28928_prhg.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION OF THE COMMISSION STAFF REQUESTING THAT THE COMMISSION INVESTIGATE THE BUY-BACK RATES IN THE LETTER AGREEMENT ENTERED INTO BY IDAHO POWER COMPANY AND ASTARIS LLC.

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) CASE NO. IPC-E-01-43

NOTICE OF PETITION

NOTICE OF INTERVENTION DEADLINE

NOTICE OF
PREHEARING CONFERENCE

ORDER NO. 28928
On December 28, 2001, the Staff of the Idaho Public Utilities Commission filed a Petition requesting that the Commission investigate the buy-back rates contained in the Letter Agreement between Idaho Power Company and Astaris LLC. Specifically, Staff contends that the Commission should abrogate the rates because the average price that Idaho Power is paying Astaris over the remaining 15 months of the Letter Agreement for 50 megawatts (MW) of energy are no longer just and reasonable. Staff asserts that Idaho Power will pay $45 million in excess of reasonable rates for the remaining months of the Letter Agreement. Staff maintains that continuation of these unjust and unreasonable rates is not in the public interest, will impose an “excessive burden” on all of Idaho Power’s ratepayers, and result in an inappropriate preferential windfall to Astaris. If the Commission abrogates the rates, Staff requests that the Commission set a new just and reasonable rate on a prospective basis.
If the Commission chooses to open an investigation, Staff requests that we should process this case in an expedited fashion. Thus, Staff recommends that the Commission set a prehearing conference promptly in order to discuss preliminary issues and to develop a schedule for this case. Staff also requests that the Commission set an intervention deadline for interested persons and parties.
After reviewing the Staff’s Petition, we find there are sufficient grounds to initiate an investigation on our own Motion.
NOTICE OF PETITION
The Staff’s Petition contains an extensive discussion of the underlying circumstances of the special contract between Idaho Power and Astaris. Normally, services and rates for most industrial customers of Idaho Power are set out in Company tariffs or schedules and approved by the Commission. See Idaho Code §§ 61-305 and 61-310. However, Idaho Power’s largest industrial customers take electric service under contracts filed with and approved by the Commission. Idaho Code §§ 61-305, 61-502 and 61-503. This matter involves such a special contract. The background as set forth by the Staff, is recited below.
A. Background
Idaho Power is an electric utility engaged principally in the generation, purchase, transmission, distribution and sale of electric energy and provides retail electric service to approximately 360,000 customers in southern Idaho, eastern Oregon and parts of northern Nevada. Astaris LLC is a supplier of phosphorus chemicals, phosphoric acid and phosphate salts producing the most complete line of phosphorus and derivative products. Astaris was formed as a 50/50 joint venture company by FMC Corporation and Solutia Inc. and began operations as an independent company in April 2000. In this joint venture, FMC contributed its manufacturing sites and Astaris assumed all FMC/NuWest agreements. Staff asserts that relevant to this Petition Astaris owns and operates an elemental phosphate processing plant in Pocatello. Astaris was the largest single customer of Idaho Power, at one time purchasing nearly 14% of Idaho Power’s total energy sales under a special contract.
1. The Electric Service Agreement.
On April 27, 1998, the Commission approved the Electric Service Agreement (“ESA”), dated December 30, 1997, between Idaho Power and Astaris. See Case No. IPC-E-97-13, Order No. 27463. See also Staff Exh. 109 and 110. The ESA required Idaho Power to supply two large blocks of electric power to Astaris’ phosphate processing facility in Pocatello. Staff Exh. 109, ESA at p. 4, § 4.2.1. The first block is for 120,000 kilowatts (“kW”) per hour and is a “take or pay” block (i.e., Astaris must pay for the power whether it uses it or not). Id., ESA at p. 5, § 4.2.2; Staff Exh. 110, Order No. 27643 at p. 5, 11-12. Section 5.2.1 of the ESA provides for the charges for the first block of energy. Staff Exh. 109, ESA at p. 12, § 5.2.1.
The initial term of the ESA was to end on December 31, 2002. Id., ESA at p. 3, § 3.1. Following expiration of the initial term, the ESA would remain in effect until either Idaho Power or Astaris gave written notice of termination. Id., ESA at p. 4, § 3.2. After December 31, 2000, either party could terminate the agreement by delivering a written notice of termination with actual termination to occur two years after the written notice. Id.
In its Order approving the ESA, the Commission observed that “[b]y statute, the Commission has continuing jurisdiction to review existing contracts and on its own motion to investigate rates or practices and to order them changed. Idaho Code § 61-503.” Staff Exh. 110, Order No. 27463 at p. 14. Furthermore, and most importantly, the Commission ordered that as a condition of approval of the ESA that it would retain “authority over the [ESA] to insure that, as it is implemented, it does not impair the financial ability of Idaho Power to continue its service nor harm other ratepayers.” Id. at p. 15 (emphasis added). Neither party to the ESA petitioned the Commission for reconsideration of this Order nor moved to void the ESA pursuant to section 14.
2. The Letter Agreement.
In the fall and winter of 2000-2001, three external factors prompted the parties to amend the ESA. First, low water conditions reduced Idaho Power’s hydrogeneration. Second, these low water conditions compelled the Company to replace the lost generation with much higher priced power purchased in the volatile regional power market. Third, Astaris desired to discontinue its elemental phosphorus process and switch to a “wet” process. Hessing Dir. at p. 6. Consequently, its need for large amounts of power could be significantly reduced. The parties also noted that due to the increase in electric power prices they mutually desired to amend the ESA. Accordingly, on March 16, 2001, counsel for Idaho Power and Astaris filed an Application requesting approval of a Letter Agreement that would amend certain sections of the ESA. See Case No. IPC-E-01-9. The Letter Agreement was on Astaris letterhead and signed by the Astaris LLC CEO and President, as well as Idaho Power’s Vice-President for Regulatory Affairs. Id., LA at p. 3. The Application also states that FMC assigned the ESA to Astaris LLC. Staff Exh. 111, Application at n.1.
The Letter Agreement proposed that Astaris would consume “no more than 70,000 kW’s of energy per hour” from the first block, starting from April 1, 2001 and continuing through the term of the Agreement. Id. at p. 2, ¶ 3. However, Astaris would continue to pay for 120,000 kW of energy per hour under section 4.2.1 of the ESA. Id. The difference – 50,000 kW or 50 MW – would be made available to Idaho Power for twenty-four (24) months beginning April 1, 2001 and ending March 31, 2003. Idaho Power would pay Astaris for the 50 MW at then projected market rates, over the entire term of the Letter Agreement, minus a 13.5% discount. See Staff Exh. 111, LA, Schedule A. The total buy-back amount for the 50 MW of power was estimated at approximately $140 million over the two years, or about 15.9¢ per kWh ($159 per MWh). Id. Idaho Power also represented that the 15.9¢ proposed buy-back payment would be offset by the Company’s continued recovery of the energy charge for the entire 120,000 kWh in the first block. Finally, Idaho Power requested that the payments it would make to Astaris under the Letter Agreement be treated as a purchased power expense for purposes of Idaho Power’s Power Cost Adjustment (“PCA”) mechanism. Id. at p. 3, ¶ 7; Application at p. 2.
The Letter Agreement also provided for the permanent shut down of furnaces No. 1 and No. 4 at the Astaris facility in Pocatello. Id. at p. 1, ¶ 1. As a result, the contract demand set forth in section 4.2.1 of the ESA would be reduced by 130,000 kW and the charges for the second block demand under section 5.2.4 of the ESA would be reduced accordingly as of April 1, 2001. Staff Exh. 109; See also ESA at pp. 8-9, § 4.5. The Letter Agreement proposed that the ESA be amended to terminate at midnight on March 31, 2003. Staff Exh. 111, LA at p. 1. The Letter Agreement also provided that Idaho Power and Astaris would negotiate in good faith to develop a replacement electric service agreement for the Pocatello facility, which would become effective after the amended termination date of the ESA and its Letter Agreement on March 31, 2003. Id. at p. 2, ¶ 5.
Idaho Power and Astaris represented that the Letter Agreement’s terms were conditioned on favorable approval by the Idaho Public Utilities Commission. Id.; LA at p. 2, ¶ 6. The Letter Agreement also stated that “[a]ll other terms and conditions of the [ESA] except those expressly modified by this Letter of Understanding shall remain in full force and effect.” Staff Exh. 111, LA at p. 3, ¶ 8.
On April 10, 2001, the Commission issued its final Order and approved the Letter Agreement as a system resource and allowed the load reduction to be added to the Company’s resource portfolio. Order No. 28695 at 6. In approving the Letter Agreement, the Commission noted that it could save Idaho Power and ratepayers as much as $21 million if the forward market prices used to establish the prices for the buy-back became a reality. Order No. 28695 at pp. 5-6. The Commission further found that reasonably incurred payments made by Idaho Power to Astaris for purchases of energy should be treated as a purchase power expense and recovered through the Company’s PCA mechanism. Id.
Through December 31, 2001, Astaris is expected to have received $80.4 million in payments from Idaho Power under the Letter Agreement with the remaining $59 million to be paid over the remaining 15 months of the contract.
3. Current Market Conditions and Closure of Astaris Plant.
Staff insists that after the Commission approved the Letter Agreement actual market prices during April and May 2001 continued in the $280-$300 range per MWh, near the levels anticipated under the Letter Agreement. In June, the wholesale market price for power in the West plunged dramatically to under $50 per MWh and remain close to historical levels of $20 to $30 MWh. Even after six months and well into the winter peaking months for Idaho Power, Staff states that prices have remained below $50 per MW. Thus, Staff calculates that Idaho Power under the buy-back portion of the Letter Agreement is now paying Astaris 200% to 700% more for 50 MW of power than what it would spend to obtain the same amount of power at current forward market prices, over the remaining term of the contract. Hessing Dir. at p. 11; Staff Exh. 102. Staff estimates that future prices from January 2002 to March 2003 will vary but are not expected to exceed $37 per MWh. Staff Exh. 102.
In another development, Astaris LLC announced on October 11, 2001 that the Company would cease elemental phosphorus production and close its operation at the Pocatello plant by year-end. Staff Exh. 107 and 108. Following cessation of production by Astaris, FMC would be responsible for the site and decommissioning of the plant. Id. Staff infers that electric consumption at the plant will be greatly reduced.

B. The Staff’s Request
YOU ARE HEREBY NOTIFIED that in its Petition, Staff contends that the Commission has authority to abrogate and set new rates prospectively in the buy-back portion of the Letter Agreement pursuant to Idaho Code § 61-502; its continuing jurisdiction over the ESA as stated in Order No. 27463; and Idaho Supreme Court precedent. Staff contends that the Commission should find the buy-back rates are no longer just and reasonable because the average price per MWh that Idaho Power is paying Astaris over the remaining 15 months of the Letter Agreement for 50 megawatts (MW) of energy is: (1) not in the public interest; (2) will impose an “excessive burden” on all of Idaho Power’s ratepayers; and (3) result in an inappropriate preferential windfall to Astaris.
YOU ARE FURTHER NOTIFIED that under the approved terms of the ESA and Letter Agreement, Staff expects that the total costs related to the buy-back of 50 MW from April 2001 to March 2003 will be approximately $139.4 million. From April 2001 until December 31, 2001, Idaho Power will pay Astaris $80.4 million. From January 1, 2002 until March 31, 2002, Idaho Power is scheduled to pay Astaris approximately $17 million. From April 1, 2002 until March 31, 2003, Idaho Power is scheduled to pay Astaris approximately $42 million.
YOU ARE FURTHER NOTIFIED that at this time the Staff is not contesting the $80.4 million that Idaho Power has paid Astaris through December 31, 2001; these payments will result in approximately $61.5 million being passed on to ratepayers through the 2001/2002 PCA rate adjustment.
YOU ARE FURTHER NOTIFIED that for the remainder of the Letter Agreement and ESA, (January 1, 2002 through March 31, 2003), Staff argues that Idaho Power will pay $45 million more for 50 MW of buy-back energy than if the contract rate were abrogated by the Commission and replaced with rates that are just and reasonable. Staff asserts that these rates are unjust and unreasonable and will impose an excessive burden on all Idaho Power ratepayers in the form of significant rate increases. Staff asserts if the buy-back rates were adjusted to reasonable levels, it should save a total of $45 million or more than $34 million for ratepayers in PCA surcharges from January 2002 until the conclusion of the ESA and Letter Agreement on March 31, 2003.
YOU ARE FURTHER NOTIFIED that Staff maintains current forward market prices for power on the western wholesale market have returned to historical levels, below $50 per MWh. Thus, Idaho Power under the buy-back portion of the Letter Agreement is paying Astaris 200% to 700% more for 50 MW of power than what it would spend to obtain the same amount of power at current forward market prices, over the remaining term of the contract.
YOU ARE FURTHER NOTIFIED that Staff insists it employed the same method that was used to establish the buy-back rates in the Letter Agreement, and has calculated the costs of the contract, on a going forward basis, using the current forward market prices. Staff did not discount the forward prices used as an adjustment. Using the full, current forward market prices for power for the remaining 15 months of the Letter Agreement, Staff contends that Idaho Power should pay Astaris approximately $13.5 million from January 1, 2002 to March 31, 2003, the remaining term of the Letter Agreement and ESA. Using the current rates would mean that Idaho Power would pay Astaris approximately $2.4 million from January 1, 2002 until March 31, 2002 and approximately $11.1 million from April 1, 2002 until March 31, 2003.
YOU ARE FURTHER NOTIFIED that if the Staff’s adjustment was accepted, it calculates the PCA surcharge would recover approximately $71.9 million spread over the PCA years. After PCA treatment, $1.9 million would accrue from January 1, 2002 until March 31, 2002 and be passed on to ratepayers in the 2002/2003 PCA and $8.5 million would accrue from April 1, 2002 until March 31, 2003 and be passed on to ratepayers in the 2003/2004 PCA year. The Staff states that its adjustments would save $34.8 million through the PCA mechanism.
YOU ARE FURTHER NOTIFIED that the total contract savings and savings that ratepayers will receive through the PCA if the Letter Agreement rates are abrogated and if Staff’s proposed rates are adopted are shown below:

TOTAL CONTRACT SAVINGS (in $ millions)
L.A. Revenue Staff Adjusted Revenue Contract savings
Apr. 01-Dec. 01 $ 80.4 $ 80.4 $ 0
Jan. 02-Mar. 02 $ 17.0 $ 2.4 $ 14.6
Apr. 02-Mar. 03 $ 42.0 $ 11.1 $ 30.9
Totals $ 139.4 $ 93.9 $ 45.5

TOTAL SAVINGS TO RATEPAYERS AFTER PCA TREATMENT (in $ millions)
L.A. PCA Revenue Staff Adjusted Revenue PCA Savings
Apr. 01-Dec. 01 $ 61.5 $ 61.5 $ 0
Jan. 02-Mar. 02 $ 13.1 $ 1.9 $ 11.2
Apr. 02-Mar. 03 $ 32.1 $ 8.5 $ 23.6
Totals $ 106.7 $ 71.9 $ 34.8
Source: Staff Exhibits 101, 103, 104 (rounded).
YOU ARE FURTHER NOTIFIED that for the 2002/2003 PCA rates, Staff projects that customers would save the following amounts if the contract rate were abrogated and re-established at the just and reasonable forward market rate: 1) Uniform Tariff Rate Customers - $9.4 million reduction or a 2.11% reduction across the class; and 2) Special Contract Customers - $1.8 million or a 3.65% reduction across the group. For the 2003/2004 PCA, the impact is as follows: 1) Uniform Tariff Rate Customers - $19.8 million reduction or a 4.45% reduction across the class; and, 2) Special Contract Customers - $3.8 million reduction or 7.70% reduction across the group.
YOU ARE FURTHER NOTIFIED that based on these arguments in its Petition and supporting materials, Staff requests that the Commission, pursuant to Idaho Code § 61-502, initiate a case on its own motion to investigate whether the buy-back rates in the Letter Agreement should be abrogated and replaced.
YOU ARE FURTHER NOTIFIED that Staff recommends that beginning in January 2002, the Commission require Idaho Power to pay Astaris for the 50 MW buy-back at current forward market rates and place the difference between this price and the buy-back price in an escrow-type reserve account. Staff recommends that interest on the escrow amount should accrue at the customer deposit rate (IDAPA 31.21.01.106) until the Commission issues a final Order in this matter. Upon final Order by the Commission in this case the amount held in the escrow account would be given to the appropriate party in accordance with the final decision.
YOU ARE FURTHER NOTIFIED that Staff asserts that escrowing the amounts in dispute is reasonable because the Commission retained jurisdiction over the ESA and the Letter Agreement to insure that ratepayers are not harmed. Staff also observed that Astaris is closing its facility in Pocatello. Staff maintains that it is unclear how any overpayments that may occur during the time it takes to process this case would be recovered if the Commission abrogates the buy-back rates in the Letter Agreement. Escrowing insures that ratepayers are not harmed during the processing of this case. Likewise, Staff insists that allowing interest to accrue on such amounts will insure that Astaris is not harmed should it prevail. Finally, Staff argues that paying the reasonable amounts for the buy-back power allows Astaris to continue to receive reasonable payments for the power.
YOU ARE FURTHER NOTIFIED that Staff contends that it is necessary to process this case in an expedited fashion. Staff submitted the prefiled direct testimony and exhibits of Keith D. Hessing, Public Utilities Engineer.
COMMISSION FINDINGS AND DISCUSSION
Having reviewed the Staff’s Petition and the accompanying materials, we find there is good cause to initiate an investigation into the buy-back rates contained in the Letter Agreement approved by this Commission in Order Nos. 28678 and 28695. The Commission initiates this investigation on its own Motion pursuant to Idaho Code §§ 61-502 and 61-503. We further find that the Staff’s Petition raises an appropriate question, whether the prospective rates in the buy-back provision of the Letter Agreement are just and reasonable, and non-discriminatory or non-preferential. Accordingly, we believe it is appropriate to schedule a prehearing conference in this matter to discuss scheduling of this case and to take up any preliminary matters.
The Staff requests that the Commission expeditiously consider this matter and conduct its evidentiary hearing. As noted above, Staff does not contest the payments made by Idaho Power to Astaris through December 31, 2001. Under Schedule A of the Letter Agreement, this amount is approximately $80.4 million which is partially recoverable through the Power Cost Adjustment (PCA) mechanism. However, the Staff is contesting the reasonableness of the continuing payments from January 1, 2002 through the end of the Letter Agreement on March 31, 2003. Again, under the Schedule A of the Letter Agreement, the scheduled payments for the remaining 15 months of buying back the 50 MW of power under the Letter Agreement total approximately $59 million. Because Idaho Power is incurring substantial costs on a going forward basis and because these costs may be passed on to ratepayers, we find it is essential to process this case in an expedited fashion. We also note that the Staff mailed copies of its Petition and accompanying materials to all the parties in the underlying ESA and Letter Agreement cases (Case Nos. IPC-E-97-13 and IPC-E-01-9). Consequently, we find that there is good cause to convene a prehearing conference in this matter on less than 14 days’ notice. IDAPA 31.01.01.212.
Idaho Power and Astaris shall be made parties to this proceeding. Other interested persons may petition to intervene pursuant to our Procedural Rules 71 through 75. IDAPA 31.01.01.071-.075. The Commission shall direct the Commission Secretary to serve this Order and Notice by first-class United States Mail and transmit it to the 97-13 and 01-9 parties by facsimile or electronic mail.
NOTICE OF PREHEARING CONFERENCE AND INTERVENTION DEADLINE
YOU ARE HEREBY NOTIFIED that the Commission shall set a prehearing conference for MONDAY, JANUARY 14, 2002 AT 2:00 P.M. IN THE COMMISSION HEARING ROOM, 472 W. WASHINGTON, BOISE, IDAHO to discuss the scheduling of this case and any preliminary matters to be presented to the Commission. Parties wishing to participate by telephone should so notify the Commission Secretary at least three days in advance of the prehearing conference. To promote the orderly development of the record in this case, the Commission finds it is also appropriate to establish an intervention deadline for interested parties.
YOU ARE FURTHER NOTIFIED that persons desiring to intervene in this matter for the purpose of presenting evidence or cross-examining witnesses at hearing must file a Petition to Intervene with the Commission pursuant to this Commission's Rules of Procedure 72 and 73, IDAPA 31.01.01.072 and -.073. Persons intending to participate at the hearing must file a Petition to Intervene on or before January 14, 2002. Persons desiring to present their views without parties’ rights of participation and cross-examination are not required to intervene and may present their comments without prior notification to the Commission or the parties.
YOU ARE FURTHER NOTIFIED that the Staff Petition together with supporting workpapers, testimony and exhibits, have been filed with the Commission and are available for public inspection during regular business hours at the Commission offices. The Petition and Prefiled Direct Testimony (without the Staff Exhibits) are also available for public inspection at the Commission’s home page at www.puc.state.id.us under the “File Room” icon, then go to “Electric Cases.”
YOU ARE FURTHER NOTIFIED that the rates and charges of the buy-back provisions of the Letter Agreement (Case No. IPC-E-01-9) are at issue. The Commission may determine that the existing buy-back rates are just and reasonable or may determine that the rates are unjust, unreasonable, discriminatory, or preferential. If the Commission finds that the existing rates are inappropriate, it may determine the just and reasonable rates and shall fix the new rates by Order.
YOU ARE FURTHER NOTIFIED that the Commission may rescind, alter, or amend its prior Order Nos. 28678 and 26895, as appropriate.
YOU ARE FURTHER NOTIFIED that the parties participating in the prehearing conference may offer to settle some or all of the issues in this proceeding and that persons desiring to participate in this matter as parties must intervene before and participate in the prehearing conference to preserve their rights with regard to issues which may be discussed during the prehearing conference.
YOU ARE FURTHER NOTIFIED that all hearings and prehearing conferences in this matter will be held in facilities meeting the accessibility requirements of the Americans with Disabilities Act (ADA). Persons needing the help of a sign language interpreter or other assistance in order to participate in or to understand testimony and argument at a public hearing may ask the Commission to provide a sign language interpreter or other assistance at the hearing. The request for assistance must be received at least five (5) working days before the hearing by contacting the Commission Secretary at:

IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone] (Telephone)
[phone] (FAX)
E-Mail: [e-mail]

YOU ARE FURTHER NOTIFIED that all proceedings in this case will be held pursuant to the Commission's jurisdiction under the Title 61 of the Idaho Code and that the Commission may enter any final Order consistent with its authority under Title 61. The Commission has jurisdiction over this matter pursuant to Idaho Code §§ 61-301, 61-302, 61-501, 61-502, 61-503, 61-622, 61-623 and 61-624.
YOU ARE FURTHER NOTIFIED that all proceedings in this matter will be conducted pursuant to the Commission's Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
IT IS HEREBY ORDERED that the Commission shall open a case, under Case No. IPC-01-43, in order to investigate whether the buy-back rates contained in the Letter Agreement between Idaho Power and Astaris are just and reasonable.
IT IS FURTHER ORDERED that a prehearing conference be convened after the Decision Meeting on January 14, 2002.
IT IS FURTHER ORDERED that persons desiring to intervene in this case for the purpose of presenting evidence or cross-examination at hearing shall file a Petition to Intervene with the Commission no later than January 14, 2002.
IT IS FURTHER ORDERED that Idaho Power and Astaris LLC shall be made parties to this proceeding.
IT IS FURTHER ORDERED that the Commission Secretary contact the persons on the service list to obtain the facsimile number or electronic mailing address of interested persons.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of January 2002.

PAUL KJELLANDER, PRESIDENT

Commissioner Smith Out of the Office this Date
MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

O:IPCE0143_jh

This includes the Electric Service Agreement and the Letter Agreement.
Agricultural Products Corporation v. Utah Power & Light Company, 98 Idaho 23, 28, 557 P.2d 617, 622 (1976); United States v. Utah Power & Light Company, 98 Idaho 665, 570 P.2d 1353 (1977).
Using a discount would increase the savings.

NOTICE OF PETITION
NOTICE OF INTERVENTION DEADLINE
NOTICE OF PREHEARING CONFERENCE
ORDER NO. 28928 1

Office of the Secretary
Service Date
January 8, 2002