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-01-28 (Idaho Power)
ELECTRIC SERVICE AGREEMENT – AMENDMENT
IDAHO POWER/J.R. SIMPLOT COMPANY

On August 3, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting approval of a July 30, 2001, Letter Agreement amending the August 27, 1973, Electric Service Agreement between Idaho Power Company and J.R. Simplot Company (Pocatello Plant). Simplot agrees to reduce its electric load at the Pocatello plant as per scheduling set forth in the Letter Agreement. The actions to be taken by the parties are conditioned upon the market prices of wholesale power. In consideration for a reduction in Simplot’s consumption of energy (2.6 megawatts through October 2001 and 8.0 megawatts through March 2003. The parties have the option of extending the Agreement for an additional seven months through October 2003), the parties agree that Idaho Power shall pay to Simplot an amount equal to two-thirds of market price for each kilowatt hour of actual load reduction. The parties agree that if Simplot fails to reduce its load by a percentage of the amount specified in the Letter Agreement that liquidated damages will be assessed.
Idaho Power requests authority to include in the Company’s Power Cost Adjustment (PCA) mechanism any payments made to Simplot under the Letter Agreement. The Letter Agreement as structured provides that there is no requirement for lost revenue computation. Idaho Power submits that the transaction is in the public interest in all aspects and is beneficial to the Idaho Power retail system.
On August 23, 2001, the Commission issued Notices of Application and Modified Procedure in Case No. IPC-E-01-28. The established deadline for filing written comments was August 31. Commission Staff was the only party to file comments. On September 13 the Company filed a response to Staff comments. (Comments attached.)
Staff recommends that the amendment and buy-back be approved and that the reasonably incurred costs associated with the Simplot load reduction Letter Agreement be passed through the PCA like any other power supply expense. In assessing the reasonableness of the load reduction payment, Staff compares the proposal to several other buy-back programs, short-term energy purchase agreements and the Company’s lease agreement for mobile diesel generators. Staff concludes that the Simplot buy-back would be one of the Company’s lowest cost alternatives. Staff believes that the Simplot Agreement will help Idaho Power meet expected loads, will reduce the Company’s reliance on the market, and will minimize power supply costs.
In its comments Staff expresses uncertainty regarding “what things Idaho Power uses as a basis for negotiating discounts from market price and whether these discounts are being consistently applied for all customers.” Staff notes that the short-term load reduction alternatives recommended and recently approved by the Commission for Idaho Power are at a variety of prices. While the differences in discounts could be acceptable for reasons of differing terms of capacity, timing, firmness, duration and location of delivery, without some general guidelines as to how discounts from market price are being determined, Staff is unable to conclude that two-thirds of market price is fair in one instance and 90% of market price is fair in another. The price agreed to in each case, Staff contends, should be based on real differences in the value of the generation to Idaho Power, not on the negotiating skills of the customer. Staff states that it would be more comfortable if there was a consistent well-documented process used to determine rates for short-term purchases.
Idaho Power in response, 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, it is not possible, the Company contends, to develop a consistent documented process to arrive at the price for any given voluntary load reduction. The safeguard, the Company states, is that Commission approval is requested and obtained for all agreements and programs.

COMMISSION DECISION
Does the Commission find it reasonable to approve the terms of load reduction set forth in the July 30, 2001 Letter Agreement between Idaho Power Company and J.R. Simplot Company (Pocatello plant)? If not, how does the Commission wish to proceed?

Scott D. Woodbury

bls/M:IPCE0128_sw2
DECISION MEMORANDUM 2