2001427_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
BILL EASTLAKE
TONYA CLARK
DON HOWELL
LYNN ANDERSON
DAVE SCHUNKE
RICK STERLING
RANDY LOBB
GENE FADNESS
WORKING FILE
FROM:
DATE:
APRIL 27, 2001 RE: CASE NO. IPC-E-01-12 (Idaho Power)
APPLICATION FOR CERTIFICATE (Idaho Code 61-526)
OR ALTERNATIVE DETERMINATION OF EXEMPT STATUS
MOUNTAIN HOME GENERATION STATION

On April 4, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) for a Certificate of Public Convenience and Necessity for the ratebasing of a Mountain Home Generation Station (Mountain Home Station; Station), or in the alternative, a Commission determination of exempt status for the Mountain Home Station. Reference Idaho Code 61-526 Certificate of Convenience and Necessity. The statute provides, in pertinent part:
61-526 Certificate of Public Convenience and Necessity. No … electrical corporation … shall henceforth begin the construction of a … plant … without having first obtained from the Commission a certificate that the future public convenience and necessity requires or will require such construction ….

Description of the Mountain Home Generation Station
The Mountain Home Station will initially consist of two (2) natural gas-fired combustion turbines rated at approximately 45 MW each. The Station is currently scheduled be developed on an expedited basis and begin generating in the summer of 2001. Idaho Power believes that the site may accommodate a third 45-MW unit. The third unit would not be installed before 2002. Alternatively, the Company states the Station may be modified at some future date to operate as a combined-cycle plant.
The Mountain Home Station will be located in Elmore County, Idaho, approximately two miles from the city of Mountain Home. Idaho Power intends to interconnect the Station with an existing 138 KV transmission system that crosses the proposed site.
The natural gas fuel supply will be obtained from the Williams Northwest Pipeline that crosses the proposed site.
Water for generation will be pumped from a deep well utilizing existing permitted water rights. For simple-cycle operation the water consumption would be less than 50 gallons per minute.
The Station will operate in compliance with all appropriate air and water quality standards. Under present market conditions, the Station would operate approximately 5,000 hours per calendar year.
Consistency with Idaho Power’s 2000 Integrated Resource Plan (IRP)
Idaho Power in its 2000 Integrated Resource Plan Near-Term Action Plan, indicated that it intended by RFP to acquire additional dispatchable energy and capacity beginning in 2004. The RFP process is now completed and the Company has signed a letter of intent to purchase capacity and energy from its affiliate IdaWest (Garnet). For the 2000-2003 period, the Company in its IRP stated its continued intention to purchase energy and capacity from the Northwest market for its incremental resource needs.
Idaho Power acknowledges that the Mountain Home Station is not identified in the Near-Term Action Plan in the Company’s 2000 IRP. Nevertheless, Idaho Power believes that construction of the Station is consistent with the IRP. The Station, the Company contends, provides a cost-effective alternative to planned wholesale market purchases. Idaho Power believes that recent market prices for purchased power create a unique circumstance to be addressed for the 2001-2004 period. Idaho Power’s marketing and trading analysts predict that annual heavy load period market prices for the next few years will likely be in the range of $50 to $350 per MWh. Hourly prices have historically been several times the annual energy price and could be in excess of $1,000 per MWh in the near term. The combination of low stream flows and extremely high market prices in 2001, the Company states, is unprecedented and prompt reaction is warranted.
Capital Cost Commitment Estimate
The Station’s capital costs are currently projected to be $46 million upon completion in 2001. With an additional 20% for contingencies, Idaho Power’s “Commitment Estimate” for the capital cost portion for the Station is $55.2 million. Idaho Power commits to building the Station for the Commitment Estimate. If the final capital costs exceed the commitment, Idaho Power will absorb the extra costs and will include in its Idaho rate base only the amount up to the Commitment Estimate. The Commitment Estimate is the best estimate of the Station’s total capital cost based on the award of contracts for the turbines and generators, plus an additional amount of 20% to establish a cost ceiling for the Station. Changes required as a part of the environmental and regulatory process, the Company states, could result in the need to modify the design of the Station and materially change the original preliminary estimate. Additionally, the cost of the interconnection could also affect the final cost of the Station.
The preliminary estimate of the levelized cost per megawatt hour (MWh)would range from an upper level of $223 per MWh based on a capital cost for the Station of $55.2 million, 500 hours of annual generation, and levelized fuel costs of $5.05 per MMBtu over the 30-year life of the Station, to a lower range cost of $77 per MWh based on a Station cost of $46 million, 5,140 hours of annual dispatch, and average fuel costs of $5.05 per MMBtu. If the Station is approved for rate base treatment, Idaho Power will provide periodic updated Station cost reports during the construction phase. The final cost report on the Station will compare the actual completed cost to the Commitment Estimate.
Fuel Costs
The major component of the operating costs of a combustion turbine generating plant, the Company states, is the cost of the natural gas fuel. Idaho Power reports that it has taken the initial steps to assure the availability of fuel and fuel transportation for the Station. As a part of this Application, Idaho Power is requesting that the Commission’s Order allow Idaho Power to include the Station’s cost of fuel, fuel storage and fuel transportation for recovery through the existing Power Cost Adjustment (PCA) mechanism. Levelized fuel costs for the station are currently estimated to be $5.05 per MMBtu.
Alternative Request for Determination of Exempt Status
If the Commission determines that Idaho Power’s investment in the Mountain Home Station should not be rate based for revenue requirement purposes, Idaho Power requests that the Commission immediately issue an Order determining that the Mountain Home Station will be permanently exempt from Commission regulation.
An Order establishing the permanent exempt status of the Station, the Company states, is necessary to allow Idaho Power to sell the Station or the output of the Station at market-based rates that would not be included in Idaho Power’s revenue for retail ratemaking purposes.
If the Commission determines that the Station should not be rate based, Idaho Power states that, the Commission’s Order should be clear, that the Station will not constitute operating property of Idaho Power and that the investment, expenses (current or accrued tax benefits or revenues incident to the Station) will not be considered for regulatory purposes in the state of Idaho including, but not limited to, revenue requirement and power supply purposes.

Idaho Power requests that its Application be processed under Modified Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204.
Commission Decision
Idaho Power requests that its Application be processed pursuant to Modified Procedure. Commission Staff has not completed its investigation. Staff has no objection to the case being processed pursuant to Modified Procedure. Staff recommends that the comment period be extended to 30 days. How does the Commission wish to process the Company’s Application. Does the Commission find Modified Procedure to be appropriate. If not, what is the Commission’s preference?

vld/M:IPC-E-01-12_sw

DECISION MEMORANDUM 4