29050.pdf

. Office of the Secretary
Service Date
June 10 2002
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE COMMISSION
INVESTIGATION INTO THE BUY -BACK
RATES IN THE LETTER AGREEMENT
ENTERED INTO BY IDAHO POWER
COMPANY AND AST ARIS LLc.
) CASE NO. IPC-01-
) ORDER NO. 29050
On January 8, 2002, the Commission on its own motion initiated an investigation to
examine whether the load-reduction rates contained in the Letter Agreement between Idaho
Power Company and Astaris LLC are unjust, unreasonable, impose an excessive burden on
ratepayers and are no longer in the public interest. Order No. 28928 Idaho Code ~ 61-502. As
explained later in this Order, the Letter Agreement amended the Electric Service Agreement
ESA") that governs the delivery of electric service to Astaris' Pocatello plant. An evidentiary
hearing was held February 21-, 2002. Following the filing of post-hearing briefs, the
Commission directed the parties to attend a settlement conference to discuss the possibility of
resolving this matter. Protracted negotiations ensued. On June 6, 2002, the parties signed and
filed a proposed Stipulation and Settlement Agreement ("Agreement") with the Commission. In
this Agreement the parties propose a settlement of all issues in this case and in District Court
litigation in the Fourth Judicial District. The parties represent that this settlement is just, fair and
reasonable, in the public interest, and in accordance with the law and regulatory policy of Idaho.
The parties request that the Commission review the Stipulation and Settlement Agreement and
adopt it by Order.
After our review of the extensive record and the provisions of the settlement, the
Commission accepts the Stipulation and Settlement Agreement as a fair, just and reasonable
resolution to this case.
BACKGROUND
Idaho Power is an electric utility engaged in the generation, transmission, distribution
and sale of electric energy and provides retail electric service to approximately 360 000
customers in southern Idaho and eastern Oregon. Astaris LLC is a supplier of phosphorus
chemicals, phosphoric acid and phosphate salts, producing a line of phosphorus and derivative
products. Astaris is a 50/50 joint venture owned by FMC Corporation and Solutia Inc. Astaris
ORDER NO. 29050
began operations as an independent company in April 2000. Relevant to this case, Astaris
owned and operated an elemental phosphate processing plant in Pocatello. This plant was closed
on December 10, 2001. Astaris was the largest single customer of Idaho Power, purchasing
nearly 8.2% of Idaho Power s total jurisdictional energy sales under a special contract
Following cessation of production by Astaris, FMC assumed ownership of the site. FMC is
currently using roughly 3 MW of power provided by Idaho Power to maintain the plant
A. 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 ' predecessor, FMC
Corporation. The ESA is a "special contract" which allows larger customers of Idaho Power
like FMC/ Astaris, to establish their electric rates and services by contract Special contracts
must be submitted to and approved by the Commission. Idaho Code ~~ 61-305 , 61-307, 61-622
and 61-623. In June 2000, Astaris became the assignee ofthe ESA and took over operations of
the Pocatello facility.
The ESA required Idaho Power to supply two blocks of electric power to Astaris
Pocatello facility. The First Block was for 120 MW per hour of "take-or-pay" power. In other
words, Idaho Power would recover its full costs for providing the power and Astaris must pay for
the power whether it uses it or not.
Section 5.2.1 of the ESA outlines the charges for the First Block of energy. Section
1.2 of the ESA, the annual charge in the First Block "Base Energy Rate" could increase or
decrease based upon Idaho Power s annual Power Cost Adjustment ("PCA") mechanism.2 The
Second Block of power was for 130 MW and Astaris paid $1.39 per kW-month for the contract
demand under this block. Astaris ' payment for the energy charge for the Second Block was
based upon "all of Idaho Power s costs directly related to supplying the Second Block of
1 Normally, rates and services for Idaho Power customers are set out in tariffs or schedules and approved by the
Commission. Idaho Code 99 61-305 , 61-307 and 61-310.
2 Because Idaho Power relies predominantly upon hydroelectric generation, its actual costs of providing electricity
(power supply costs) can vary dramatically from year to year depending upon changes in streamflow and market
prices. To ameliorate the adverse consequences of fluctuating power supply costs to customers and the Company,
the Commission instituted a power cost adjustment mechanism in 1993. The PCA is comprised of two major
components. First, the Company is allowed to recover its above normal power supply costs for the preceding 12
months, including off-system purchases used to serve Idaho system load. Second, rates are adjusted on an annual
basis to compensate for the succeeding 12 months' projected or estimated power supply costs based on expected
Snake River streamflows and storage. !d.
ORDER NO. 29050
Energy." FMC would also pay for all supply related and transmission-related services required
to deliver Second Block power. Finally, Astaris was required to pay 0.142 cents per kWh for the
amount of transmission either reserved or used to deliver any Second Block power requested.
The ESA contemplated that Astaris could request or "call" for Second Block power based on its
production requirements.
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." Furthermore
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 ofldaho Power to continue its service nor harm other ratepayers.
Section 13 of the ESA also recognized and outlined the Commission jurisdiction:
Except as provided in section 6, this Agreement and the respective rights and
obligations of the parties hereunder shall be subject to (1) Idaho Power
general rules and regulations as now or hereafter in effect and on file with the
Commission, and (2) the jurisdiction and regulatory authority of the
Commission and the laws of the state of Idaho.
Section 18 of the ESA also contains a provision entitled "Governing Law" that states
, "
(t)his
Agreement shall be construed and interpreted in accordance with the laws of the State of Idaho
excluding any choice of law or rules which direct the application of laws of another jurisdiction.
B. The Letter Agreement
In the fall and winter 2001 , three external factors prompted Astaris and Idaho Power
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 purchases in the volatile regional power market. Third, Astaris desired to
discontinue its elemental phosphorus process and switch to a "wet" process. Faced with lower
production and abnormally high prices for replacement power Idaho Power needed to
significantly reduce the total amount of electricity consumed by its customers (i., its load). At
that time high market prices for power also made it uneconomic for Astaris to call for Second
Block power under the ESA. Consequently, the parties mutually desired to amend the ESA to
mitigate the impacts of these factors. On March 16 2001 , Idaho Power and Astaris filed a joint
Application requesting approval of a Letter Agreement that would amend certain sections of the
ORDER NO. 29050
ESA. Specifically, the parties agreed that Astaris would reduce its First Block electric
consumption at the Pocatello plant, and, in turn, Idaho Power would pay Astaris for its load
reduction.
By its terms the Letter Agreement states that
, "
the parties mutually desire to amend
the (ESA) as set forth below. The purpose of this letter is to memorialize the parties
understanding regarding the agreed amendments to the (ESA)." The Letter Agreement also
states that "(a)ll other terms and conditions ofthe (ESA) except those expressly modified by this
Letter of Understanding shall remain in full force and effect." Paragraph 6 of the Letter
Agreement stated that the parties "acknowledge and agree that this Letter Agreement is subject
to the approval of the Idaho Public Utilities Commission " and that its terms were conditioned on
favorable approval by the Commission.
Under the Letter Agreement Astaris would consume "no more than 70 MW's of
energy per hour" from the First Block, for 24 months starting from April 2001. However
Astaris would continue to pay for 120 MW of energy per hour (the take-or-pay First Block).
The difference - 50 MW ofload reduction - would be available to Idaho Power for the 24-month
period beginning April 1 , 2001 and ending March 31 , 2003. Idaho Power would pay Astaris not
to consume the 50 MW at then projected monthly market rates, over the two years of the Letter
Agreement, minus a 13.5% discount.
The Letter Agreement also provided for the shut down of furnaces No.1 and No.4 at
the Astaris facility in Pocatello.3 As a result, the demand charge set forth in ~ 4.2.1 of the ESA
would be reduced by 130 000 kW and the charges for the Second Block demand under ~ 5.2.4 of
the ESA would be reduced accordingly as of April 2001. If Astaris chose to reconnect
furnaces 1 and 4 after March 31 , 2001 , then Astaris would repay to Idaho Power the Second
Block demand charges as if the electrical furnaces had never been disconnected. Thus, Astaris
had an option to use Second Block power if market prices dropped to a level that Astaris could
cost effectively restart the furnaces.
The total cost to Idaho Power for paying Astaris for the 50 MW of load reduction was
approximately $140 million over the two years, or about $159 per MWh. Idaho Power also
represented that the load reduction payments would be offset by the Company s continued
3 Furnace Nos. 1 and 4 have an attributable demand of 60 000 kW each.
ORDER NO. 29050
recovery of the take-or-pay energy charges for the entire 120 MW 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 its PCA mechanism. The Letter
Agreement also proposed that the ESA be amended to terminate at midnight on March 31 , 2003.
On April 10, 2001 , the Commission issued its final Order approving the Letter
Agreement and allowing 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 based
upon the best information available at that time, the monthly forward market prices that were the
basis for the load reduction rates were reasonable. Id. at 5-6. The Commission further found
that reasonably incurred payments made by Idaho Power to Astaris for purchases of the load
reductions should be treated as a purchased power expense and recovered through the
Company s PCA mechanism. Id.
C. Parties
In its Order initiating this proceeding, the Commission directed that Idaho Power and
Astaris be made parties to this case. Order No. 28928 at 12. Subsequently, Astaris LLC, FMC
of Idaho LLC (fka Astaris of Idaho LLC) and FMC Corporation filed a joint Petition to
Intervene. The Commission granted their joint Petition. The Commission observed that they are
represented by the same counsel and their interests appear to be aligned. Consequently, the
Commission treated the three companies as a single party in this matter. Order No. 28933 at 5.
For purposes of this case they collectively have been referred to as "Astaris" unless specific
distinctions are necessary.
The Commission also received timely petitions for intervention from the Industrial
Customers of Idaho Power and the Idaho Irrigation Pumpers Association. The Commission
granted these petitions as well. All the parties are represented by counsel.
D. Procedural History
On January 14, 2002, the Commission convened its prehearing conference for this
case where the parties reached agreement on several issues including scheduling, discovery, and
the use of electronic service. Astaris , the Staff, and Idaho Power also filed a "Statement of
Understanding.
On January 28 , 2002 , Astaris filed a Motion to Dismiss and Brief on Commission
Authority. Astaris generally argued that the Commission lacks the authority to abrogate the load
ORDER NO. 29050
reduction rates contained in the Letter Agreement. Astaris Motion to Dismiss at 7. The Staff
and Idaho Power filed responses opposing Astaris' Motion on February 11 and 13, 2002
respectively. Astaris filed a reply brief to the previous responses on March 19 2002.
At the evidentiary hearing, Staff, Astaris, and Idaho Power presented their witnesses
and evidence. ICIP and the Irrigation Pumpers did not present any witnesses. ICIP's counsel did
participate in the hearing. The Irrigation Pumpers did not participate at the hearing. The Staff
Astaris, ICIP and Idaho Power filed post-hearing briefs on March 8, 2002.
After the hearing the Commission was concerned that the expedited schedule in this
case did not provide a sufficient period of time for the parties to consider the possibility of
settling this dispute. Accordingly, the Commission scheduled a settlement conference, pursuant
to Commission Rule 273, for April 2, 2002. Order No. 28983. See also IDAPA 31.01.01.273.
The parties engaged in protracted discussions that eventually resulted in the proposed Stipulation
and Settlement Agreement.
THE STIPULATION AND SETTLEMENT AGREEMENT
The proposed Stipulation and Settlement Agreement resolves the disputes between
the Parties regarding:
(a) The December 30, 1997, Electric Service Agreement ("ESA") between
Idaho Power and FMC/ Astaris providing for the retail sale of electricity
from Idaho Power to the FMC/ Astaris Pocatello facility (the take payor
obligation);
(b) The March 15 , 2001 , Letter Agreement amending the ESA to provide for
Voluntary Load Reduction ("VLR") payments from Idaho Power to
FMC/ Astaris with respect to 50 MW of electricity FMC/ Astaris agreed to
no longer consume at its Pocatello facility; and
(c) The proceeding before the Commission (Case No. IPC-01-43) and the
declaratory judgment action filed by FMC/ Astaris against Idaho Power
(captioned as Case No. CV-OC-0108506D) in the Fourth Judicial District
for the State of Idaho.
The Settlement Agreement has two parts discussed in greater detail below.
1. The Agreement Reductions
The Voluntary Load Reduction ("VLR") payments that Idaho Power makes to
FMC/Astaris under the terms of the Letter Agreement will be reduced by $5 000 000. The
benefit of this reduction will flow through Idaho Power s PCA mechanism to the general body of
ORDER NO. 29050
ratepayers. Idaho Power has also agreed that its jurisdictional PCA share of the VLR savings
approximately $425 000, shall be distributed to Idaho ratepayers through the PCA mechanism.
The take-or-pay obligation of the ESA shall be based upon the rates in effect as a
result of the 2001 PCA and not affected by the rates set by the Commission s recent PCA
decision. Order No. 29026. The specific obligation was negotiated prior to issuance of Order
No. 29026 in order to eliminate it being an issue in that case.
The overall take-or-pay obligation that FMC/ Astaris would otherwise pay to Idaho
Power under the terms of the ESA is reduced by $7 968,473. Idaho Power has agreed that it will
not seek to recover $6 968 473 of this credit in any proceeding before the Idaho Public Utilities
Commission. The parties have also agreed that the remaining $1 000 000 of FMC/Astaris take-
or-pay credit will be included in the 2002/2003 PCA true-up balance without any reduction.
The parties also agree that because the ESA and Letter Agreement would expire on
March 30, 2003 , the PCA charge on the 120 MW take-or-pay commitment for the period of
April 2003 through May 15 , 2003 , in the amount of $275 663 will be included in the
2002/2003 PCA true-up balance without any reduction. This adjustment recognizes the
difference between Astaris' take or pay obligation under the Commission s 2002 PCA Order and
the fact that the ESA expires before the end of the PCA period.
The parties have proposed that this case can be closed if the Commission accepts the
Stipulation and Settlement Agreement by Order. Furthermore, FMC/ Astaris has agreed to
dismiss, with prejudice, its declaratory judgment action (CV-OC-0108506D) that it filed against
Idaho Power in the Fourth Judicial District for the State ofldaho.
2. Revenue Requirement and Ratemaking issues contained in the Agreement
The parties have agreed that the FMC/Astaris ESA-Letter Agreement obligation will
be excluded from test year analyses for any general rate case.
The parties have also agreed that through March 2003 the FMC/Astaris ESA-Letter
Agreement obligation of 120 MW will be reflected "as served" for PCA purposes (i., no
reduced load at $16.84 per MWh).
The parties also agreed that after March 2003, the FMC/Astaris ESA-Letter
Agreement obligation load will be removed from the PCA normalized load.
Finally, the parties have agreed that after March 2003 , the FMC/Astaris ESA-Letter
Agreement obligation load of 120 MW will no longer be reflected "as served" for PCA purposes.
ORDER NO. 29050
PARTIES RECOMMENDATION
Because an Agreement has been reached and all parties have signed the Stipulation
and Settlement Agreement, the matter is ripe for Commission review. The parties insist that the
Agreement is just, fair and reasonable, in the public interest, or otherwise in accordance with law
or regulatory policy of this State. The parties recommended that the Commission accept this
settlement as presented. The parties further agree that this Stipulation presents an opportunity to
finally resolve all ESA issues between the parties. This Stipulation is made to compromise
contested claims and is entered solely for the purpose of avoiding expense, inconvenience, and
uncertainty of further litigation. The parties agree that the Settlement itself fairly spreads the
obligations and benefits among Idaho Power, FMC/ Astaris and the general body of ratepayers.
Furthermore, the parties agree that this Stipulation and Settlement Agreement represents a
reasonable resolution of the disputed issues between the parties and believe that it is in the public
interest for the Commission to approve it.
COMMISSION FINDINGS AND DISCUSSION
Pursuant to Commission Rule 274 we shall decide whether to accept the Stipulation
and Settlement Agreement based on the record currently before us. IDAPA 31.01.01.274. The
record is extensive and all parties to this case have signed this Agreement. Accordingly, further
proceedings are not necessary for us to determine whether we should accept this Agreement.
At the outset, we recognized that the disputes among the parties were numerous
contentious and significant. We congratulate the parties for their diligence and work on the
settlement. In Order No. 28983 we stated that "(i)n attempting to settle this matter, we
encourage the parties to explore spreading the benefits and obligations equally among Idaho
Power, Astaris, and the general body of ratepayers." Order No. 28983 at 2. After reviewing the
Stipulation and Settlement Agreement signed by all parties the Commission finds that it
accurately reflects those elements that constitute an appropriate resolution of this case in that it
appropriately spreads the benefits and obligations equitably among all parties.
Pursuant to the proposed Agreement, FMC/ Astaris has agreed to a $5 million
reduction in the amount of payments it will receive for its VLR under the terms of the Letter
Agreement. The benefit of this reduction will flow through Idaho Power s PCA mechanism to
the general body of ratepayers. Idaho Power has also agreed that its jurisdictional PCA share of
the VLR savings (approximately $425 000) shall be distributed to Idaho ratepayers through the
ORDER NO. 29050
PCA mechanism. We find that this reduction in VLR payments and the contribution by Idaho
Power of its PCA share will benefit Idaho Power ratepayers through operation of the Company
PCA mechanism. Thus, we find the Agreement has significant value.
The Commission also finds that basing the take-or-pay obligation upon the rates set
by the 2001 PCA was a reasonable concession by all parties to eliminate it as an issue in the
2002 PCA case. Accordingly, we find that the 2002 PCA decision shall not affect Astaris' take-
or-pay obligation. This provides benefits to FMC/ Astaris as its take-or-pay obligation will be
lower for the remaining contract than if adjusted by the 2002 PCA decision.
The Agreement also provides a $7 968,473 reduction in the overall take-or-pay
obligation that FMC/ Astaris would otherwise pay to Idaho Power under terms ofthe ESA. Idaho
Power has agreed that it will not seek to recover $6 968 473 of this amount in any proceeding
before the Idaho Public Utilities Commission. The parties also agreed that the remaining
000 000 of FMC/Astaris take-or-pay credit will be included in the 2002/2003 PCA true-up
balance without any reduction. The Commission finds that these measures benefit FMC/ Astaris
by reducing its payment obligation for power it cannot use. Furthermore, we find that Idaho
Power s concession to not seek recovery of $6 968 473 of this amount in any proceeding before
the Commission provides benefits to the general body of ratepayers. Finally, we find that Idaho
Power receives a benefit from its recovery of the remaining $1 million through the PCA
mechanism.
The parties also agreed that because the ESA and Letter Agreement would expire on
March 30, 2003, the PCA charge on the 120 MW take-or-pay commitment for the period of
April 2003 through May 15, 2003 , (an amount of $275 663) should be included in the
2002/2003 PCA true-up balance without any reduction. We find that the adjustment
acknowledges the fact that the ESA expires before the end of the PCA period. Thus, we find it
reasonable to include this adjustment in the 2002/2003 true-up balance without reduction.
We also find that the ratemaking and revenue requirement provisions contained in the
Agreement are fair, just and reasonable. These provisions are beneficial to Idaho Power
Company. Furthermore, Idaho Power also receives benefits because the Company is no longer
obligated to provide the 120 MW load as called for under the ESA and Letter Agreement.
In the Agreement the parties noted that IPC-01-43 can be closed if the Commission
accepts the Stipulation and Settlement Agreement by Order. Furthermore, FMC/ Astaris has
ORDER NO. 29050
agreed to dismiss, with prejudice, its declaratory judgment action filed against Idaho Power in
the Fourth Judicial District for the State of Idaho. We find that resolution of this matter and
dismissal of the District Court litigation that would occur upon approval of this Agreement will
provide benefits to all parties to this case and to the ratepayers generally. Specifically, the
Commission finds that the costs, both time and money, to continue this litigation in multiple
forums with the possibility for future cases represents a significant burden to all parties.
avoid this burden removes costly uncertainties and provides benefits to all parties. Thus, we find
that by this Agreement the instant case shall be closed. Astaris' Motion to Dismiss is rendered
moot. Furthermore, the Commission by acceptance of this Agreement requires Astaris to move
quickly to dismiss with prejudice its Declaratory Judgment action in District Court in this State
with prejudice once our Order becomes final.
CONCLUSION
After reviewing this Agreement the Commission approves it as presented. We find
that this Stipulation finally resolves all ESA and Letter Agreement issues among the parties. We
further find that this Agreement has been made to compromise contested claims and is entered
largely for the purpose of avoiding expense, inconvenience, and uncertainty of further litigation.
We also find that the Agreement spreads the obligations and benefits among Idaho Power
FMC/Astaris and the general body of ratepayers in a fair and equitable manner. Finally,
pursuant to Commission Rule 275 we find that the parties have carried their burden of showing
that the Agreement is just, fair and reasonable, in the public interest, and in accordance with the
law and regulatory policy of this State. IDAPA 31.01.01.275. Accordingly, we accept the
Stipulation and Settlement Agreement in the form and content as signed by all parties in this
case.
ORDER
IT IS HEREBY ORDERED that the proposed Stipulation and Settlement Agreement
is just, fair and reasonable, in the public interest, and in accordance with the law and regulatory
policy of this State. Accordingly, we accept the Stipulation and Settlement Agreement in the
form and content as signed by all parties in this case.
IT IS FURTHER ORDERED that the parties shall comply with all terms contained in
the Stipulation and Settlement Agreement.
ORDER NO. 29050
IT IS FURTHER ORDERED that FMC/Astaris' Motion to Dismiss in this case is
rendered moot by our acceptance of the Stipulation and Settlement Agreement.
IT IS FURTHER ORDERED that as a result of the Stipulation and Settlement
Agreement the Commission shall close this case, Case No. IPC-01-, with prejudice.
IT IS FURTHER ORDERED that pursuant to the Agreement FMC/Astaris shall
dismiss its District Court litigation (CV-OC-0108506D) against Idaho Power with prejudice.
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-01-
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-01-43.Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~ 61-
626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this I 0
day of June 2002.
/2;
AUL KJELL ' DER, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
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IS S. HANSEN, COMMISSIONER
ATTEST:
D. Jewell
ission Secretary
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ORDER NO. 29050