HomeMy WebLinkAbout20010625Gale Direct.pdfBEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY'S INTERIM AND PROSPECTIVE,)
HEDGING RESOURCE PLANNING,)CASE NO. IPC-E-01-16
TRANSACTION PRICING, AND IDACORP )
ENERGY SERVICES (IES) AGREEMENT )
)
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
JOHN R. GALE
GALE, DI 1
Idaho Power Company
Q.Please state your name and business address.1
A.My name is John R. Gale and my business2
address is 1221 West Idaho Street, Boise, Idaho.3
Q.By whom are you employed and in what4
capacity?5
A.I am employed by Idaho Power Company; as the6
Vice President of Regulatory Affairs.7
Q.Please describe your work experience.8
A.In October 1983, I accepted a position as9
Rate Analyst with Idaho Power Company. In March 1990, I was10
assigned to the Company’s Meridian District Office for one11
year where I held the position of Meridian Manager. In12
March 1991, I was promoted to Manager of Rates. In July13
1997, I was named General Manager of Pricing and Regulatory14
Services. In March of 2001, I was promoted to Vice15
President of Regulatory Affairs. As Vice President of16
Regulatory Affairs, I am responsible for the overall17
coordination and direction of the department, including18
development of jurisdictional revenue requirements and class19
cost-of-service studies, preparation of rate design20
analyses, and administration of tariffs and customer21
contracts. In my current position, I am actively involved22
GALE, DI 2
Idaho Power Company
with restructuring activities throughout our service1
territory.2
Q.What is the purpose of your testimony in this3
proceeding?4
A.I will address the Commission's desire to5
more fully review the manner in which Idaho Power Company6
(“Idaho Power” or “the Company”) and IDACORP Energy7
Solutions, LP (“IES”) can conduct business for the benefit8
of Idaho Power's customers on both an interim and9
prospective basis. Additionally, I will speak to Idaho10
Power’s approach to providing resources to meet system loads11
during the near-term time period.12
Q.Please summarize Idaho Power Company’s13
recommendation for the interim rules governing transactions14
between Idaho Power Company and IES.15
A.Until such time as the Idaho Public Utilities16
Commission (“IPUC” or "Commission") makes a final17
determination that the existing rules should be changed,18
Idaho Power believes that the rules governing the conduct of19
transactions between Idaho Power and IES (including transfer20
prices) should be the same rules accepted by the Commission21
in Order No. 28596 issued in Case No. IPC-E-00-13. Idaho22
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Idaho Power Company
Power believes this approach is consistent with prior1
Commission decisions requiring that practices and rules2
adopted by the Commission remain in effect until changed by3
subsequent IPUC order.4
The Agreement may need to be modified5
slightly to comply with the final order of the Federal6
Energy Regulatory Commission (“FERC”) approving the7
Electricity Supply Management Services Agreement (“the8
Agreement”) that was the subject of IPUC Order No. 28596.9
When the final order is received from FERC, if it is10
acceptable to Idaho Power, it will be filed with the IPUC.11
If any changes to the existing rules are necessitated by the12
FERC order, Idaho Power will make a filing to obtain13
Commission approval for such change.14
Q.Please summarize the principals that Idaho15
Power believes should underlie the rules governing16
transactions between Idaho Power Company and IES.17
A.The rules governing transactions between18
Idaho Power and IES should be designed to achieve (1)19
alignment of risk and reward, (2) sharing of the economic20
and market knowledge benefits of one trading operation, (3)21
protection against affiliate abuse, and (4) energy transfers22
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Idaho Power Company
at visible, verifiable market prices. I believe that a1
reasonable period of operating experience will demonstrate2
that the existing Electricity Supply Management Services3
Agreement between Idaho Power and IES will meet these4
criteria. A copy of the Agreement is included as Exhibit 15
to my testimony.6
Q.Please describe the existing Electricity7
Supply Management Services Agreement.8
A.Under the business arrangement memorialized9
in the Electricity Supply Management Services Agreement10
submitted to the FERC, the IPUC, and the Oregon Public11
Utility Commission ("OPUC"), IES will purchase surplus power12
from Idaho Power on a daily and real-time basis, and will13
make daily and real-time sales of electricity to Idaho Power14
to meet native load needs. All wholesale transactions15
between Idaho Power and IES will be at market prices. The16
Agreement also provides for IES to serve as a broker for17
Idaho Power transactions, which will be performed on a non-18
exclusive basis.19
Q.Why did Idaho Power and IES develop the20
Agreement?21
A.Idaho Power and IES developed the Agreement22
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Idaho Power Company
to respond to changes in the competitive wholesale1
electricity market and concerns expressed by Idaho Power's2
customers regarding the allocation of costs between3
operating and non-operating transactions in that market.4
Idaho Power’s goal is to prudently and cost-effectively5
participate in the wholesale electricity market for the6
benefit of the Company's retail customers. Idaho Power7
believes that there are significant cost savings and market8
risk mitigation benefits that are realized by contracting9
with IES to provide electricity marketing and other10
electricity supply management services to Idaho Power. The11
Agreement benefits Idaho Power’s customers by protecting12
them from the risk of speculative transactions while at the13
same time lowering Idaho Power’s administrative costs of14
participating in the market. Pursuant to a stipulation15
previously approved by the IPUC, Idaho Power will flow back16
$2,000,000 per year to reflect these estimated cost savings17
once the Agreement is approved by all appropriate regulatory18
authorities. The Agreement also enables Idaho Power,19
through advice given by IES, to apply greater expertise in20
the wholesale market, resulting in better optimization21
between cost and risk for customers.22
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Idaho Power Company
This arrangement will protect Idaho Power’s1
retail customers from practices that FERC has characterized2
as "affiliate abuse". All transactions between Idaho Power3
and IES will be priced at market, as determined by published4
market indexes (daily transactions) or transactions with5
non-affiliates (real-time transactions). These market6
prices are not subject to manipulation by Idaho Power or7
IES. Real-time transactions are transactions up to 12 hours8
in duration (usually hourly transactions), while daily9
transactions are 24-hour transactions (usually next day10
transactions). Longer-term transactions may be brokered by11
IES or entered into directly with third parties by Idaho12
Power.13
Q.Please describe the circumstances leading up14
to the Power Supply Management Agreement between Idaho Power15
and IES.16
A.The Agreement is the outgrowth of a number of17
events that Idaho Power has experienced in its wholesale18
marketing activities coupled with the risks associated with19
Idaho Power’s unique generation resource supply mix. One of20
the unique characteristics of Idaho Power is its heavy21
reliance on hydro-based generation.22
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Idaho Power Company
Q.Why is the Company’s hydro-based generation a1
factor in the evolution of the Agreement?2
A.At one time, virtually all Idaho Power3
generation came from hydroelectric facilities on the Snake4
River. Because of the variations in streamflow conditions5
from year-to-year, the Company became active in the6
Northwest energy markets, buying from others during low7
water years and during the low streamflow periods within8
individual years, while selling its surplus power during9
periods when water was abundant.10
Over the years, the Company added some11
thermal (coal-fired) plants, through joint ownership, to12
complement the hydro facilities. Nevertheless, in a normal13
water year hydro facilities still produce more than 60% of14
the generation on the Idaho Power system. Idaho Power15
continues to buy and sell in short-term markets to balance16
the system’s loads and resources. During the summer months,17
Idaho Power has relied and planned on short-term power18
purchases, rather than installing new generation, to serve19
the peak system loads. While this approach has been viewed20
as a long-term, least-cost solution, there is an added21
element of near-term risk that Idaho Power faces as an22
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Idaho Power Company
active participant in the wholesale market that many other1
utilities do not face.2
As a hydro-based utility, Idaho Power is3
unique in its exposure to supply risk associated with its4
reliance on generation with an inherently unpredictable fuel5
source -- water. All electric utility companies (including6
Idaho Power) face volume risks associated with economic7
conditions and weather fluctuations. Loads can go up and8
down based upon a robust or sluggish economy. Furthermore,9
extreme temperatures can affect the load volume as well.10
For hydro utilities, there is an extra element of supply11
risk that the utility must manage. The additional risk is12
the uncertainty of the amount of generation available to13
meet load. Water storage is severely limited due to14
reservoir constraints. When the water is not available,15
there is no fuel to run the hydro plant. The fuel16
availability is an important distinction in comparing17
predominately hydro-based utilities and predominately18
thermal-based utilities. This supply risk introduces an19
added element of uncertainty for Idaho Power as a wholesale20
market participant.21
Idaho Power’s hydro resources provide22
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Idaho Power Company
positive economic impacts to the utility and its customers1
because these plants operate with virtually a zero fuel2
cost. Under normal conditions, the total system generation3
cost for Idaho Power is among the very lowest for investor-4
owned utilities in the United States. As purchased power5
costs become more volatile, they become more important to6
the overall power supply costs of Idaho Power. The Company7
wants to protect its overall low cost status from the8
adverse impacts of high purchased power costs. By9
sheltering Idaho Power Company from the more speculative10
market transactions, the Agreement is designed to reduce the11
risks that Idaho Power faces as a wholesale market12
participant to help ensure that purchased power expenses do13
not upset Idaho Power’s favorable cost situation, to the14
detriment of Idaho Power’s retail customers.15
Q.Please describe the emergence and growth of16
the Company’s trading activities.17
A.The size and complexity of the wholesale18
markets for electricity have increased dramatically in the19
past few years, as has Idaho Power’s participation in those20
markets. In addition, the IPUC has approved a method to21
change Idaho Power’s rates that encourages Idaho Power to22
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Idaho Power Company
reduce wholesale power purchase costs for its retail1
customers.2
In Idaho, prior to 1993, Idaho Power sold3
power to retail customers at fixed capacity and energy4
charges (that is, charges that were subject to adjustment in5
rate proceedings, but not through the operation of a fuel6
adjustment clause or similar provision). In 1993, following7
several years of drought conditions in which Idaho Power’s8
purchased power expenses substantially exceeded9
expectations, the IPUC approved Idaho Power’s request to add10
a Power Cost Adjustment (“PCA”) to the Company’s Idaho11
retail rate structure. The IPUC and the Company’s Idaho12
retail customers favored this arrangement because it enabled13
those customers to receive the benefit of more favorable14
water conditions in the form of reduced rates. With the15
implementation of the PCA, Idaho Power’s shareholders’ and16
customers’ interests became aligned, because they both17
shared in the savings and costs from operating transactions.18
Historically, Idaho Power’s wholesale19
transactions primarily involved sales of Idaho Power20
resources that were temporarily surplus to Idaho Power’s21
retail customers’ needs, and purchases of generation needed22
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Idaho Power Company
to meet Idaho Power’s retail customers’ needs. Idaho Power1
refers to such purchases and sales as “operating”2
transactions. Then, in the mid-1990’s, as the wholesale3
power market continued its rapid expansion, Idaho Power4
identified increasing opportunities to engage in more5
speculative off-system transactions that were unrelated to6
the Company’s system resources. Idaho Power refers to such7
purchases and sales as “non-operating” transactions. In8
1998, the Emerging Issues Task Force ("EITF") of the9
Financial Accounting Standards Board ("FASB") issued EITF98-10
10, Accounting for Contracts Involved in Energy Trading and11
Risk Management Activities. EITF98-10 became effective for12
all fiscal quarters beginning with fiscal years that started13
after December 15, 1998. Idaho Power’s simultaneous14
participation in operating and non-operating transactions,15
along with the establishment of accounting and reporting16
standards for energy trading contracts by the Emerging17
Issues Task Force of the Financial Accounting Standards18
Board created the need for Idaho Power to separate the19
transactions for accounting and ratemaking purposes. Idaho20
Power adopted these standards on January 1, 1999.21
Q.What was the accounting and ratemaking result22
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Idaho Power Company
of adopting these standards?1
A.Since January 1, 1999, transactions related2
to balancing of system load and system resources and3
transactions related to system reliability are classified as4
“operating” and remain on settlement accounting. These5
transactions are recorded and maintained in an “operating”6
trading book that is separated from other trading7
transactions. Operating transactions meet the “energy8
contracts” definition of the Emerging Issues Task Force9
consensus opinion because they are expected to settle10
physically. Operating transactions continue to be booked in11
FERC Accounts 447 or 555 and are thus included for PCA12
reporting purposes.13
Transactions not related to the balancing of14
the system load and resources are classified as “non-15
operating” or energy trading contracts and are required to16
be accounted for using mark-to-market, or fair value17
accounting. These transactions are maintained in “non-18
operating” trading books that are differentiated from one19
another by time periods; i.e., transactions that settle20
outside the “prompt” month, transactions that settle within21
the prompt month or sooner, and daily or real time22
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Idaho Power Company
transactions. The prompt month is the month following the1
current month. Non-operating transactions meet the “energy2
trading contracts” definition of the Emerging Issues Task3
Force consensus opinion and beginning in January 1, 19994
have been booked in FERC Account 421 and are thus excluded5
for PCA reporting purposes.6
Purchases or sales are typically classified7
as operating or non-operating at the time of the8
transaction. As transactions close in real time, the9
operating system book needs to balance against the physical10
requirements of the loads and resources. Beginning one11
month prior to scheduled settlement, transactions between12
the operating and non-operating books occur at the13
appropriate market settlement price in order to start14
bringing the system into balance.15
In Idaho Power’s 1999-2000 PCA case (Case No.16
IPC-E-99-3), some of Idaho Power’s larger customers17
expressed concern regarding Idaho Power’s operating and non-18
operating transactions and whether Idaho Power’s expenses19
and capital costs were being properly allocated between20
operating and non-operating transactions. In response to21
these concerns, the IPUC issued Order No. 28049 directing22
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Idaho Power Company
the parties to determine how best to address the issues1
raised by the customers. Subsequently, on February 14,2
2000, the IPUC Commission Staff filed a report addressing3
some of the issues raised by the customers in the 1999-20004
PCA case. The IPUC acknowledged receipt of that report in5
Idaho Power’s 2000-2001 PCA case and encouraged the parties6
to address the issues further.7
In further response to the concerns expressed8
in the above-cited cases, Idaho Power is moving its non-9
operating transactions into a separate entity. IES has been10
chosen as that entity. IES rents office space from someone11
other than Idaho Power, has its own employees, and is12
managed and operated independently from Idaho Power. Moving13
non-operating transactions to IES will substantially reduce14
the levels of support services currently provided by Idaho15
Power and will provide a clearer line of demarcation between16
the operating and non-operating electric marketing17
businesses of IDACORP, Inc. Upon final implementation of18
the Agreement, Idaho Power as an entity, will no longer19
participate in non-operating transactions, and the more20
speculative transactions that are currently non-operating21
transactions will be undertaken exclusively by a separate22
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Idaho Power Company
corporate entity, IES. Idaho Power adopted this structure1
to meet the concerns expressed by Idaho Power’s customers2
and the IPUC in the 1998-1999, 1999-2000, and 2000-2001 PCA3
cases.4
Q.How is the wholesale electric market of today5
different from the one of yesteryear?6
A.The wholesale market is becoming more7
complex. The decreased regulatory oversight and the8
increased volume of wholesale transactions between9
suppliers, marketers and consumers of bulk electricity has10
created an increasing demand for market participants to11
maintain a high level of market intelligence and12
understanding of market movements. The increasing13
availability of sophisticated financial instruments for14
managing price volatility risk for electricity transactions15
has further stimulated the burgeoning wholesale market for16
electricity. Regardless of the status of restructuring of17
the retail electric utility industry in the state of Idaho,18
this expanding wholesale market will continue to19
significantly affect the way Idaho Power operates in this20
changing environment.21
While the expanding wholesale market has the22
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Idaho Power Company
potential to provide opportunities for increased price1
efficiency resulting from a larger and more diverse group of2
market participants and products, there are certainly3
greater costs and risks associated with managing power4
supplies within this new environment. The Agreement5
addresses these concerns by increasing Idaho Power’s access6
to expertise in the wholesale market, while protecting Idaho7
Power’s retail customers from speculative trading risks.8
Idaho Power believes that there are significant cost savings9
and market risk mitigation benefits that can be realized by10
this arrangement, which I describe in greater detail later11
in my testimony.12
Q.What functions or activities are remaining13
with Idaho Power?14
A.The Agreement alters the manner in which15
Idaho Power will transact in the wholesale market, but does16
not alter Idaho Power’s generation and reliability17
obligations. Under the Agreement, Idaho Power continues to18
own, operate and maintain its system resources and be19
responsible for system reliability. Idaho Power continues20
to dispatch system resources to match generation and load21
within the Idaho Power control area. The Agreement does not22
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Idaho Power Company
modify Idaho Power’s commitment or ability to manage and1
control its system resources in a manner that will provide2
Idaho Power’s customers with access to all available3
capacity and energy from Idaho Power’s system resources on a4
first-priority basis. Idaho Power will comply with its5
FERC-approved Code of Conduct in providing any non-power6
goods and services to IES, as well as any additional7
requirements governing transactions between affiliates that8
the state commissions may find to be appropriate.9
Q.What functions are moving to IES?10
A.Under the Agreement, IES provides wholesale11
marketing services to Idaho Power. IES and Idaho Power12
enter into daily and real-time purchases and sales, and IES13
serves as a non-exclusive broker for longer-term14
transactions (such transactions are entered into directly15
with third parties). Transactions between the two entities16
occur only when Idaho Power determines that such17
transactions would be beneficial for Idaho Power and its18
customers. This arrangement enables Idaho Power to balance19
its system load and resources. In addition, IES buys power20
from Idaho Power at market prices when Idaho Power21
determines that Idaho Power has surplus power for sale and22
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Idaho Power Company
that such sales would be beneficial to Idaho Power and its1
customers. All of the transactions between Idaho Power and2
IES are at market prices established in a manner that3
prevents either entity from benefiting at the expense of the4
other. IES obtains the transmission and ancillary services5
that are necessary to deliver Idaho Power’s purchases and6
sales to the agreed-upon destination. IES advises Idaho7
Power regarding desirable transactions to enter into, and8
serves as a non-exclusive broker for purchases and sales9
with a duration that exceeds one day. IES complies with the10
FERC’s Code of Conduct for its brokering activities.11
In addition to the power purchases and sales12
described previously, the Agreement states that IES will13
provide Idaho Power various other non-power goods and14
services. IES advises Idaho Power regarding scheduling,15
hedging transactions, and risk management activities to16
minimize price volatility, among other things. In this17
role, IES among other things, confirms purchases and sales,18
administers market-based contracts, and coordinates19
scheduling of energy transactions in adherence with20
transaction protocols. IES also provides finance and21
accounting support and counter-party credit analysis for22
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Idaho Power Company
power marketing activities. Credit analysis has become an1
increasingly important activity for wholesale market2
participants, and requires the application of substantial3
expertise and resources to be done effectively. Idaho Power4
complies with the FERC’s Code of Conduct and the Statement5
of Policy and Code of Conduct accepted by the IPUC on an6
interim basis in Order No. 28596 in purchasing these and7
other non-power goods and services from IES.8
Q.How do Idaho Power’s customers benefit under9
the Agreement with IES?10
A.By entering into the Agreement with IES,11
Idaho Power believes that it will be able to lower its12
expenses, streamline staffing requirements, reduce the risks13
associated with power market volatility, and maintain its14
existing high level of system operating efficiency and15
reliability. These results will benefit Idaho Power’s16
retail customers.17
Possibly the greatest benefit to Idaho18
Power’s customers, and one of the central reasons why Idaho19
Power developed this proposal, is the realignment of risk20
and reward under the proposed organization. Recent events21
have demonstrated that today’s more volatile energy markets22
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Idaho Power Company
can present significant risks for utilities and potentially1
for their customers. Under the Agreement, speculative2
transactions will be performed by IES for its own account3
rather than by Idaho Power. This assigns to IES, rather4
than to Idaho Power, the potential risks and rewards from5
these transactions. This arrangement benefits Idaho Power’s6
retail customers, because they are sheltered from the7
speculative market transactions of the affiliate IES. In8
addition, safeguards are being established to prevent9
speculation on behalf of the utility. System transactions10
will be directed toward balancing loads and resources while11
considering cost, reliability and risk. Idaho Power’s12
Oversight Manager will approve system transactions. The13
Oversight Manger’s decisions will be reviewed by the14
Corporate Risk Management Committee and subject to at least15
annual review by the IPUC Staff.16
While retail customers lose the potential17
rewards of speculative transactions under this arrangement,18
this is more than offset by the reduction in risk from these19
transactions. As previously mentioned, Idaho Power has some20
of the lowest retail rates in the Nation, but experiences21
unique risks in participating in the wholesale electricity22
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Idaho Power Company
market. By protecting retail customers from the additional1
risks of speculative transactions, Idaho Power can better2
ensure that its purchased power expenses can be managed3
while maintaining a favorable rate environment for its4
customers.5
Retail customers will enjoy the benefits of6
the market expertise that a full scale trading operation has7
to offer. The benefit manifests itself in the market advice8
that can be offered in developing the operating plans for9
the system and in the recommendations regarding potential10
system hedging transactions on behalf of the system. IES11
will be operating in virtually all of the Western markets12
for virtually all time frames. All of the market13
information gleaned during those operations will be14
available to Idaho Power for decision-making purposes. In15
addition, Idaho Power will obtain increased access to people16
familiar with sophisticated financial instruments intended17
to reduce risk and mitigate price volatility.18
IES will assist Idaho Power in managing its19
system resources in an optimum manner. Dispatch decisions20
can be made using the best available market information.21
The information assists day-to-day operations, as well as22
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Idaho Power Company
longer-term decisions related to scheduled maintenance,1
river operations, and customer program coordination.2
Customers further will benefit from the3
clearer separation of the non-power costs between Idaho4
Power and IES through organizational and reporting changes5
as well as the physical location move. Allocations will be6
replaced with verifiable direct cost assignments. These7
direct cost assignments will be in compliance with8
applicable IPUC and FERC Code of Conduct requirements.9
Finally, Idaho Power’s customers will benefit10
from overall reduced costs that will flow through directly11
into jurisdictional revenue requirement determinations. The12
cost reduction is attributable to the ability to serve two13
entities with one trading operation instead of two. Both14
entities benefit by sharing the costs instead of replicating15
the corresponding organization and costs within each. As16
discussed above, Idaho Power has agreed to flow through to17
its Idaho retail customers $2,000,000/year in cost savings18
once the Agreement is approved by the necessary regulatory19
authorities, allowing these cost savings to occur.20
Q.What protections are in place to prevent21
affiliate abuse?22
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Idaho Power Company
A.Idaho Power recognizes that the IPUC and1
interested retail customers are concerned that inter-2
affiliate transactions do not create the opportunity for3
those affiliates to shift benefits from utility customers to4
shareholders. The Agreement recognizes and addresses these5
affiliate abuse concerns and includes measures that prevent6
affiliate abuse from occurring.7
The market price to which Idaho Power and IES8
will tie the transaction price is an objective standard for9
the pricing of electricity that is not subject to10
manipulation by Idaho Power or IES.11
For daily transactions, the market price will12
be determined based on published market indexes. The13
Agreement specifically references the Dow Jones Mid-Columbia14
Electricity Price Index (“Mid-C”) and the Dow Jones Palo15
Verde Price Index (“PV”). The Mid-C and PV Indexes are16
reliable and verifiable sources indicative of the prevailing17
market price, and are appropriate Indexes to use to18
determine the market price for daily electricity19
transactions. Mid-C and PV are two of the three major cash20
markets in the west. Mid-C is an active trading hub, with21
trading volumes comparable to those at PV. The Mid-C Index22
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Idaho Power Company
is widely used for indexed wholesale and retail1
transactions. For example, Idaho Power references the Mid-C2
Index for several of its retail contracts and tariffs,3
including non-firm prices for purchases from Qualifying4
Facilities. Exhibits 2 and 3 explain the Mid-C and PV Index5
categories that Dow Jones publishes, and the methodology6
that Dow Jones uses to calculate these indexes. As shown in7
that discussion, both the indexes and methodologies are8
comparable. For both indexes, prices are published daily9
based on actual transactions.10
For real-time transactions, Idaho Power will11
determine the market price based on the weighted average of12
the real-time prices at which IES bought and sold power to13
non-affiliates. The average of these transactions is14
indicative of the market price at the time, and its use15
provides appropriate protection against affiliate abuse.16
All energy transactions (buy or sell) that17
are not real-time or daily will be bilateral agreements with18
third parties and may be or may not be brokered by IES.19
Q.Please provide an example to illustrate the20
transfer pricing in use.21
A.If Idaho Power desired to purchase or sell22
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Idaho Power Company
power in June 2002 for the month of July 2002 (e.g., to meet1
expected peak loads), it would enter into a transaction2
directly with a third party or parties, or use IES’3
brokering services to arrange such a third party transaction4
if warranted. If, during July 2002, Idaho Power desired to5
enter into a transaction for a particular day (e.g., to meet6
a sudden load increase due to hot weather), it would7
transact with IES, and the price for such transaction8
between Idaho Power and IES would be based on the Mid-C or9
PV index as appropriate. If, during a particular day in10
July 2002, Idaho Power desired to enter into a real-time11
transaction (e.g., to sell during off-peak hours power12
acquired in a daily transaction to meet on-peak needs), it13
would transact with IES, and the price for such transactions14
between Idaho Power and IES would be based on the weighted15
average of the real-time prices at which IES bought and sold16
power to non-affiliates.17
To further protect against potential18
affiliate abuse, the Agreement provides for Idaho Power to19
designate an Oversight Manager to ensure that Idaho Power’s20
interests are protected. Idaho Power’s Oversight Manager21
will be an officer or senior manager in the Company, and22
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Idaho Power Company
will report directly to the Office of the Chief Executive1
Officer and to Idaho Power’s Risk Management Committee. The2
Idaho Power Oversight Manager will be responsible for3
coordinating with IES and providing a single decision-making4
point from Idaho Power concerning IES’s provision of the5
power marketing and system management services.6
In addition to engaging in inter-affiliate7
purchases and sales, IES will provide brokering services to8
Idaho Power. These services will be provided in accordance9
with FERC’s Code of Conduct brokering rules (including the10
requirement that the brokering arrangement between IES and11
Idaho Power be non-exclusive), and thus do not present the12
potential for affiliate abuse. Finally, Idaho Power and IES13
will engage in the purchase and sale of non-power goods and14
services, as described above. These services will also be15
provided in accordance with FERC’s Code of Conduct rules for16
non-power goods and services. The combination of the FERC17
Code of Conduct rules and the outcome of the pending IPUC18
docket in codes of conduct should provide adequate comfort19
to the Commission that affiliate abuse is adequately20
mitigated.21
Q.Please describe Idaho Power's resource22
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Idaho Power Company
planning process, beginning with long-term planning and1
ending with the "next-hour" decisions.2
A.Idaho Power plans to serve its loads under3
the general guidance of its Integrated Resource Plan4
("IRP"). The last such plan was filed with the Idaho Public5
Utilities Commission and the Oregon Public Utility6
Commission in June 2000. It was acknowledged by the IPUC in7
December 2000. The IRP is a long term (10 years) look at8
load and resources and emphasizes median water conditions9
for planning purposes. As might be expected, because of the10
median water assumption, the 2000 IRP necessarily relies11
more heavily on market purchases to provide energy in dry12
years than a resource plan that acquires system resources13
based upon critical water conditions.14
Q.Please explain in more detail how planning15
for the near-term time period takes place.16
A.Under the Company's existing IRP, the Company17
plans to cover its near-term energy deficiencies through18
short-term purchases in the wholesale market. Other19
alternatives to market purchases such as demand-side20
initiatives or supply-side options are evaluated against21
market purchases on an economic basis. Additionally, near-22
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Idaho Power Company
to-mid term market purchases are evaluated by the Company's1
Risk Management Committee as to the timing of such2
purchases. Typically, Idaho Power Company buys to meet3
expected system requirements and does not take speculative4
positions in the market.5
The Company's planning process in the short-term is6
complicated by the dominance of hydro generation in the7
resource base. Until the snow packs are known for the year,8
it is very difficult to determine the extent and duration of9
the Company's system deficiencies.10
Q.How does the assumption regarding water11
availability impact the planning process?12
A.Idaho Power has historically planned on a13
median water condition. This means water availability is14
assumed to be the equivalent of the middle water condition15
among the historical group of water conditions. Planning on16
median water means that the Company is more dependent on17
market purchases for supply in low water years than it would18
be if its planning assumption was based on more critical19
water conditions. If the Company planned on less than20
median water conditions, it would typically add resources21
sooner than it would under median water planning and would22
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Idaho Power Company
have more capacity available on an ongoing basis. Of1
course, the additional capacity adds additional costs to the2
Company's base rates. The trade-off for customers under3
median water planning is increasing base rates on an ongoing4
basis through the PCA to mitigate rate spikes during poor5
water years.6
Q.How would you propose to evaluate whether or7
not it is time to change the water assumption for planning8
purposes?9
A.Idaho Power believes that the Company’s 200210
IRP should address the issue in detail.11
Q.Does this conclude your testimony?12
A.Yes, it does.13