29053.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AN ACCOUNTING ORDER AUTHORIZING THE INCLUSION OF POWER SUPPLY EXPENSES ASSOCIATED WITH THE PURCHASE OF CAPACITY AND ENERGY FROM GARNET ENERGY, LLC IN THE COMPANY’S POWER COST ADJUSTMENT (PCA). )
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CASE NO. IPC-E-01-42

ORDER NO. 29053

On May 7, 2002, the Southwest Idaho Southeast Oregon Building and Construction Trades Council (Building and Trades Council) filed a Motion with supporting memorandum requesting that the Commission compel Garnet Energy LLC to answer several discovery requests. Reference IDAPA 31.01.01.56; and 221-222. On May 15, 2002, Garnet Energy and Idaho Power Company filed respective Briefs and Memoranda in Opposition to the Motion to Compel. Oral argument on the Building and Trades Council’s Motion was held on May 21, 2002, in Boise, Idaho. The following parties appeared by and through their respective counsel and participated in argument:
Southwest Idaho/Southeast Oregon Alan Herzfeld, Esq.
Building and Construction Trades Council

Garnet Energy LLC Kevin J. Beaton, Esq.

Canyon Power Constructors Mary S. Hobson, Esq.

At the start of hearing the Commission granted the late intervention requested by the Canyon Power Constructors (CPC), a joint venture composed of TIC--The Industrial Company (TIC), and Overland Contracting, Inc. (OCI) formed for the purpose of preparing and submitting a proposal for the construction of the Garnet power plant. Accompanying CIC’s Petition for Intervention was a Motion in Opposition to the Motion to Compel.
As reflected in the argument of the Building and Trades Council, the requested discovery of information and documents generally concerns construction costs related to the construction of the Garnet facility. (Production Request Nos. 1 A-E). Garnet is an unregulated affiliate of the applicant Idaho Power Company. Garnet raises two objections to the request for production, one on the grounds of relevance and the other on the grounds of trade secrets and confidentiality. The Commission determined to hear argument on the issue of relevance initially, finding that its determination of same might be dispositive of the second grounds for objection.
Regarding relevance, the Building and Trades Council directs the Commission’s attention to its Notice of Issue Identification in this case wherein the Commission identifies as being at issue the prudence and cost effectiveness of the Garnet contract and also whether the Garnet contract costs should be recovered through the PCA mechanism, specifically listing “related costs of construction.” The Building and Trades Council then directs the Commission’s attention to the Power Purchase Agreement itself wherein at Sections 10.1 and 13.5 it appears that the capacity purchase price and cost of power includes the capital costs of the facility. The capital costs of the facility are also expressly part of the purchase price of the facility should Idaho Power exercise its option to purchase the facility from Garnet.
The Building and Trades Council notes that Idaho Power and Garnet respond that questions relating to the capacity purchase price are irrelevant because the Power Purchase Agreement provides a cap of $19.50 per kilowatt month. The Building and Trades Council argues that the existence of the $19.50 cap is not dispositive. Under the Power Purchase Agreement between Idaho Power and Garnet, Idaho Power’s capital recovery charge will vary upward or downward from $15.50 per kW month, depending on Garnet’s capital cost of the facility. The Building and Trades Council contends that what Garnet and the Company are asking for is carte blanche up to $19.50 regardless of what the ultimate construction costs are going to be and that there is no obligation on Idaho Power or Garnet’s part to do their best to find the lowest responsible bidder or to engage in what is also known as best value contracting.
Garnet Energy makes three principal points as to why Garnet believes that the information requested by the Building and Trades Council is not relevant to this proceeding.
The plant is being built at shareholder expense and not at ratepayer expense.

The maximum price Garnet can charge Idaho Power under the Power Purchase Agreement is established.

The information sought by the Building and Trades Council potentially opens contracts, subcontracts and subcontracts of subcontracts of unregulated entities to Commission review.

Garnet notes that the estimated cost of the facility at the time the Power Purchase Agreement was executed was in the range of $200 million and that the estimate includes construction costs, testing and bringing the facility on line. The issue before the Commission, Garnet contends, is the contract price of the product that Garnet is selling to Idaho Power, not Garnet’s investment in the facility itself.
Garnet argues that the Commission’s inquiry should be no different in this proceeding than when Idaho Power purchases power in the market or from a PURPA qualified facility. The Commission, it states, should not look behind the price of electricity or evaluate the costs of the generator selling the power to the Company.
Garnet contends that the fact that the pricing mechanism in the Power Purchase Agreement can be adjusted downward or upward to a certain cap based on the final capital costs of the facility is not reason enough to support a finding that the cost of the construction of the facility is relevant. The one simple reason, it states, is that Garnet does not know what the final capital costs are going to be until the facility is constructed. Many factors beyond Garnet’s control, such as escalation in equipment procurement, labor and construction costs and changes in interest rates, will impact the final capital costs. Garnet points out that the commercial operation date is presently 2005 and accordingly, the Commission will not be able to evaluate the final capital costs by the time the Commission needs to make a decision on the prudency of the Power Cost Agreement. Garnet suggests that the most logical and practical way in which the Commission could evaluate the prudency of the Power Purchase Agreement would be to simply apply the worst case scenario, that being the maximum capacity charge adjustment upward under the contract at $19.50 per kilowatt month. As the Company’s prefiled testimony in this case already demonstrates, that maximum price, Garnet argues, was also the least cost proposal submitted to Idaho Power during the Company’s RFP process. If there are cost overruns above the cap, then Garnet contends that the risk is born by it, and not by Idaho Power and not the ratepayers. Furthermore, Garnet states its ability to sell off-peak power to other buyers in the market provides it with an interest to keep costs down.
As Garnet does not need Commission approval to construct the Middleton facility, Garnet contends that it similarly does not need Commission approval for how it builds the facility or who it should hire to build the facility.
The Building and Trades Council contends that what is being requested is a copy of the construction contract, with amendments, between Garnet and Canyon Power Constructors. As reflected in CPC’s Petition to Intervene, a Memorandum of Understanding (MOU) relating to the construction of the Garnet power plant was signed June  22, 2001 between Garnet and Overland Contracting, Inc. Amendment 1 to that MOU, dated October 29, 2001, identified CPC and added The Industrial Company as OCI’s joint venture partner. The Building and Trades Council wants an answer to the simple question of whether Garnet solicited competitive bids. Garnet refuses to answer that question. If Garnet solicited competitive bids, the Building and Trades Council wants to see the RFP and the bid specifications.
The Canyon Power Constructors note that construction contractors have no obligation to ratepayers, and that what is being asked for is unprecedented. CPC contends that in part the information requested constitutes the trade secrets of CPC and its constituent partners, OCI and TIC. Reference Idaho Code § 48-801.
COMMISSION FINDINGS
The Commission has considered the arguments on the relevance of the information requested in the Production Request Nos. 1 A-E submitted by the Southwest Idaho Southeast Oregon Building and Trades Council and its related Motion to Compel. Initially, the Commission acknowledges that there is a need for increased scrutiny in utility/affiliate transactions. It is the determination of this Commission, however, that what has been requested is beyond the scope of what the Commission believes is relevant in these proceedings. The Commission’s jurisdiction is determined by statute, Title 61 of the Idaho Code. To the extent that we misled the Building and Trades Council in our Notice of Issue Identification by using language that failed to accurately express the scope of our proceeding, we apologize. This Commission has the statutory power under Idaho Code § 61-610 to look at contracts entered into by Idaho Power as to whether they are prudent and reasonable. We also have the power under Idaho Code § 61-610 to inspect affiliate records regarding any transaction with the regulated utility which results in expenses being incurred, allocated or otherwise attributed to the regulated services of the utility. We note that all parties to this proceeding have had access to the
proposals submitted to Idaho Power in response to the Company’s RFP. We have mechanisms for disallowance of costs if we find that costs are imprudent. We find that the Garnet construction bid information, contracts and third party subcontracts requested are beyond what this Commission would look at in the exercise of its authority. In determining that the information requested is irrelevant, we find we have no need to consider the issue of trade secrets.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission does hereby deny the Southwest Idaho Southeast Oregon Building and Trades Council’s Motion to Compel.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of June 2002.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:IPCE0142_sw4

ORDER NO. 29053 1

Office of the Secretary
Service Date
June 20, 2002