20100712_3023.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEG AL
WORKING FILE
FROM:RICK STERLING
SCOTT WOODBURY, DEPUTY ATTORNEY GENERAL
DATE:JUL Y 7, 2010
RE:EXTENSION OF A FIRM ENERGY SALES AGREEMENT BETWEEN
IDAHO POWER AND HAZEL TON A, CASE NO. IPC-89-
Term Extension Letter Agreement
On June 21 , 2010, the Commission received a letter from Idaho Power informing the
Commission that the Company by Letter Agreement dated June 11 , 2010, had agreed to extend the
termination date of the Hazelton A Firm Energy Sales Agreement from June 20, 2010 to December
, 2010 , in order to provide the parties time to negotiate a new Power Purchase Agreement. See
attached. Hazelton A is a 9.9 MW hydroelectric project located in Jerome County, Idaho. The
original Agreement was approved by the Commission on February 9, 1989, in Order No. 22326. The
Agreement has a term of 20 years from the Operation Date of June 20, 1989. There are no provisions
in the Agreement for extension.
In early June 2010, Idaho Power states that it notified the Hazelton A project of the
pending contract expiration. At that time the project expressed the desire to continue to sell energy to
Idaho Power under terms and conditions of the existing Agreement until December 31 , 2010, with the
intention of executing a new agreement with Idaho Power for energy sales prior to December 31
2010.
Idaho Power states that the project is current on all requirements within the Agreement
and that the energy prices within the existing Agreement are more favorable than a new PURP
agreement. The Company believes that it is reasonable to extend the term of the Agreement under its
DECISION MEMORANDUM - 1 -
existing terms and conditions. The energy prices in the existing Agreement are levelized and are as
follows:
Season 1
Season 2
Season 3
3.489 cents per kWh
603 cents per kWh
669 cents per kWh
Staff Analysis
Commission Staff has two primary concerns with the parties ' Letter Agreement to extend
the termination date. First, the contract parties did not appear to even begin discussions about the
expiring Agreement until early June. The original termination date was June 20, 2010. The Letter
Agreement to extend the original contract was not signed until June 11 , and the Commission did not
receive notification of the Letter Agreement until June 21 , the day following the original contract
termination date. Both parties, Staff believes, share responsibility for managing the Agreement and
clearly should have acted sooner to execute a new contract. The Commission should not be asked to
approve contract extensions after original agreements have already expired. As more PURP A
agreements expire in the coming years, parties need to be more diligent in dealing with succedent
contracts before the original agreements reach their termination dates.
There are several options for how this expired contract could be handled. Extending the
contract for an additional six months is one option, and is the preference of the parties. A second
option is to simply allow the Agreement to expire, and for Idaho Power not to purchase any more
energy from Hazelton A until a new contract is in place. This option is not likely attractive to either
party since it would deny Idaho Power energy at a reasonable price and would cause Hazelton A to
lose all revenue from a project that is otherwise capable of operating.
A third option is to allow the original Agreement to expire, but to require additional
energy purchases to be made by Idaho Power under its Schedule 86 non-firm tariff until a new
purchase contract is in place. Under Schedule 86, Idaho Power purchases energy from PURP
generators on a month-to-month basis at rates equal to 85 percent of Mid-C non-firm prices.
Obviously, Mid-C prices vary on a daily and monthly basis and cannot be known with certainty in
advance. Nevertheless, forward market prices are available from brokers and are a reasonable
approximation of what spot market prices are likely to be in the coming months.
Staff has made a comparison between the existing rates in the Agreement to the most
recent three month average of 85 percent of Mid-C market prices for deliveries of power in July -
DECISION MEMORANDUM - 2 -
December 2010. The comparison shows that the existing contract rates exceed the Mid-C prices in
every month. On average, over the next six months, energy payments under the existing contract
rates would exceed estimated Schedule 86 rates by approximately 16.5 percent. Idaho Power (and its
ratepayers) would thus appear to be financially better off to allow the existing Agreement to expire
and to continue any additional energy purchases from Hazelton A at Schedule 86 rates until a new
contract is negotiated. This option, however, might incent Hazelton A to quickly negotiate a new
contract prior to year-end under current published rates.
A fourth option is to negotiate a new contract immediately to replace the expired one.
Under a new 20-year levelized contract, the energy prices under present published rates would be as
follows:
Season 1
Season 2
Season 3
820 cents per kWh
502 cents per kWh
919 cents per kWh
Clearly, these rates are much higher than the rates in the expired contract.
Although Staff does not condone extension of expiring agreements as common practice
the fact remains that Idaho Power and ratepayers will be better off financially by extending the
expiring Agreement to December 31 , 2010 , and locking in rates for that period of time than if a new
replacement contract were signed immediately.
Staff Recommendation
Staff recommends that Idaho Power be permitted to extend the existing Agreement (terms
conditions and rates) until December 31 , 2010. Continuing the Agreement will take Hazelton A
through the generation (irrigation) season and permit the reasoned consideration of new contract
terms and conditions.
COMMISSION DECISION
Does the Commission wish to approve Idaho Power s request to extend the term of its
existing Agreement with Hazelton A until December 31 , 20107
Scott Woodbury
Deputy Attorney General
M:IPC-89-
DECISION MEMORANDUM - 3 -
1DAHO~POWER~
An IDACORP Company
RECEIVED
June 17, 2010 2010 JUH 21 AM 8: 13
UTI ~fE
~O to
~\~S ION
Randy C. Allphin
Senior Energy Contract Coordinator
Tel: [phone]
rallphinlq2idahopower. com
Jean Jewell
Conunission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, ill 83720-0074
RE:Hazelton A, Proj ect Number 31715128
Dear Ms. Jewell:
Attached is a copy of a signed letter extending the termination date of the Hazelton A Firm
Energy Sales Agreement dated January 18, 1989 (Agreement) to December 31 , 2010. A copy has
also been provided to Rick Sterling and Scott Woodbury. Please file this copy with the original v1G4
Agreement.
This Agreement was approved in Conunission Order 22326 on February 9, 1989. The
Agreement has a Term of 20 years from the Operation Date of June , 1990. The current energy
prices within the Agreement are:
Season 1
Season 2
Season 3
3.489 cents per kWh
603 cents per kWh
669 cents per kWh
The attached letter agreement provides that the current Agreement be extended, including these
energy prices until December 31 , 2010.
In early June 2010, Idaho Power notified the project of the pending contract termination. At
that time the project expressed the desire to continue to sell energy to Idaho Power under the existing
agreement until December 31 , 2010, with the intention of executing a new agreement with
Idaho Power for energy sales prior to December 31 2010.
Page 1 of2
POBox 70 Boise, Idaho 83707 1221 W Idaho St. Boise, Idaho 83702
Jean Jewell Page 2 June 17 2010
The project is current on all requirements within the Agreement and the energy prices within
the existing agreement are more favorable then a new PURP A agreement. Idaho Power agreed it was
reasonable to extend the term of the Agreement. In this letter agreement Idaho Power advises the
project that a copy of this letter will be filed with the Commission and if the Commission requires
additional information or processes, the project will be notified of these requirements.
Please contact me if you have any questions or if you require any additional information.
Sincerely,
/? f. cuer-
Randy C Allphin
Idaho Power Company
RCAIcs
Attachment
cc:Rick Sterling (IPUC)
Scott Woodbury (IPUC)
Donavan Walker (IPC)
Page 2 of2
POBox 70 Boise, Idaho 83707 1221 W Idaho St. Boise, Idaho 83702
IIJUtO
POWER
An IDACORP company
June 11 , 2010
SE Hazelton A, LP.
C/O Enel North America Attn: Victor A Engel
One Tech Drive, Suite 220
Andover, MA 01810
Randy C. AUphin
Senior Energy Contract Coordinator
Tel: [phone]
rallphin(li)jdahoDOwer.com
Re:HazeltonA Project Number: 31715128
Finn Energy Sales Agreement - Term Extension Letter Agreement
The Firm Energy Sales Agreement (Agreement) for tbe above-referenced project dated January 18 , 1988, is dueto expire on June 20, 20 I O. Idaho Power and Enel North America have discussed and agree to extend the tenn
of the existing Agreement to December 31 , 2010 with no changes to tbe existing tenDS and conditions.
If you concur with extending the contract term as described above, please sign this letter in the designated space
below and return to Idaho Power Company. Upon receipt of this signed document, I will file a copy with theIdaho Public Utilities Conunission (IPUC), return a copy to you for your records and retain a copy for Idaho
Power records.
In filing the copy with the IPUC I will include a cover letter advising them of our agreement to extend and ask
that if they require any additional information or processes to notify Idaho Power.
Sincerely,
/2
f.
~a/idY C. Allphin
Idaho Power Company
Agreed, Understood and Accepted
Signature
End
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O. Box 70 (B3707)
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