’s Time of Day program would pay 15.6 percent more. The commission determined to assign an equal percentage increase for both residential customers of 6.78 percent.

The largest reductions the commission made in RMP’s request (addressed in detail later in this press release) include 1) allocating $11.4 million in expense for the company’s irrigation load control program to the utility’s entire six-state system and not just to Idaho customers; 2) reducing RMP’s requested allowable rate of return from 8.36 percent to 7.98 percent and its requested Return on Equity from 10.6 percent to 9.9 percent; 3) allowing only 73 percent of the company’s investment in the Populus to Terminal (Downey to Salt Lake City) transmission line and putting the remaining 27 percent in plant held for future use; and 4) disallowing in rates all wage increases awarded by the company to employees during 2009 and 2010 as well money for the company’s Supplemental Executive Retirement Plan. Removing wage increases does not necessarily mean employee increases will be withdrawn, but that the cost would not be paid by customers.

“In making these adjustments we address concerns raised by parties and customers and acknowledge the economic conditions and service requirements in the company’s southeastern Idaho service territory,” the commission said. The commission conducted two workshops, four public hearings, two technical hearings and a telephonic hearing. Nearly 100 people testified and the commission also received more than 200 written comments.

Regarding RMP’s request for an increased rate of return and return on equity, the commission order states:

“We find that RMP (Rocky Mountain Power) in this case downplayed the poor economic conditions that exist in its Idaho service territory where many are on fixed incomes, unemployed and underemployed. This commission cannot discount as simply anecdotal the testimony and comments of RMP customers. While we cannot say ‘no’ to a requested increase in rates because customers are uniform in their opposition, together their testimony serves as the real-life context and backdrop of our decision. Their testimonies and comments remind us that we are not engaged in simply an academic exercise dealing in regulatory principles, generalities and industry averages. Our decision has real consequences.”

However, the commission said it also has statutory obligations to balance the interests of both customers and company to ensure a financially healthy utility that can provide reliable service and plan for future needs:

“We recognize that for some customers any increase may result in economic hardship. That being said, we have a dual obligation in rate cases. To customers our task is to establish rates that are fair and reasonable. To the company we have a statutory obligation to set rates at a level sufficient to allow RMP to recover its reasonable expenses of operation and receive a reasonable return on prudent capital investments in utility plant and facilities. Carrying out this duty is necessary for the company to be financially sound and capable of providing its customers with safe and reliable electric service.”

When the commission denies cost recovery to a utility, it must be able to legally demonstrate why the utility’s costs were not prudently incurred or in the best interest of customers. All commission decisions can be appealed to the state Supreme Court.

Rocky Mountain Power is a division of PacifiCorp, which operates in six states and is in the midst of a multi-year program of investing in renewable energy, transmission facilities and environmental controls to serve the growing demands of its customers in Idaho and across its system. The company claimed that its system-wide expenses during 2009 include over $4 billion of new plant investment and $87 million in increased power costs. Those expenses are then allocated among the six states based on each state’s electrical load, which for Idaho is about 6 percent of PacifiCorp’s total system load. Expenses that cannot be demonstrated to benefit Idaho customers are not included in the rates Idaho customers pay.

The case was extended for an additional technical hearing to consider changes to Monsanto Company’s agreement with Rocky Mountain Power that allows the utility, under specified circumstances, to curtail its power delivery to Monsanto to meet other customer needs. Monsanto has a total load of 182 megawatts, but up to 173 MW can fall under the interruptible portion of the agreement. The interruptibility provisions of the agreement are significant because electric rates are a substantial portion of production costs at the elemental phosphorous plant and also because Monsanto’s economic vitality has a large impact on the economy of Soda Springs and the surrounding area.

The electric service agreement between Monsanto and RMP allows the utility to curtail electric delivery to Monsanto under any of these three circumstances: 1) to allow the utility to meet mandated reserve requirements, 2) for economic reasons – as when market prices for electricity allow RMP to save money for itself and its customers – and 3) to interrupt for system integrity to avoid outages. The agreement limits the number of megawatts that can be curtailed and the number of hours that curtailment can happen for each of the three circumstances.

RMP proposed significant reductions in the amount it said it would pay Monsanto for the interruptions. Monsanto disputed the value the company placed on the interruption services. In today’s order, the commission established values for each of the three interruptibility products that are higher than those proposed by RMP but less than those proposed by Monsanto. The actual numerical values are proprietary. The commission also encouraged the parties to craft an agreement that establishes the value of the products for five years rather than three years. The commission said the longer agreement would promote greater price certainty for Monsanto as well as allow RMP to plan more effectively into the future.

The commission’s order also directs RMP to increase its annual funding for low-income weatherization in Idaho from $150,000 to $300,000 and to increase the dollar amount of RMP funds available for each weatherization project from 75 percent to 85 percent of total eligible costs. The commission noted there is a five-year backlog of homes that need and are eligible for weatherization in southeastern Idaho.

The order issued today is final. The order can be accessed on the commission’s Web site at www.puc.idaho.gov. Click on “File Room,” in the upper-left hand corner of the page, then on “Recent Orders and Notices,” to click on Order No. 32196 dated Feb. 28.

Parties to the case or interested persons can petition for reconsideration by no later than March 21. Petitions for reconsideration must set forth specifically why the petitioner contends the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted. Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.

Below is a more detailed summary of the commission’s finding on some of the major issues in this case:

Irrigation load control program costs

The Idaho Irrigation Load Control program pays credits to irrigation customers who agree to have their service curtailed during times of peak demand. In 2007, the program provided 78 megawatts to the company, but by 2009 that had grown 250 percent to provide 276 megawatts of demand reduction for the company. The nearly $20 million in savings benefits PacifiCorp customers in all six states and, therefore, the $11.4 million cost of the program should be allocated system-wide and not just to Idaho customers, the commission ruled. Doing that removes $3.25 million in Idaho annual revenue requirement for RMP and also allows a reduction to the Energy Services Rider paid by customers from 4.72 percent to 3.4 percent.

“We find that it is unreasonable to expect Idaho customers to continue to bear the costs associated with the current jurisdictional treatment of the Irrigation Load Control Program expenses,” the commission said.

Rate of return, return on equity

The rate of return is the amount the company is allowed the opportunity to earn on its capital investment. The company requested 8.357 percent and was granted 7.98 percent. The return on equity is the rate of return equity investors expect given the risks of an individual security and consistent with returns that are available from similar investments. The company requested 10.6 percent and was granted 9.9 percent. Setting the allowable rate of return and return on equity is not a guarantee the company will reach those levels, but caps the returns at the commission’s authorized level.

The commission uses three primary standards in determining rate of return. The authorized return should be 1) sufficient to maintain financial integrity, 2) attract capital under reasonable terms and 3) be commensurate with returns investors could earn by investing in other enterprise of comparable risk. The rate of return must be enough to attract capital investment in new transmission, distribution and generation but not so high as to be unreasonable for customers.

The commission cited current economic conditions in southeastern Idaho as a primary factor in reducing the company’s requested return on equity to 9.9 percent.

Populus to Terminal Transmission Line

The line, which runs from Downey to Salt Lake City, is the first of eight proposed new high-voltage transmission segments that will make up PacifiCorp’s Energy Gateway transmission expansion project. The line benefits Idaho customers in that it is intended to add 1,400 MW of transmission capacity to an already heavily constrained area and allows the company access to less costly generation sources.

However, the commission ruled that because the company can use only about 1,040 MW of the total capacity, Idaho’s portion of the full cost should not be included in rates until the entire 1,400 MW is available to customers. Therefore, the commission placed 27 percent of the transmission investment into Plant Held for Future Use. “Idaho, we find, will pay its fair share to meet the company’s system load and transmission requirements but we will not allow full ratebasing of investment in Populus to Terminal prematurely and we will not require Idaho customers to assume and pay for unused capacity.”

Wages and pensions

Wage increases awarded employees in 2009 and 2010 cannot be included in rates, reducing revenue requirement by almost $1 million. The commission’s order states:

“The Commission finds that in tough economic times the local economy in the Company’s service area is a greater indicator as to the appropriateness of a wage increase than market data and industry averages. We find no demonstration by the Company that the union and non-union wage increases were required for the Company to be a competitive employer able to retain or attract employees. We find no offer of proof that without the union and non-union wage increase the service provided by the Company would be degraded and safety compromised. We find that as a certificated provider of service RMP has elected to be a member of the communities it serves.”

The commission also disallowed recovery of costs related to RMP’s Supplemental Executive Retirement Plan. “The company has not demonstrated that these costs are related to providing services to southeast Idaho,” the commission said. “The responsibility for generous severance benefits for executives, we find, is the responsibility of the company and its shareholders, not Idaho customers.”

Intervenors in the case who provided testimony and rebuttal and cross-examined witnesses during technical hearings included Monsanto Company, the Idaho Irrigation Pumpers Association, the Idaho Conservation League, PacifiCorp Idaho Industrial Customers, the Community Action Partnership Association of Idaho and commission staff.

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