Oregon Concurs with Idaho on North Valmy Closure Costs

In Oregon, mirroring action taken by its neighboring regulatory agency in Idaho, the Public Utility Commission authorized Idaho Power Company to devise an automatic adjustment clause and deferral mechanism through which to recover three types of costs associated with the early retirement of the utility's North Valmy power plant. The two North Valmy units are coal-fired facilities near Winnemucca, Nevada, with a combined capacity of 522 megawatts. Idaho Power and NV Energy each own 50% of the units' output. 

While the two utilities share ownership of the units and make joint decisions with respect to such matters as environmental investments, plant retirement, or conversion, NV Energy is the actual operator of the facility. Idaho Power had informed the commissions in both Idaho and Oregon that the North Valmy units have been operated less frequently in recent years due to power prices that have decreased more than 35% since 2011. 

As a result, the company said, North Valmy usually is run now only to meet demand during peak cold and hot weather, with just a 15% dispatched capacity factor. The utility contended that North Valmy will not be needed in the future, because the planned Boardman-to-Hemingway transmission line will be able to relieve transmission constraints and deliver other resources to serve peak load. 

Presented with similar information, the Idaho Public Utilities Commission in early June approved Idaho Power's request to accelerate depreciation and recoup other costs associated with the eventual retirement of the North Valmy plant (see Letter No. 4325). The Idaho decision paved the way for the utility to institute a rate increase of 1.17%, through which to hasten its recovery of its investment in the North Valmy units. In Idaho, the utility told the commission that it expects to reach consensus with co-owner NV Energy to cease coalburning operations at North Valmy Unit 1 by December 31, 2019, and at North Valmy Unit 2 by December 31, 2025. Both utilities indicated that shutting down the facility early will ultimately save customers money. 

In Oregon, the commission addressed three key cost elements associated with North Valmy's closure. First, the commission said, Idaho Power may accelerate depreciation of those North Valmy investments that were in service as of May 31, 2017, shortening the depreciation schedule from 2031 for Unit 1 and 2035 for Unit 2 to 2025 for both units. 

Second, the commission ruled that the company may recover the return on the undepreciated capital investments at North Valmy until its 2025 end-of-life. Third, the commission permitted the utility to recover estimated future decommissioning costs through a balancing account supported by a deferral. As a result, and pursuant to a related stipulation, Idaho Power will be able to increase its Oregon revenue requirement by $1,056,800, or 1.91%. 

The commission acknowledged that it had never before allowed recovery of new capital investments outside of a general rate case, and it admitted it was doing so in the Idaho Power case "with hesitation." But, the commission stated, given the unique circumstances of the North Valmy situation, the unprecedented measure was warranted. 

At the same time, though, the commission warned that it was not likely to authorize similar treatment of capital costs outside of a general rate case in the future, unless equally compelling circumstances are demonstrated. As to the unique circumstances identified for North Valmy, the commission said that they encompassed, among other things, the fact that Oregon's share of the new investments was very small and that such already had been recognized in the plant balance approved by the Idaho commission. 

Despite approving recovery by the utility of increased depreciation expense for North Valmy, the commission reiterated its reluctance to do so outside of a base rate case. But the commission conceded there was precedent for the practice, noting that it had previously allowed similar recovery with regard to other coal-fired plants with shortened depreciable lives. The commission observed that accelerating depreciation in the end can avoid shorter payment terms and higher annual depreciation expenses. 

According to the commission, the company had estimated that accelerated depreciation of the North Valmy plant balance would translate into customer savings of $103 million on a net present value basis. To realize and capture those savings, the commission agreed that the company should start accelerating depreciation as soon as possible, rather than wait for a full rate case. 

The commission averred that such treatment was consistent with inter-generational equity by recovering North Valmy-related costs from those customers who benefit from the plant. Re Idaho Power Co., UE 316, Order No. 17-235, June 30, 2017 (Ore.P.U.C.).