20061127_1752.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
DATE:NOVEMBER 22, 2006
SUBJECT:IDAHO POWER COMPANY'S APPLICATION FOR APPROVAL OF A
SPARE TRANSFORMER SHARING AGREEMENT", CASE NO. IPC-
06-
On November 14, 2006, Idaho Power Company filed an Application requesting that
the Commission approve a Spare Transformer Sharing Agreement ("Transformer Agreement"
with nearly 50 of nation s other electric utilities. The Transformer Agreement provides that in
the event of a deliberate act of terrorism disabling one or more utility substations, the
participating utilities may be called upon to provide/sell spare electric transformers to the
affected utility. Application at 1-2. In essence, the Transformer Agreement creates an industry-
wide pool of spare electric transformers that can be transferred from one utility to another utility
in the event of a coordinated terrorist attack upon the nation s electric infrastructure. The
Company requests that this Application be processed under Modified Procedure.
BACKGROUND
On July 18 , 2006, the Edison Electric Institute (EEl) on behalf of 41 participating
utilities filed an application with the Federal Energy Regulatory Commission (FERC) seeking
authorization for jurisdictional public utilities to engage in the future transfers of transformers.
In its FERC application, EEl indicated that 43 entities have executed the Transformer
Agreement. EEl stated these participating utilities own more than 60% of the interstate bulk-
power transmission system. Order on Application for Blanket Authority for Transfers of
Jurisdictional Facilities and Petition for Declaratory Order 116 FERC 'i! 61 280 (September 22
2006), hereinafter the "Declaratory Order." EEl asserted that the Transformer Agreement is "
prudent approach to making efficient use of the industry s existing spare transformers and fairly
DECISION MEMORANDUM
allocating the responsibility to acquire a limited number of additional spares, while minimizing
duplicative purchases ofthe these costly assets.Id. at'i! 4 citing Application at 8-
EEl submitted its FERC application under Section 203 of the Federal Power Act.
This section requires that FERC approve the disposition of jurisdictional transmission facilities
when the value of such facilities exceeds $10 million. Although the cost of many transformers is
less than $10 million, EEl expressed concern that the jurisdictional threshold may be met when a
public utility disposes of a large transformer or when several smaller transformers collectively
cost more than $10 million. Declaratory Order at 'i! 18.
On September 22 , 2006, FERC approved the request for blanket authorization of the
Transformer Agreement. The FERC applauded the efforts of EEl and the participating utilities
to share spare transformers. FERC noted that:
Without the (Transformer) Agreement, utilities would have to purchase
substantially more transformers to achieve the same recovery capability,
incurring substantially higher costs, or experience the inherent time delay
associated with finding, negotiating for, ordering, transporting, and testing a
replacement transformer. Furthermore, the Agreement establishes the
obligation to share spare transformers with Participating Utilities if there is a
Triggering Event. Accordingly, we find that the sharing arrangement in the
Agreement is prudent.
Declaratory Order at'i! 39.
THE APPLICATION
Under the Transformer Agreement, each participating utility is required to maintain
and if necessary, acquire a specific number of transformers in each voltage class in which it
participates. The Agreement requires participating utilities to sell their spare transformers to
another participating utility in its voltage class if there is a triggering event. Idaho Power
anticipates that it will commit 400 megavolt-amperes (MV A) of spare transformers to the
sharing pool in its 230 kV-138 kV equipment class. Application at'i! 7.
Idaho Power asserts that it will lower its overall future costs to maintain spare
transformers in its inventory, thereby benefiting ratepayers. By participating in the Transformer
Agreement, Idaho Power receives the benefit of access to transformers in a national emergency
I A "triggering event" is deemed as an act of terrorism that destroys or disables one or more substations and results
in a declaration of a state of emergency by the President. Agreement at 9 1.
DECISION MEMORANDUM
without the added costs and risks of buying and carrying large surpluses of spare transformers in
its inventory. Id. at'i! 6.
Although Idaho Power believes the risk of having to sell a spare transformer under
the Agreement to be very low, the possibility of such a sale would require this Commission
approval under Idaho Code ~ 61-328. This section provides in pertinent part that no electric
utility may sell or transfer "any property located in this state which is used in the generation
transmission, distribution or supply of electric power and energy to the public or any portion
thereof. . . except when authorized to do so by order of the public utilities commission." Before
authorizing such a transaction, the Commission must find: (1) that the transaction is consistent
with the public interest; (2) that the costs of and rates for supply and service will not be increased
by reason of such transaction; and (3) that the transaction will not adversely effect the financial
ability of Idaho Power to operate and maintain its facilities. Idaho Code ~ 61-328(3). The
Commission may condition its authorization with such terms and conditions as in its judgment
the public convenience and necessity may require. Idaho Code ~ 61-328(4).
Idaho Power states that because the possible transfer and sale of transformers is
executory, "appropriate bookkeeping entries will be made at the time of any future transfer and
sale" of transformers. Application at'i! 9. At this time the Company does not seek approval of
any ratemaking treatment for the Transformer Agreement fees and any new inventory required
by the terms of the Agreement. Id.
STAFF RECOMMENDATION
Staff believes this case may be appropriately processed under Modified Procedure.
COMMISSION DECISION
Does the Commission agree that this case can be processed under Modified
Procedure?
Don Bowell
bls!M:IPC-O6-27 _
DECISION MEMORANDUM