ipce01.28swrps.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR APPROVAL OF A LETTER AGREEMENT AMENDING THE ELECTRIC SERVICE AGREEMENT BETWEEN IDAHO POWER COMPANY AND J.R. SIMPLOT COMPANY. )
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CASE NO. IPC-E-01-28

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure, and Notice of Comment/Protest Deadline issued on August 23, 2001, submits the following comments.
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 facility 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, 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.

Analysis
The Application to amend the Electric Service Agreement between Idaho Power and Simplot is basically another short-term buy-back program intended to reduce the Company’s reliance on the market and minimize purchase power costs. Under this Agreement, Idaho Power agrees to pay Simplot two-thirds of market price for a reduction of 8 MW in Simplot’s load for approximately the next two years. Staff believes there are two primary issues in this case: the amount of the load reduction payment, and the ratemaking treatment of those payments.

Load Reduction Payment
Under this Agreement Idaho Power has agreed to pay Simplot two-thirds of market price for load reductions of 2.6 MW through October 2001 and 8.0 MW through March 2003. The parties have the option of extending the Agreement for an additional seven months through October 2003.
Because this buy-back is of relatively short duration, Staff believes the reasonableness of the load reduction payment can be compared to several other buy-back programs, short-term energy purchase agreements, and mobile diesel generators. A summary of these short-term alternatives is attached showing the prices for energy under each alternative.
As shown on the attached summary, the Simplot buy-back would be one of the lowest cost alternatives. It is less expensive than the Astaris buy-back and the irrigation buy-back. It is also less expensive than a recent amendment to Simplot’s PURPA contract and an amendment currently under review for Amalgamated Sugar’s Nampa plant. Only Idaho Power’s commercial and industrial Schedule 22 program in which eligible customers bid in response to Idaho Power declared “exchange events” could potentially be cheaper. Under the Schedule 22 program, Idaho Power indicated that it did not expect to bid more than approximately 50 percent of market price. However, no “exchange events” have yet been declared and no purchases have been made under the program.
Because the load reduction payment in this 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 be able to resell the energy at market price and credit the margin to its purchase power account. Both Idaho Power and its ratepayers will benefit from purchases made under the Agreement.
Staff believes that the prices agreed to in this Agreement are attractive to Idaho Power and its ratepayers. Using market prices as a basis for comparison, rather than the methodology established for determining long run avoided costs, is appropriate given the short-term nature of the Agreement. However, Staff is uncertain about 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. The attached summary of short-term alternatives shows a variety of prices being paid. The alternatives differ in terms of capacity, timing, firmness, duration and location of delivery. Each of these differences could be acceptable reasons for discounting from market prices. However, without some 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 percent of market price is fair in another. The price agreed to in each case should be based on real differences in the value of the generation to Idaho Power, not on the negotiating skills of the customer. With a myriad of pricing arrangements, Staff is concerned about discriminatory treatment. Staff 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.

Ratemaking Treatment
Idaho Power requests that the load reduction payments to Simplot be treated as system power supply costs that are passed through the Power Cost Adjustment (PCA) mechanism like any other power supply expense. Idaho Power also states that the Agreement is structured to provide that there is no requirement for a lost revenue computation.
Staff agrees with the Company’s request to pass the power supply costs of the Agreement through the PCA. By passing through the power supply costs, any benefit Idaho Power earns from reselling power it does not need will either offset other power supply costs or accrue to the benefit of customers.

Recommendations
Staff recommends that the Application to amend the Agreement between Idaho Power and the J.R. Simplot Company be approved. Staff believes that the Agreement will help Idaho Power meet expected loads while reducing the Company’s reliance on the market, thus minimizing power supply costs.
Staff also recommends that the reasonably incurred costs associated with the Simplot load reduction agreement be passed through the PCA like any other power supply expense.

Dated at Boise, Idaho, this day of August 2001.

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Scott Woodbury
Deputy Attorney General
Technical Staff: Rick Sterling

SW:RS:i:word/umisc/comments/ipce01.28swrps
STAFF COMMENTS 2 AUGUST 31, 2001