28844.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO AMEND ITS IRRIGATION LOAD REDUCTION PROGRAM FOR PARTICIPATING IRRIGATION CUSTOMERS. )
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CASE NO. IPC-E-01-31

ORDER NO. 28844

In March and May 2001, the Commission issued Order Nos. 28676 and 28699, respectively, approving Idaho Power Company’s Application to initiate an energy conservation program (the Irrigation Buy-Back Program) for large irrigation customers during the 2001 growing season. On September 5, 2001, the Company filed an Application to, in effect, amend the Commission’s prior Orders by waiving “the liquidated damages provision” of the Irrigation Buy-Back Program. Application at 2. The Company also requested that the Commission dispense with the usual notice requirement and consider the Application at its earliest convenience because time is of the essence. The Company’s Application was served on the parties in the Irrigation Buy-Back Case No. IPC-E-01-03 via facsimile. After reviewing the Application and finding good cause, the Commission approves the Application on less than 30-days’ notice.
BACKGROUND
On February 7, 2001, Idaho Power filed an Application requesting authority to implement the Irrigation Buy-Back Program during the 2001 growing season for irrigation customers taking service under Schedule 24. The purpose of the program was to provide an economic incentive for large irrigation customers to voluntarily reduce their electrical consumption. When Idaho Power filed its Application, the regional market price for power had reached unprecedented high levels. In addition, the Company was projecting below normal stream flow, thereby reducing the projected generation from its hydroelectric facilities.

Under the Program, eligible customers are paid 15¢ per kWh for reducing their electric consumption. In its Order approving the program the Commission found the 15¢ rate was “reasonable based on the market conditions that exist today and are likely to exist during the period of time this Program will be in effect.” Order No. 28699 at 11. At the time the Commission approved the Buy-Back Program, prices for wholesale power in the Mid-Columbia forward market were 30.5¢ per kWh. Order No. 28699 at 4.
The Irrigation Buy-Back Program also includes a “liquidated damages” provision. More specifically, Section 6.1 of the Agreement between Idaho Power and its customers provided that if participants fail to supply at least 95% of the energy reductions agreed to, then the customer was subject to a penalty of 200% of the bid price, or 30¢ per kWh. Order No. 28699 at 15-16. The liquidated damages provision “was included in the Agreements between the Company and [successful] Bidders in order to provide compensation to the Company should a Bidder fail to provide the committed energy reduction [, thereby] resulting in the Company’s need to buy additional energy on the market ....” Present Application at 2-3.
THE PRESENT APPLICATION
Idaho Power maintains that since the Irrigation Buy-Back Program was approved, wholesale market prices have declined substantially and returned to their historical levels. For example, the Company states it can now purchase energy on the wholesale market for approximately 4¢ per kWh. This dramatic drop in prices seriously undercuts the basis for a liquidated damage rate of 30¢ per kWh. Given current market prices, Idaho Power asserts for “each kWh that a customer consumes rather than saves, the Program costs are reduced by approximately 15¢ [per kWh].” Application at 3. Consequently, the Company now seeks on an expedited basis, the Commission’s approval to waive the liquidated damages provision from the Irrigation Buy-Back Program. Id. The Company asserts that this will reduce total program costs and provide a benefit to all of Idaho Power’s customers.
Idaho Power maintains that it no longer makes economic sense to reduce consumption simply to avoid paying the 30¢ per kWh liquidated damages. Application at 3. Irrigators may install diesel generators to power their pumps or reduce/cease crop watering at a lower cost than the penalty for not meeting the committed energy reduction. Id. Eliminating the damage provision of § 6.1 will remove the perverse incentive and will, reduce the Program’s costs to be recovered from all ratepayers in next year’s Power Cost Adjustment (PCA) mechanism.
The Company insists that time is of the essence because many irrigators are approaching the end of the irrigation season. Consequently, participants are better able to project whether they will attain the minimum 95% energy savings and the likelihood of paying the liquidated damages. The Company requested that the Commission dispense with the usual notice requirement and consider the Application at its earliest convenience.
STAFF COMMENTS
After reviewing the Application and analyzing its effects, the Commission Staff concluded that Program participants, the general body of ratepayers, and the Company will all benefit from the proposed modification. The Staff acknowledged that the drop in electric market prices no longer creates a financial need for the liquidated damages provision. Staff also noted that it had been contacted by several program participants seeking relief from the liquidated damages provision of their contracts.
The Staff agreed with the Company that waiving the liquidated damages provision will reduce program costs and benefit both the Company and ratepayers. The Staff asserted that if participants “choose to use energy sold to the Company under the buy-back program, the Company saves the 15¢/kWh payment, receives approximately 4¢/kWh from the irrigation rates and pays approximately 4¢/kWh to buy the energy on the market at today’s prices.” Staff Decision Memorandum at 2. Staff calculated that this would result in a net benefit and savings in program costs of approximately 15¢ per kWh.
Staff also considered and rejected an alternative to reduce the energy reduction payments to participants from 15¢ to 12¢ per kWh and waive the liquidated damages provision. Although this alternative could potentially save additional program costs, it could not be implemented quickly. This alternative would require individual contracts be modified and may not have the desired effect. The Staff concluded that simply eliminating the liquidated damages provision could be implemented quickly without reducing estimated payments to participants.
The Staff also believed that there was good cause to waive the usual notice requirements of 30 days (IDAPA 31.01.01.123) so that the proposed change can be effective as soon as possible. Staff noted that parties to the Irrigation Buy-Back Program were served a copy of the Application by facsimile. Because many program participants are near the end of their normal water using season, Staff asserted it is imperative that the Commission act quickly if it intends to implement the waiver of the liquidated damages.
DISCUSSION
The Company’s present Application requests that we amend our prior Orders that approved the liquidated damages provision in the Irrigation Buy-Back Program. Idaho Code § 61-624 allows the Commission to amend a prior Order “upon notice to the public utility affected.” Here, it is the utility requesting the amendment. Idaho Power has also served the parties in the prior case with its Application requesting expedited consideration by the Commission. In this instance, we find that the requirement of Idaho Code § 61-624 has been met. We now turn to the merits of Idaho Power’s Application.
Idaho Power seeks the Commission’s approval to “waive” the liquidated damages provision contained in the Agreement approved by the Commission and entered into between the Company and its eligible irrigation customers. Both the Company and Commission Staff maintain that prices in the wholesale market make a liquidated damages amount of 30¢ per kWh unnecessary because power is now available on the wholesale market for approximately 4¢ per kWh. In other words, changed market conditions mean that waiver of the liquidated damages provision will reduce overall program costs, thereby benefiting participants, the Company and all ratepayers. The question the Commission must consider is: can it order that the liquidated damages provision contained in the agreements between the Company and irrigation customers be discontinued? Given the facts presented to the Commission, we answer the question in the affirmative.
In Idaho Power Company v. Cogeneration,Inc., our Supreme Court noted that the Commission may “modify a utility contract when it ‘is adverse to the public interest.’” 129 Idaho 46, 49, 921 P.2d 746, 749 (1996). In an earlier case, our Supreme Court concluded that it is settled law that interference in private contracts by the State’s regulation of rates is a valid exercise of the police power, and such regulation is not a violation of the constitutional prohibition against impairment of contractual obligations. Agricultural Products Corporation v. Utah Power & Light Company, 98 Idaho 23, 29, 557 P.2d 617, 623 (1976). The Court stated:
A public utility commission may annul or supercede contract rates between utilities and their customers. Private contracts with utilities are regarded as entered into subject to reserved authority of the state to modify the contract in the public interest.

Id. The Court continued that justification of the Commission’s interference with a utility contract is conditioned upon a finding that the existing contract rate is unreasonable as to adversely affect the public interest. Id. In determining what is “contrary to the public interest,” the Court noted that placing an excessive burden on ratepayers or being unduly discriminatory satisfies the threshold requirement for the Commission to take action.
The Commission finds that enforcement of the liquidated damages provision contained in § 6.1 to be unreasonable and places an excessive burden on the general body of ratepayers. Eliminating the liquidated damages provision will reduce the total cost of the Irrigation Buy-Back Program, thereby reducing those costs that are to be recovered as part of the PCA rate for the 2001-2002 PCA year. Order No. 28699 at 12. As Idaho Power noted in its Application, each kilowatt-hour that a customer consumes rather than saves, reduces the program’s costs by 15¢. Having found that the provision is unreasonable, we conclude it is appropriate to waive the liquidated damages provision found in Section 6.1.
Idaho Power also asks for expedited consideration of its Application. As previously mentioned, the Company served its Application on all the parties to the Irrigation Buy-Back case. No party has objected to our granting substantive relief on this Application. Moreover, as the end of the irrigation season approaches, there is good cause to act expeditiously. Consequently, we find that it is reasonable given the circumstances in this case to approve Idaho Power’s Application on less than 30 days’ notice, Idaho Code § 61-307; IDAPA 31.01.01.123. The Company is directed to immediately notify each Irrigation Buy-Back participant by mail describing the waiver of the liquidated damages provision. This will allow customers to assess the impact of the change and adjust their operations accordingly.
O R D E R
IT IS HEREBY ORDERED that Idaho Power Company’s Application to amend Order Nos. 28676 and 28699 by waiving the liquidated damages provision of the Irrigation Buy-Back Program is granted.
IT IS FURTHER ORDERED that the Company immediately notify each participant by mail and other means of public dissemination of the waiver of liquidated damages in Section 6.1.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally decided by this Order) or in interlocutory Orders previously issued in this Case No. IPC-E-01-31 may petition for reconsideration within twenty-one (21) days of the service date of this Order with regard to any matter decided in this order or in interlocutory Orders previously issued in this Case No. IPC-E-01-31. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of September 2001.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:IPC-E-01-31_dh
The “2001 growing season” was defined by Idaho Power as beginning March 1 and ending November 30, 2001. Order No. 28699 at 1, citing Idaho Power’s RFP at p. 1, § 1.3.

ORDER NO. 28844 1

Office of the Secretary
Service Date
September 11, 2001