2000915_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
DAVE SCHUNKE
RANDY LOBB
BILL EASTLAKE
KEITH HESSING
TERRI CARLOCK
WORKING FILE
FROM:
DATE:
SEPTEMBER 15, 2000 RE: CASE NO. IPC-E-00-13 (Idaho Power)
ELECTRICITY SUPPLY AND MANAGEMENT SERVICES AGREEMENT
AFFILIATE TRANSACTION—IDAHO POWER/IDACORP ENERGY
SOLUTIONS LP
W/RELATED STATEMENT OF POLICY/CODE OF CONDUCT

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. 3.
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.”
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 existing contracts covering natural gas supply management services approved by the Commission for both Intermountain Gas and Avista.
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’s 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 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.
Procedure
The Company recommends that a hybrid procedure be established consisting of a public workshop and written comments. The Company hopes that it can receive regulatory approval and have the Agreement in place by the end of the year. In addition to the Idaho filing, Idaho Power will also have to file with the Federal Energy Regulatory Commission (FERC), the Oregon PUC, and possibly the Nevada PUC.
Commission Decision
Idaho Power has offered to host a workshop in Boise consisting of a Company presentation and a question/answer period. Staff recommends that two-weeks’ notice be provided for the workshop. Following the workshop it is anticipated that written comments would be filed within 30 days and a subsequent hearing to determine the requirement for further procedure (if any). Does the Commission agree with the proposed procedure in this case? If not, what is the Commission’s preference?

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DECISION MEMORANDUM 4