2001611_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
DON HOWELL
GENE FADNESS
RANDY LOBB
TONYA CLARK
DAVE SCHUNKE
KEITH HESSING
TERRI CARLOCK
RICK STERLING
BEVERLY BARKER
WORKING FILE

FROM: SCOTT WOODBURY

DATE: JUNE 11, 2001

RE: CASE NO. IPC-E-01-15 (Idaho Power)
FIRM ENERGY SALES AGREEMENT—IDAHO POWER/EMMETT POWER
CONTRACT TERMINATION/LIQUIDATED DAMAGES—
PROPOSED ACCOUNTING TREATMENT

On May 4, 2001, Idaho Power Company (Idaho Power; Company) filed an Application in Case No. IPC-E-01-15 for an Order acknowledging the termination of delivery of power from Emmett Power Company and for an accounting order authorizing Idaho Power to include liquidated damage payments in the true-up portion of the Company’s Power Cost Adjustment (PCA).
As reflected in the Company’s Application, Idaho Power notes that Boise Cascade Corporation recently announced the imminent closure of its southern Idaho wood products operations which provide the wood waste fuel for Emmett Power’s operation and its steam host at Emmett, Idaho. Emmett Power has in turn notified Idaho Power that it will be forced to terminate its energy deliveries under its January 12, 1984, Firm Energy Sales Agreement (Agreement) with Idaho Power as a result of its loss of its waste wood fuel supplies and steam host. Emmett Power has advised the Company that it will permanently and fully curtail its deliveries of annual net energy at 11:59 p.m. on May 31, 2001. In accordance with Section 21.2.2 of the Agreement, such a permanent curtailment will result in Emmett Power being obligated to pay Idaho Power (in immediately available funds) the sum of $4,037,600 as liquidated damages.
Idaho Power states that it has undertaken a number of discussions with Emmett Power to see if there are any steps that could be taken to allow Emmett Power to continue to deliver annual net energy under the same prices, terms and conditions provided in the Agreement. Those discussions, the Company states, have not been successful. Emmett Power has advised the Company that without the wood waste from the soon to be closed Boise Cascade facilities, it is not economically feasible for Emmett Power to continue to deliver annual net energy at the prices contained in the Agreement.
The underlying Agreement provides for Emmett Power Company to deliver annual net energy (approx. 12 MW) for a term of 20 years commencing in 1985. Emmett Power’s notification to Idaho Power that it will permanently and fully curtail its deliveries of annual net energies on May 31, 2001, constitutes a breach of the Agreement and obligates Emmett Power Company to pay Idaho Power damages. Section 21.2.2 of the Agreement provides for liquidated damages and establishes the amount of damages Emmett Power is obligated to pay the Company as the sole remedy for Emmett Power’s breach of the Agreement. Idaho Power has reviewed the Agreement and has established that under the Agreement, the liquidated damage amount is $4,037,600.
The proposed accounting for the $4,037,600 liquidated damage amount is as follows:
131 Cash
699 X00001 999 131000

401 Operation Expense
699 M30108 511 555100

Idaho Power requests approval of the proposed accounting treatment so that revenues received in 2001 associated with the payment of liquidated damages can be included as an offset to QF expense in the true-up portion of the Company’s May 2002 Power Cost Adjustment recovery. The offset, the Company contends, will benefit customers by reducing QF expense in the May 2002 PCA filing.
Idaho Power requests that the Commission issue an Order (1) acknowledging the termination of deliveries of energy by Emmett Power and (2) approving Idaho Power’s requested accounting treatment.
On May 23, 2001, the Commission issued Notices of Application and Modified Procedure in Case No. IPC-E-01-15. The deadline for filing written comments was June 13, 2001. The Commission Staff was the only party to file comments (attached). Staff concurs that Idaho Power has little recourse but to accept the termination of the Agreement with liquidated damages. Staff verified that the damages to be paid to Idaho Power have been calculated correctly. Staff recommends that the Company’s Application be approved as filed. The Company proposed treatment of the liquidated damage revenue is consistent with the PCA treatment of PURPA contract costs. The PCA passes 100% of these cost differences through to customers.
COMMISSION DECISION
Idaho Power in Case No. IPC-E-01-15 requests a Commission order acknowledging the termination of the Firm Energy Sales Agreement with Emmett Power Company and request an accounting order authorizing the Company to include liquidated damage payments in the true-up portion of its May 2002 PCA filing. Does the Commission continue to find it reasonable to process the Company’s Application pursuant to Modified Procedure? Does the Commission find it reasonable to approve the Company’s Application? If not, how does the Commission wish to proceed?

Scott D. Woodbury

bls/M:ipce0115_sw2
DECISION MEMORANDUM 3