09182001.doc

DECISION MEMORANDUM

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

FROM: SCOTT WOODBURY

DATE: SEPTEMBER 18, 2001

RE: CASE NO. IPC-E-01-26 (Idaho Power)
AGREEMENT FOR SALE AND PURCHASE OF SUPRLUS ENERGY—
FIRST AMENDMENT
IDAHO POWER/AMALGAMATED SUGAR (TASCO)

On October 31, 1998, Idaho Power Company (Idaho Power; Company) and The Amalgamated Sugar Company LLC (TASCO) entered into an Agreement for the Sale and Purchase of Surplus Energy (the “Surplus Energy Agreement”) under which Idaho Power currently purchases surplus electric energy up to 2 MW from TASCO at market-based prices. Reference Case No. IPC-E-98-15, Order No. 27885.
On July 25, 2001, Idaho Power filed an Application with the Idaho Public Utilities Commission (Commission) requesting approval of a First Amendment (Amendment) to the Idaho Power/TASCO Surplus Energy Agreement. As represented in the Application, TASCO has decided to install additional generating capacity at its Nampa plant. In addition to the approximately 2 MW of generating capacity that currently exists, TASCO intends to add an additional 8 MW of capacity which will bring the total generating capacity at the Nampa plant to 10 MW. Under the Amendment dated July 23, 2001, Idaho Power agrees to purchase the additional surplus energy generated by TASCO at prices that are less than market-based non-firm energy prices. The Amendment provides a September 1, 2003 termination date for the Surplus Energy Agreement.
Pursuant to the Amendment, the electric energy to be sold under the Surplus Energy Agreement is non-firm energy and will be only available when TASCO does not consume the electric energy in the Nampa plant. The purchase price for the energy provided by TASCO is separated into two blocks. The first block is energy attributable to the first two (2) MW of energy and is priced at the same level as previously approved by the Commission in Order No. 27885. The second block is energy attributable to the next eight (8) MW of capacity installed by TASCO and is priced at a percentage discount from the monthly average non-firm Dow Jones Mid-Columbia index price. During the period from August 1, 2001 through September 30, 2001, the price for the second block energy will be equal to 90% of the monthly weighted average non-firm Dow Jones Mid-Columbia index prices during the period. From January 1, 2002 through September 1, 2003, second block energy will be priced at 85% of the monthly weighted average non-firm Dow Jones Mid-Columbia index price.
Under the terms of the Amendment, until Idaho Power has completed necessary engineering studies, purchases from the Nampa plant will be physically and contractually limited to 8.5 MW. If additional interconnection facilities are required to allow parallel operation between TASCO and Idaho Power at the 10 MW level, TASCO will be obligated to reimburse Idaho Power for those costs prior to the additional generation being accepted by Idaho Power.
Pursuant to the Amendment, the revisions of the Surplus Energy Agreement will not become finally effective until the Commission has approved the Amendment and declares that all payments for surplus energy under the Surplus Energy Agreement as amended shall be allowed as prudently incurred expenses for ratemaking purposes.
On August 24, 2001, the Commission issued Notices of Application and Modified Procedure in Case No. IPC-E-01-26. The deadline for filing comments was September 12, 2001. The Commission Staff was the only party to file comments. Staff recommends that the proposed Amendment to the TASCO Agreement be approved and the Company be permitted to recover reasonably incurred related costs through the PCA.
Staff in its analysis compared the TASCO Agreement second block energy price to several other buy-back programs, short-term energy purchase agreements and the Company’s agreement to lease mobile diesel generators. Staff concludes that the TASCO Agreement second block energy is similar in price to other short-term alternatives, less expensive than some and more expensive than others. Because the price to be paid under the amended Agreement is a percentage of market price rather than a fixed price, the amount paid by Idaho Power will increase or decrease as market prices change. When Idaho Power needs the energy, the price will always be more attractive than buying from the market. When it does not need the power, Idaho Power should, Staff contends, be able to resell the energy at the higher full market price and credit the revenue to its power sales account. Staff believes that the prices agreed to in this amendment are attractive to Idaho Power and its ratepayers.
As in comments filed in an Idaho Power agreement with J.R. Simplot Company (Pocatello facility) (Case No. IPC-E-01-28) Staff expresses uncertainty about “what factors Idaho Power uses as a basis for negotiating discounts from market price and whether these discounts are being consistently applied for all customers.” Without some guidelines as to how discounts from market price are being determined, Staff states it is unable to conclude that two-thirds of market price is fair in one instance and 90% of market price is fair in another. Staff indicates that it would be more comfortable if it could assure customers with potential generation to sell to Idaho Power that a consistent, well-documented process is used to determine rates for short-term purchases. In its reply comments in the Simplot case Idaho Power states that it views the prices for voluntary load reduction programs in much the same way as it views the pricing for special contract customers. Each special contract customer and its individual characteristics is viewed independently. The prices and terms offered are based upon conditions as they exist at the time of the offer. As conditions change, so will the offer. Accordingly, the Company maintains that it is not possible to develop a consistent documented process to arrive at the price for any given voluntary load reduction. The safeguard, the Company maintains is the fact that Commission approval is requested and obtained for all agreements and programs.
COMMISSION DECISION
Does the Commission find it reasonable to approve the First Amendment to the Agreement for Sale and Purchase of Surplus Energy between Idaho Power Company and Amalgamated Sugar Company LLC (TASCO)? If not, how does the Commission wish to proceed?

Scott D. Woodbury

bls/M:IPCE0126_sw2
DECISION MEMORANDUM 3