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Service Date
December 19 2000
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL )
OF AN AGREEMENT FOR ELECTRICITY
SUPPLY AND MANAGEMENT SERVICES
BETWEEN IDAHO POWER COMPANY AND
IDACORP ENERGY SOLUTIONS, LP.
CASE NO. IPC-OO-
ORDER NO. 28596
On September 1 , 2000, Idaho Power Company (Idaho Power; Company; IPCo) filed
an Application with the Idaho Public Utilities Commission (Commission) requesting approval of
a proposed Electricity Supply and Management Services Agreement (Agreement) between Idaho
Power and Idacorp Energy Solutions, LP (IES), an affiliate of Idaho Power. Appl. Ex. 1. The
Company also seeks approval of a related Statement of Policy and Code of Conduct. Appl. Ex.
BACKGROUND
Idaho Power and IES are both wholly-owned subsidiaries of Idacorp, Inc. The
activities of IES are not regulated by the Commission. IES is engaged in the marketing of
electricity and natural gas on the wholesale level, and makes sales directly to end users in those
states where retail access is permitted.
Idaho Power owns and operates electric generating equipment and transmission
facilities (system resources) to supply the electric load and service reliability requirements of its
customers. The Company also performs wholesale electricity marketing activities to acquire
electricity to supplement system resources and to optimize their operation. Transactions in the
wholesale market place that involve the sale of energy capacity from system resources or are
made for the purpose of balancing system loads and resources or achieving system reliability are
referred to as "operating transactions.
Idaho Power has also engaged in power transactions in the wholesale power market
which do not involve sales from system resources and are not related to balancing system loads
and resources or achieving system reliability. Such transactions are referred to as "non-operating
transactions. "
ORDER NO. 28596
FMC and the Industrial Customers of Idaho Power in recent cases before the
Commission have expressed concern relating to Idaho Power s operating and non-operating
transactions and whether expenses and capital costs are being properly allocated. The
Company s filing in this docket addresses these concerns.
Idaho Power in this Application announces its intent to prudently and cost-
effectively participate in the wholesale markets for electricity and ancillary services. Idaho
Power in this Application announces its intention to transfer its non-operating marketing
operations to IES and to establish a clear line of demarcation between the regulated and non-
regulated marketing businesses of Idacorp, Inc.
In its Application, the Company describes the proposed physical and structural
separation of IES from IPCo. The Company believes that there are significant cost savings and
market risk mitigation benefits that could be realized by contracting with IES to provide
electricity marketing and other electricity supply management services to IPCo.
The proposed relationship between IPCo and IES under the submitted Agreement
the Company contends, is substantially similar in structure and intent to the existing contract
covering natural gas supply management services approved by the Commission for
Intermountain Gas.
AGREEMENT
As reflected in its Application, under the Agreement, Idaho Power will continue to
own, operate and maintain its system resources and be responsible for system reliability. Idaho
Power will continue to dispatch the system resources to match generation and load within the
Idaho Power control area. The Agreement, the Company maintains, will not modify Idaho
Power s commitment or ability to manage its system resources in a manner that will provide the
Company s customers with access to all available capacity and energy from Idaho Power
system resources on a first-priority basis.
Purchase and sales of wholesale power between IPCo and IES will be at market
prIces. The market price will be determined by reference to published market indices (Mid C or
Palo Verde) or through the solicitation of quotes from a number of potential suppliers or
purchasers.
From time-to-time, the Company states that IES may act as a broker between it and
third-party wholesale purchasers or sellers. In addition, the Agreement provides that IES will
ORDER NO. 28596
provide office support services for marketing activities. IES will confirm purchases and sales
administer contracts, coordinate scheduling of energy transactions in adherence with transaction
protocols, and resolve discrepancies between the net of all sales, purchases and wheeling
transactions. IES will also provide Idaho Power with risk management services to mitigate price
volatility risk.
Idaho Power will continue to be responsible for planning system resource operations
and for preparing and obtaining regulatory acknowledgement of the integrated resource plan as
required by the Idaho and Oregon Commissions. IES will assist Idaho Power in load forecasting
and reviewing resource adequacy and resource options to create a cost-effective strategy for
satisfying future load requirements.
IES will also provide finance and accounting support and counter-party credit
analysis for power marketing activities. IES will be responsible for invoicing all counter-parties
and providing collections and reconciliations. IES will also provide certain communications
services, including public relations, web-based commerce innovations, internal and external
message development, and collateral support.
To ensure ongoing and timely consultation and oversight of IES' s services, IES and
Idaho Power will each designate an officer or senior manager to provide such oversight
Oversight Manager ). Idaho Power s Oversight Manager will report directly to the office of
the Chief Executive Officer and to Idaho Power s Risk Management Committee. The Idaho
Power Oversight Manager will be responsible for coordinating with IES and providing a single
decision-making point from Idaho Power concerning IES's provision of power marketing and
system management services.
By entering into the Agreement with IES, Idaho Power believes it will be able to
lower its expenses, reduce the risks associated with power market volatility and maintain its
existing high level of system operating efficiency and reliability.
CODE OF CONDUCT
In conjunction with the IES Agreement, Idaho Power is offering to put into place a
formal Statement of Policy and Code of Conduct which would further define the relationship
between IES and IPCo. Appl. Ex. 3.
ORDER NO. 28596
Procedure
Notices of Application and Modified Procedure in Case No. IPC-OO-13 were issued
by the Commission on September 28, 2000. To facilitate public involvement and understanding
of the Company s proposal, a public workshop was noticed and held on October 13. The
Company s proposal in that workshop to fashion a stipulation that would be tendered by way of
case settlement resulted in subsequent notice and a second workshop on November 9.
As reflected in the Commission s Notice, the stipulation and settlement negotiations
were intended to (1) address and clarify the scope of Commission audit of IPCo/IES transactions;
(2) establish a capping of annual charges for IES services; (3) establish a procedure for sharing
of related benefits with customers; (4) incorporate a Company commitment to ensure reservation
of transmission capacity to serve native load customers and (5) provide some further clarification
of the Company s proposed relationship with IES.
Settlements.
Reference IDAPA 31.01.01.271-280-
Pursuant to scheduling and notice, written comments were filed in this case by
Commission Staff, l.R. Simplot Company, AARP, and the Industrial Customers of Idaho Power
(ICIP). ICIP in this case consists of eight member companies: Amalgamated Sugar, Basic
American Foods, Boise Cascade Crookham Seed Company, Hewlett Packard, Idaho Beef
Packers, Inc., Lamb Weston and Nestley Brands. ICIP is not a signatory to the Stipulation and
opposes the Application. The written comments ofthe parties can be summarized as follows:
Commission Staff
Staff supports the tendered Stipulation, believes that it is in the Company s interest
and recommends that it be approved by the Commission. As reflected in Staff comments, Staff
had the following concerns regarding the transfer of activities to another affiliate under contract:
1. Will the Commission Staff be able to adequately review the books and
records of the affiliate related to transactions to assure that customers
receive the highest value for services rendered?
2. Will transmission rights and system energy generation resources be
secured for native load?
3. Have customers paid for assets or costs that are being transferred to the
affiliate?
4. Are the contract charges reasonable?
ORDER NO. 28596
5. Should customers receive a rate reduction or benefit because of the
transfer of activities to the affiliate under contract?
As reflected in Staff comments:
THE STIPULATION
The first concern (of Staff) is addressed in section No.2 of the Stipulation
Commitments to Facilitate Commission Audits.Staff believes these
provisions assure adequate access to books and records for audit to assure
procedures, transactions and prices are reasonable. Staff will continue to
audit the procedures, prices and energy transactions in each Power Cost
Adjustment (PCA) case and any future general rate case.
The second area of concern related to securing transmission rights and
system energy resources is addressed in sections No.4 of the Stipulation
Transmission Reservations" and No.5 "Economic Dispatch of System
Resources.Staff believes these provisions will provide a mechanism to
assure these assets are secured for the future benefit of native load
customers.
The third, fourth and fifth concerns are all addressed in section No.1 of
the Stipulation "Customer Benefits." Section No. 1.1 reserves the right to
address these issues and any other revenue requirement issue in the next
general rate case.
Staff addressed the third concern during audit and at the workshops. Staff
is reasonably assured that the assets being transferred were either
purchased after the last rate case so these assets are not currently included
in rate base or the assets are nearly depreciated. Staff will further
investigate this concern in a comprehensive audit that will include a
review of all transfers to affiliates prior to the next rate case. If Staff
believes an adjustment is required, Staff will propose it in the next general
rate case.
The contract charges are initially established in the "Electric Supply
Marketing and Management" Contract (Appl. Ex. 1). Provision 6.
provides that IES will be paid $300 696.30 per month for services
rendered Idaho Power. Provision 7.1 provides that IES will pay Idaho
Power $87 293.53 per month for non-power goods and services for the
year 2000. The dollar amount will be reviewed and established each year.
These contract charges represent the fourth concern. The payment to IES
of $3 608 355.60 annually ($300 696.30 x 12) is less than the cost for
these services included in the last rate case of $4 870 263. The contract
cost is also significantly less than the total amount incurred by Idaho
Power in 1999 for all transactions and the Staff estimated allocation for
ORDER NO. 28596
system transactions. Section No.3 of the Stipulation "Annual Charges
reiterates the right to review the reasonableness of the actual annual
charge in the next rate case for inclusion in rates. The annual charge paid
to IES from Idaho Power to be included in the revenue requirement will
not exceed $5 000 000 in the next rate case.
Staff addressed the fifth concern that customers should receive a benefit
currently from this transaction. Staff proposed that the difference between
the contract charges and the amount reflected in the last rate case (1993
test year) be returned to customers annually. This calculated Idaho
jurisdictional benefit (is) rounded to $2 000 000 annually. . .. Stipulation
Section No. 1.2 provides that this $2 000 000 will flow back to Idaho
customers annually coincidentally with Idaho Power s PCA. This annual
reduction will continue until new Idaho Power tariff rates are implemented
following the next rate case.
With the provisions included in the Stipulation, Staff recommends approval of the
Stipulation and the proposed Electricity Supply and Management Services Agreement between
Idaho Power and IdaCorp Energy Solutions, LP (IES), an affiliate of Idaho Power (Appl. Ex. 1).
Staff believes that the Stipulation adequately addresses those identified concerns. It protects
ratepayer interests, is reasonable and is in the public interest.
The Stipulation, Staff notes, is silent on the Statement of Policy and Code of Conduct
(Appl. Ex. 3). Staff recommends acceptance (rather than outright approval at this time) of the
Statement of Policy and Code of Conduct as a first step in the process of developing a Policy and
Code of Conduct between Idaho Power Company and IES. Idaho Power in reply comments
states that it does not object to the Commission s acceptance of the Code of Conduct
suggested by Staff. The Company states that it voluntarily offered the Code of Conduct as a
vehicle to address broader policy considerations.
AARP
AARP expresses its strong belief that the transfer of functions proposed by Idaho
Power should not adversely affect the rates and services provided to residential consumers in the
state of Idaho. IES, AARP contends, should be required to reimburse customers (via Idaho
Power) for any tangible or intangible benefits that IES has received as a result ofthe transfer.
AARP recommends that the Commission adopt a comprehensive Code of Conduct to
govern the transactions between Idaho Power and IES. Among other things, the Code of
Conduct AARP contends, should ensure that the affiliates conduct transactions between
ORDER NO. 28596
themselves at arms length. Any potential cost subsidization of IES by Idaho Power should be
absolutely prohibited. There should be no shared employees, expenses or assets between them.
Moreover, AARP contends that in addition to separate buildings, each entity should be required
to maintain separate employee assignments and separate physical assets. For the protection of
customers in the state of Idaho AARP urges the Commission to incorporate these
recommendations in the proposed Code of Conduct governing the relationships between IdaCorp
Energy and Idaho Power.
J. R. Simplot Company
R. Simplot Company supports the Application of Idaho Power without reservation.
Simplot views the model adopted by Idaho Power as the model successfully used by
Intermountain Gas and IGI Resources. Simplot believes that it can provide positive benefits to
all classes of Idaho Power customers and those customers who may have opportunities and
special needs with which IdaCorp Energy Solutions LP can provide significant assistance. The
relationship between IES and Idaho Power, Simplot contends, may result in the further benefits
of lower turnover rates and increased cost efficiency. Simplot supports the Stipulation and the
safeguards and auditing opportunities contained therein.
Industrial Customers of Idaho Power (ICIP)
As previously indicated, ICIP opposes the Company s Application believing that (1)
it does not protect the ratepayers; (2) counter-party default provisions are one-sided; (3) auditing
options are not meaningful; and (4) that the Application simply moves the problem-it doesn
solve the problem. The relationship between Idaho Power and IES , ICIP contends, leaves Idaho
Power s ratepayers little protection against the incentive of a non-regulated Company (IES) to
engage in market transactions for the benefit of IdaCorp shareholders at the expense of Idaho
Power s ratepayers. Despite the best-intentioned actions on the part of IES employees, the
ratepayers remain at risk because of the very nature of that relationship. That is true, ICIP
maintains, because the structure of the relationship allows for no market tests for reasonableness
as it does not contemplate competitive bidding for provision of the services IES proposes to
provide to Idaho Power.
The counter-party default provisions are one-sided, ICIP contends, because parties
will prorate losses only. Fairness, ICIP contends, requires that ratepayers similarly share in the
gain on any such wholesale transactions.
ORDER NO. 28596
After-the-fact auditing, ICIP contends, is effectively meaningless in light of the
extremely complicated and intermingled nature of the transactions IES proposes to enter into.
After-the-fact attempts to unravel the source of kilowatts on a given day, hour or minute, are
simply impossible. ICIP further observes with concern that there are no professional commodity
traders experienced in wholesale electric markets on Staff at the Commission.
ICIP notes that it has been critical in the past of the problems inherent in maintaining
both a speculative and non-regulated trading floor and a regulated system trading floor under the
same roof and using the same personnel. While ICIP appreciates the Company s efforts to
address this problem by moving its trading activities to a separate corporate entity, the
relationship proposed in the immediate proceeding, ICIP contends, is no solution. In fact, ICIP
maintains that the problems identified in the past and briefly reiterated in its comments will not
be solved; instead they will have been moved, and perhaps made more difficult to solve.
ICIP urges the Commission to deny Idaho Power s Application and initiate
meaningful proceedings to arrive at a real solution to the problem.
Idaho Power Reply
In a filed reply, Idaho Power addresses ICIP's criticism. Regarding counter-party
defaults, the Company states that it is important to remember that the issue addressed is the very
rare occurrence where a counter-party to a wholesale contract has defaulted in its performance.
While the scenarios ICIP complains of, are theoretically possible, the Company maintains that
they are so improbable that they should not factor into the Commission s consideration of the
Company s Application.
Regarding the possibility of unethical conduct by IES and Idaho Power, Idaho Power
states that as a regulated utility, the Company continues to have a very real incentive to ensure
that the Agreement works to the benefit of Idaho Power s customers. The advantages of bidding
(if any), the Company states, are outweighed at this time by the familiarity of IES employees
with Idaho Power s predominantly hydroelectric generating system and its loads as well as being
well versed in how hydro resources fit into current wholesale markets.
Regarding audit concerns, the Company notes, that ICIP's concern is not shared by
Commission Staff. If at any time the Commission Staff felt they needed additional expertise to
analyze the transactions between Idaho Power and IES , Idaho Power states that it would have no
ORDER NO. 28596
objection to their obtaining such experts and would cooperate with Staff and its consultant in any
reView.
All of ICIP's concerns, Idaho Power maintains, can be addressed within the existing
framework of the continuing jurisdiction of the Commission and Idaho Power s obligations
under Idaho law.
Status Conference
A Status Conference and procedural hearing in Case No. IPC-OO-13 was held on
November 28, 2000. The following parties appeared by and through their counsel and/or
representatives:
Idaho Power Company
Commission Staff
Industrial Customers of Idaho Power
Idaho Irrigation Pumpers Association
R. Simplot Company
Bart Kline
Scott Woodbury
Peter Richardson/Molly O'Leary
Randy Budge
David Hawk
Stipulation
At the hearing Idaho Power formally offered the proposed Stipulation filed on
November 17, 2000 for the Commission s consideration and by way of case settlement. The
Stipulation was signed by Idaho Power, Commission Staff, AST ARIS (formerly FMC), Idaho
Irrigation Pumpers Association, AARP, Idaho Retailers Association, l.R. Simplot Company and
Micron. Idaho Power contends that the Stipulation complements and further strengthens the
Company s intention to establish an arms-length relationship for transactions between Idaho
Power and IES; that it establishes significant audit procedures; and that it provides for shared
savings by way of an immediate flow through of immediate cost savings ($2 000 000) coincident
with the PCA. The submitted Agreement (as modified by Stipulation), Idaho Power maintains
will result in the following benefits: lower operating costs, better market intelligence, better
management of Idaho Power resources for the benefit of customers and the removal of more
speculative trading and marketing activities to IES.
Commission Findings:
The Commission has reviewed and considered the filings of record in Case
No. IPC-OO-13 including the submitted Electricity Supply and Management Services
Agreement, the related Statement of Policy and Code of Conduct, the submitted Stipulation, the
filed comments and the transcript ofthe November 28 2000, proceedings.
ORDER NO. 28596
The Commission finds that the public interest was well served by the procedure
adopted in this case, i., the two public workshops and an opportunity for written comments.
The resultant Stipulation, we find, has improved the underlying Agreement and dispensed with
the necessity of further proceedings. IDAPA 31.01.01.204. We note that the ICIP, while not
signing the Stipulation, expressly states that it does not object to the continued use of Modified
Procedure in this case. We accept the case as fully submitted and find that we have an adequate
record to fully consider the issues presented by the Company s Application.
Regarding the IPCo/IES Agreement, we find that the Agreement establishes a
reasonable and transparent structure for prioritizing, protecting and serving native load
requirements. We are convinced that the Agreement gives the Company s native load customers
priority and the economic use and dispatch of Company generation resources, transmission and
distribution facilities. In distinguishing between operating and non-operating transactions, it also
provides a reasonable means of assuring that the Company s native load customers are not
saddled with those risks unrelated to providing regulated utility service.
We find the identified cost savings and related benefits to customers set forth in the
Stipulation and the method for flowing those savings through to customers to be an important
factor in assessing the merits of the underlying Agreement. We hope that the savings actually
realized will approximate or exceed the Company s estimation.
We find the Company commitments to facilitate Commission audit of IPCo and IES
transactions to be a valuable tool for continued monitoring of the Company s dealings with its
affiliate and insuring that the Company remains focused and cognizant of its statutory and
regulatory responsibilities and that the system reliability, operational and economic interests of
its customers remain forefront and protected.We note ICIP's concerns regarding post
transaction audits and the expertise of Staff to analyze and assess such transactions. Weare
comfortable with our Staff s ability to review affiliate transactions and are confident that Staff
will obtain contract services should it prove necessary.
All amendments to the underlying Agreement and Statement of Services are to be
submitted for review and Commission approval. The Company is to apprise the Commission in
writing three months in advance of any intent to extend or cancel beyond the initial five-year
term of the Agreement or subsequent two-year extension terms and shall notify the Commission
of any cancellation by IES.
ORDER NO. 28596
The Commission finds the submitted Statement of Policy and Code of Conduct to be
a recognition that a policy for affiliate relationships needs to be established. We believe that this
matter requires further development and opportunity for public input (workshops, etc.
).
expect the Company to refile its proposed (or amended) Statement of Policy and Code of
Conduct within 30 days for a more focused consideration of such a policy and code. In the
interim, we find it reasonable that the Company and IES conduct themselves in accordance with
the terms submitted.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility, and its Application in Case No. IPC-OO-13 pursuant to the authority and
power granted under Title 61 of the Idaho Code and the Commission s Rules of Procedure
IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission does hereby approve the proposed
Electricity Supply and Management Services Agreement (between Idaho Power and IdaCorp
Energy Solutions, LP, an affiliate of Idaho Power) together with the terms of the Stipulation
subsequently submitted.
IT IS FURTHER ORDERED and the Commission does hereby direct Idaho
Power Company to make a formal filing within 30 days of any proposed Policy and Code of
Conduct for affiliate relationships.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
ORDER NO. 28596
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho, this /'f11--
day of December 2000.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
bls/O:ipceOO13 sw2
ORDER NO. 28596