Opinion ID: 1358783
Heading Depth: 1
Heading Rank: 3

Heading: the 110 percent thermal blocking formula

Text: A computerized formula was used in the ratesetting procedure, wherein the various power resources are compared to the load requirements to determine deficiencies or surplus. Arriving at an accurate formula is inevitably complex, and to determine how to meet the load requirements a wide range of variables must be considered: run-of-the-river hydro generation, thermal generation, storage hydro generation, interruptible customers, and off-system purchases. Moreover, even with careful resource planning the system must also be flexible enough to quickly adjust to unexpected changes in demand or supply. In the instant proceeding, two different power supply models for ratemaking purposes were recommended to the Commission: one by a Commission staff witness, and the other by witnesses called by Idaho Power. The following simplified version of the formula should prove helpful in understanding the difference between Idaho Power's recommended formula and the staff's recommended formula: Monthly system loads - All monthly run-of-the-river hydro generation - Monthly available thermal generation ________________________________________________ = Net amount of load which must be met each month from storage hydro. The formula advocated by the staff witness contained an assumption referred to as 110 percent thermal blocking. In this formula, the computer model overestimated the available thermal generation by ten percent (hence the 110 percent thermal blocking figure), resulting in a lower net amount of load which required servicing from storage hydro. The entire model results in a reduction of net power supply costs [7] because the available thermal generation is overestimated by ten percent. Idaho Power's witnesses testified to the impropriety of the staff's use of the 110 percent thermal blocking formula. Idaho Power's witness stated that by overestimating the thermal generation by ten percent, the model is told that more system resources are available than actually exist. As a result, the model fails to allocate enough storage generation to cover system load requirements, especially in heavy load months. Faced with this apparent deficiency, the model looks for other resources: first to interruptible customers and then to purchase of non-firm secondary energy. Idaho Power maintained at the hearing that there are two major problems inherent in this formulation: first, it is unreasonable to set rates based on hypothetical resources which do not exist (the extra ten percent thermal generation); and, second, Idaho Power is unable to interrupt some of its customers because of existing contracts with those customers. Idaho Power argued that under these circumstances, the staff's ratesetting model should be rejected by the Commission. The staff witness testified that by using the 110 percent figure the end result is a reduction in costs and a similar reduction in the rate base. The staff witness testified that the 110 percent thermal blocking formula demonstrates a more efficient method of running the company, implying that ratepayers should not be required to pay for a less efficient method of allocating resources. A witness for Idaho Power, testifying in the same proceeding, disputed the implication that the company could be operated more efficiently under the 110 percent thermal calculation. Furthermore, Idaho Power maintained that using the staff's formula would result in reduced system reliability, because it is the unused interruptibility which Idaho Power relies on for system reserve capacity. The Commission found in favor of using the 110 percent formula recommended by the staff, stating: We find that the Staff's 110% thermal blocking assumption should be used in the hydro-regulation model for ratesetting purposes. We find that it better describes the resources available to the Company by its recognition that purchased power and FMC interruption can be used in addition to thermal generation before the remaining load is met by variable hydro-generation. We note that the Company recognized that its hydro-regulation model did not take these possibilities into account and thus did not reflect its own operations. See Tr., pp. 2659-2661, 2672-2678. From this we infer that the Company operates more efficiently than its model indicates or that it operates inefficiently when it operates as its model is constrained; in either event, it is not reasonable for ratepayers to pay rates set under the Company's 100% thermal blocking assumption. (We note that the model is apparently not used in the Company's daily operations. We observe that if the model is not, then it does not reflect the Company's actual operations, so the validity of the model itself as a ratesetting tool is undermined in this regard.) R., Vol.2, p. 412. On petition for rehearing before the Commission, Idaho Power strenuously argued the error of this finding, noting that use of the staff's model will greatly decrease system reliability resulting in increased risk to Idaho Power's customers. Idaho Power set forth its argument as follows: The Commission has reduced Idaho Power's revenue requirement by making unwarranted assumptions. As the Commission is aware, Idaho Power plans its resources based upon median water conditions; that is, when stream flows are less than median, Idaho Power does not have the resources necessary to meet its load requirements. The Commission has accepted Staff's recommendation that Idaho Power should rely upon non-firm power sources to supply its loads during median water. It takes no power resource expert to determine that the Commission has greatly increased the risk to Idaho Power customers that Idaho Power will be unable to meet its load requirements even during median water conditions, let alone during below median water conditions, by relying upon non-firm power sources. In addition, the Commission has determined that Idaho Power should plan on curtailing FMC Corporation even under median water conditions. Again, the result is to reduce the ability of Idaho Power to supply its firm customers during less than median water conditions. Idaho Power has in the past utilized the FMC contract to meet its commitments for reserve requirements imposed by the Northwest Power Pool and the Intercompany Pool. The capability of declaring the FMC interruptible load as part of Idaho Power's reserves is severely jeopardized when the Commission requires, as an operating practice, that Idaho Power interrupt FMC even during median water conditions. R., Vol. 2, pp. 459-60 (emphasis in original). In its final order, the Commission denied the petition for rehearing. In commenting on the 110 percent thermal blocking issue, it stated that adoption of the staff's model was correct because of the Commission's earlier finding that the company's model did not accurately describe or reflect its own operations. The scope of review in a case of this nature is set forth in art. 5, § 9 of the Idaho Constitution and in I.C. § 61-629. Art. 5, § 9 provides in pertinent part: Original and appellate jurisdiction of Supreme Court.  The Supreme Court shall have jurisdiction to review, upon appeal, any decision of the district courts, or the judges thereof, and any order of the public utilities commission, and any order of the industrial accident board: ... . This is clarified by I.C. § 61-629 which addresses the scope of review in ratesetting cases: Matters reviewable on appeal  Extent of review  Judgment.  No new or additional evidence may be introduced in the Supreme Court, but the appeal shall be heard on the record of the commission as certified by it. The review on appeal shall not be extended further than to determine whether the commission has regularly pursued its authority, including a determination of whether the order appealed from violates any right of the appellant under the constitution of the United States or of the state of Idaho. Upon the hearing the Supreme Court shall enter judgment, either affirming or setting aside or setting aside in part the order of the commission. In case the order of the commission is set aside or set aside in part, the commission, upon its own motion or upon motion of any of the parties, may alter or amend the order appealed from to meet the objections of the court in the manner prescribed in section 61-624, Idaho Code. In Utah Power & Light Co. v. Idaho Public Utilities Comm'n, 102 Idaho 282, 283-84, 629 P.2d 678, 680-91 (1981), this Court elaborated on the meaning of the scope of review for rate cases: The Public Utilities Commission is statutorily vested with jurisdiction to regulate rates charged by public utilities furnishing services, products or commodities in the State of Idaho. I.C. § 61-501. When the Commission finds that the rates proposed by a public utility for such services are unjust, the Commission must establish just, reasonable or sufficient rates. I.C. § 61-502. This Court's scope of review on appeal in cases of this type is to determine only if the Commission regularly pursued its authority and whether the constitutional rights of the utility were violated by the fixing of rates which were unjust, unreasonable and thus confiscatory. I.C. § 61-629; Utah-Idaho Sugar v. Intermountain Gas Co., 100 Idaho 368, 597 P.2d 1058 (1979); Intermountain Gas Co. v. Idaho Public Utilities Comm'n, 97 Idaho 113, 540 P.2d 775 (1975); Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944). [ See also, Los Angeles Gas & Elec. Co. v. Railroad Comm. of California, 289 U.S. 287, 53 S.Ct. 637, 77 L.Ed. 1180 (1933); 64 Am.Jur.2d Public Utilities § 126.] In light of this standard, the real issue today is whether the 110 percent thermal blocking formula adopted by the Commission is confiscatory, thus violating constitutional and statutory mandates. We conclude that it is. The formula adopted clearly overestimates Idaho Power's thermal resources by ten percent, causing Idaho Power to rely on non-firm power sources. Although we defer to the Commission's fact-finding function, especially regarding complex, technological formulas, we must conclude that the adoption of a model which overestimates thermal resources by ten percent, resulting in reduced revenue requirements for the utility is confiscatory and, hence, must be set aside. Although in almost any rate case a requirement of findings so detailed that the same would proximate evidentiary findings would be unduly burdensome, we agree with Idaho Power that after the Commission's ruling is challenged on certain major items by the requisite petition for rehearing, then findings of fact based in substantially greater detail are required in order for this Court to properly conduct its appellate function. Washington Water Power, supra ; Boise Water, supra ; Oregon Short Line, supra. Moreover, the Commission must also set forth its reasoning in a rational manner. Washington Water Power, supra . We are not persuaded at this point that there is substantial and competent evidence to support the findings of the Commission that the 110 percent thermal blocking formula was properly used, which we need not necessarily decide until we are first confronted with sufficient findings and conclusions and/or statement of the Commission's ratio decidendi. Order No. 17499 is affirmed in all of its major constitutents other than on use of the 110 percent thermal blocking  which part of the order is set aside and remanded to the Commission for further proceedings consistent herewith. Each party to bear its own costs and attorney's fees. DONALDSON, C.J., SHEPARD and BAKES, JJ., and WALTERS, J. Pro Tem., concur.