Staff Post Hearing Brief.doc

JOHN R. HAMMOND, JR.
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, ID 83720-0074
Idaho Bar No. 5470
Tele: [phone]
FAX: [phone]

Attorney for the Commission Staff

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 ASTARIS LLC. )
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CASE NO. IPC-E-01-43

POST HEARING BRIEF
Comes now the Staff of the Idaho Public Utilities Commission, by and through its attorney of record, John R. Hammond, Deputy Attorney General, and files its post hearing brief. Staff respectfully requests that based on its Response to Astaris’ Motion to Dismiss and the testimony and exhibits presented at the evidentiary hearing in this case that Astaris’ Motion be denied in its entirety. Furthermore, Staff requests that based on the evidentiary record, the Commission find that the load reduction rates from January 8, 2002 until March 2003, contained in Schedule A of Staff Exhibit 111, (the Letter Agreement Amendment to the Electric Service Agreement) are unjust and unreasonable, impose an excessive burden on ratepayers and thus are no longer in the public interest. Finally, should the Commission make this finding, Staff requests that the Commission modify these rates to just and reasonable levels from January 8, 2002.
BACKGROUND
Idaho Power is an electric utility engaged principally 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. The Company is a 50/50 joint venture company owned by FMC Corporation and Solutia Inc. Astaris began operations as an independent company in April 2000. Relevant to this Petition, 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. Hessing, Tr. at p. 45, Staff Exh. 105.
1. The Electric Service Agreement.
On April 27, 1998, the Commission approved the ESA, dated December 30, 1997, between Idaho Power and Astaris’ predecessor FMC. Direct Testimony of Keith Hessing, Tr. at p. 49. See also Staff Exhs. 109 and 110. On or about April 1, 2000 Astaris became the assignee of the ESA and took over operations of the Pocatello facility. Direct Testimony of Gregory Said Tr. at pp. 235-36; Idaho Power Exh. 4 and 5; Staff Exh. 111, p. 1, at n. 1. The ESA required Idaho Power to supply two large blocks of electric power to Astaris’ phosphate processing facility in Pocatello. 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). Hessing, Tr. at pp. 48-49; Staff Exh. 109, ESA at pp. 4-5, § 4.2.1, 4.2.2; Said Tr. at pp. 232-33; 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. See also, Hessing, Tr. at p. 49.
Pursuant to § 6.1.2 of the ESA annual changes in the First Block Base Energy Rate could occur, either upward or downward, in the same amount as Idaho Power’s base rate is adjusted by the Commission in the Company’s annual PCA process. The second block of power is for 130,000 kW and the energy charge (unlike the fixed energy charge in the take-or-pay) was based upon “all of Idaho Power’s costs directly related to supplying the Second Block of Energy.” Hessing, Tr. at pp. 49-50, Said, Tr. at p. 233; Seder, Tr. at p. 253; Staff Exh. 109, ESA at p. 12, § 5.25.
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.” Hessing, Tr. at p. 50; Staff Exh. 110, Order No. 27463 at p. 14. 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 of Idaho Power to continue its service nor harm other ratepayers.” Hessing, Tr. at p. 50; quoting Staff Exh. 110, Order No. 27463 at p. 15 (emphasis added). Neither party to the ESA petitioned the Commission to reconsider this condition nor moved to void the ESA pursuant to section 14. Hessing, Tr at p. 50.
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’s 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.

Staff Exh. 109, ESA at p. 21, § 13 (emphasis added). 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.” Id. at p. 23, § 18. Hessing, Tr. at p. 50.
2. The Letter Agreement.
In the winter of 2001, three external factors prompted Astaris and Idaho Power to amend certain ESA terms. 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, Tr. at pp. 51-53; Seder, Tr. at p. 263. See also, Astaris Exh. 212, Order No. 28695 (Case No. IPC-E-01-9). Consequently, its need to procure large amounts of power could be significantly reduced. Id. 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, Idaho Power and Astaris filed an Application requesting approval of a Letter Agreement that would amend certain sections of the ESA. Hessing, Tr. at p. 50, Said, Tr. at p. 236; Staff Exh. 111. More specifically, the parties agreed that Astaris would reduce its electric consumption at the Pocatello plant, and, in turn, Idaho Power would pay Astaris for this 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].” Staff Exh. 111 at p. 5. The Letter Agreement also states 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.” Id. at p. 7. Astaris witness Seder also acknowledged at the evidentiary hearing that the Letter Agreement was an amendment to the ESA. Seder, Tr. at pp. 271-72, 294-95. See also, Hessing, Tr. at pp. 464-68.
Paragraph 6 of the Letter Agreement also recognizes 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 Idaho Public Utilities Commission. Staff Exh. 111 at p. 6.
The Letter Agreement is on Astaris letterhead and signed by officers of Astaris and Idaho Power—the CEO and President and Vice-President, respectively. Staff Exh. 111 at p. 7. Both parties were represented by separate counsel. Staff Exh. 111 at p. 4.
The Letter Agreement proposed that Astaris would consume “no more than 70,000 kW’s of energy per hour” from the first block, for 24 months starting from April 1, 2001. Seder, Tr. at p. 256. Staff Exh. 111 at p. 2, ¶ 3. However, Astaris would continue to pay for 120,000 kW of energy per hour (the take-or-pay first block). Said, Tr. at p. 236. Staff Exh. 111, § 4.2.1. The difference – 50,000 kW or 50 MW – would be made available to Idaho Power for the 24 month period beginning April 1, 2001 and ending March 31, 2003. Said, Tr. at p. 236. Idaho Power would pay Astaris monthly for the 50 MW at then projected monthly market rates, over the two years of the Letter Agreement, minus a 13.5% discount. Hessing, Tr. at p. 51; Seder, Tr. at p. 259. See Staff Exh. 111, LA, Schedule A. The total cost for the 50 MW of power was approximately $140 million over the two years, or about 15.9¢ per kWh ($159 per MWh). Hessing, Tr. at p. 54. Idaho Power also represented that the 15.9¢ proposed load reduction payments would be offset by the Company’s continued recovery of the take-or-pay energy charges 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. Staff Exh. 111 at p. 7, ¶ 7; Application at p. 2.
The Letter Agreement also provided for the shut down of furnaces No. 1 and No. 4 at the Astaris facility in Pocatello. Said, Tr. at p. 236; Staff Exh. 111 at p. 5, ¶ 1. 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 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. Said, Tr. at p. 236; Staff Exh. 111 at p. 5. 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. Hessing, Tr. at pp. 209-10; Seder, Tr. at p. 264; Staff Exh. 111 at p. 6, ¶ 5.
The Letter Agreement also provided that if Astaris chose it could reconnect furnaces 1 and 4 after March 31, 2001, then Astaris shall repay to Idaho Power the second block demand charges referenced in this paragraph as if the electrical furnace had never been disconnected. It appears they could use second block power. Hessing, Tr. at pp. 103-4, 467.
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 p. 6. In approving the Letter Agreement, the Commission noted that based upon the best information available at that time, the monthly forward market prices were reasonable. Order No. 28695 at pp. 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 purchase power expense and recovered through the Company’s PCA mechanism. Id.
Through December 31, 2001, Astaris has received about $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. Closure of Astaris Plant.
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 Exhs. 107 and 108. At the evidentiary hearing Astaris witness Alan Seder testified that Astaris’ parents, FMC and Solutia, made a preliminary decision to shut down the Pocatello operation on September 14, 2001, and the final decision to close was made on October 5, 2001. Seder, Tr. at p. 264. However, Seder also testified that in June 2001 the Company began seriously evaluating whether it should shut down the Pocatello facility or not calling it Project PEACE, Pocatello Expedited and Advanced Closure Evaluation. Id. at pp. 342, 356. Following cessation of production by Astaris, FMC would be responsible for the site and decommissioning of the plant. Staff Exhs. 107 and 108. At the hearing Mr. Seder stated that the plant is now using about 3 MW of power. Seder, Tr. at p. 14. Astaris has returned the plant to FMC. Id. at 332.
LEGAL STANDARDS
Idaho Code § 61-305 requires public utilities to file all contracts relating to rates. Once the Commission has approved utility service contracts, they are usually protected from governmental interferences by the Idaho Constitution, Article I, § 16. Staff Petition at pp. 8-9. However, federal and state law is well settled that the Commission has authority to abrogate contract rates if it becomes necessary in the public interest. Article XI, § 8 of the Idaho Constitution provides that “the police powers of the state shall never be abridged or so construed as to permit corporations to conduct their business in such a matter as to infringe . . . the general well being of the state.” As the Idaho Supreme Court stated in Sandpoint Water & Light Company v. City of Sandpoint,
It is held uniformly and universally that the power to supervise and regulate rates or charges for services rendered by public utilities is an inherent function of government, and occupies a large place within the domain of the police powers of the state.

31 Idaho 498, 501, 173 P.2d 972, 973 (1918).
Idaho Code §§ 61-502, 61-503, and 61-622 delegates ratemaking authority to the Commission and authorizes it to investigate contracts and to set new contract rates if such rates are found to be “unjust, unreasonable, discriminatory or preferential.” Idaho Code § 61-502. Indeed, Idaho Code § 61-502 provides the Commission with the authority either upon its on motion or complaint to abrogate existing rates or contracts affecting such rates that it finds are unjust, unreasonable, discriminatory or preferential. The Idaho Supreme Court described the Commission’s authority in United States v. Utah Power & Light Company, 98 Idaho 665, 667-68, 570 P.2d 1353, 1356 (1977) where it stated, “Idaho Code § 61-502 gives the Commission the authority either upon its own motion or upon complaint to abrogate existing rates including those set by contract if they are found to be ‘unjust, unreasonable, discriminatory, preferential, or in any way in violation of law’ and fix new rates in their stead.” Furthermore, the Court held that Idaho Code § 61-503 also provides the Commission the authority to investigate rate schedules and contracts affecting rates. Id. The delegation of ratemaking authority to the Commission was upheld by this Court at an early date. Idaho Power & Light Co. v. Blomquist, 26 Idaho 222, 141 P. 1083 (1914).
Thus, pursuant to the states police power and Idaho Public Utilities Act, it is well settled that the Commission may set new rates for public utility service that will supersede rates previously established by private contract. In Agricultural Products Corporation v. Utah Power & Light Company, the Idaho Supreme Court recognized that the Commission has authority to abrogate a rate contract. 98 Idaho 23, 552 P.2d 617 (1976). In that case, the Court stated that
Interference with private contracts by the state 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 the contractual obligation. A public utilities commission may thus annul or supersede contract rates between utilities and their customers. Private contracts with utilities are regarded as entered into subject to reserve authority of the State to modify the contract in the public interest.

98 Idaho at 29, 557 P.2d at 623 (internal citations and footnotes omitted, emphasis added).
The Idaho Supreme Court has consistently recognized the Commission’s power to modify utility contracts pursuant to the above authorities. United States v. Utah Power & Light Co., 98 Idaho 665, 570 P.2d 1353 (1977); Afton Energy Company v. Idaho Power Company, 107 Idaho 781, 786-87, 693 P.2d 427, 432-33 (1984); Afton Energy v. Idaho Power Company, 111 Idaho 925, 929, 729 P.2d 400, 404 (1986); Idaho Power Company v. Cogeneration, Inc., 129 Idaho 46, 49, 921 P.2d 746, 749 (1996). The United States Supreme Court has also recognized the authority of the Federal Power Commission (now FERC) to abrogate utility service contracts when it is in the public interest to do so. Federal Power Commission v. Sierra Pacific Power Company, 350 U.S. 346, 76 S.Ct. 368, 100 L.Ed. 388 (1956); United Gas Pipe Line Company v. Mobile Gas Service Corporation, 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956).
The Commission’s jurisdiction over the ESA and the amending Letter Agreement is even more compelling in this case because the Commission specifically retained continuing jurisdiction as a condition of the ESA. Staff Exh. 110 at p. 15. In its Order approving the ESA, the Commission stated that it retains authority over the ESA to insure “it does not impair the financial ability of Idaho Power to continue its service nor harm other rate payers.” Id. At the time FMC did not object to this condition. Hessing, Tr. at p. 50.
Staff also recognizes that the Commission’s authority to abrogate a contract rate is subject to a higher threshold standard than the standard employed to modify tariff rates. This dichotomy has normally been referred to as the difference between changing rates under a “tariff standard” versus a “contract standard.” Before the Commission may abrogate a rate in a contract, it must find that the current rates are unjust, unreasonable, discriminatory or preferential. Idaho Code § 61-502. Courts have articulated this standard as to require a finding that the existing contract rates are
so low as to adversely affect the public interest – as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory.

Agricultural Products, 98 Idaho at 29, 557 P.2d at 623, quoting Sierra Pacific, 350 U.S. at 348; see also Afton Energy,111 Idaho at 929, 729 P.2d at 404.
ARGUMENT
Astaris Motion to Dismiss
On January 28, 2002, Astaris filed its Motion to Dismiss and Brief on Commission Authority requesting that the Commission dismiss this case in its entirety. Astaris argued that contrary to the legal authority cited in Staff’s Petition, the Commission is constrained by its authority under Idaho law and barred by the Idaho and United States Constitutions from abrogating the load reduction rates and ordering Idaho Power to pay Astaris a reduced price. Astaris also argues that beyond being unlawful, such an action by the Commission at this time would be unjust because it would deprive Astaris of revenues promised under the Letter Agreement Amendment after it has fully performed its end of the bargain and incurred substantial and irreversible expenses in reliance on it.
Staff filed its response to this Motion on February 11, 2002. Staff requested that the Commission deny Astaris’ Motion in its entirety. For purposes of brevity, Staff will not restate the arguments here but provides the following summary of its positions on Astaris’ Motion:
The Commission has the jurisdiction and authority to investigate whether the load reduction rates contained in the amended ESA are unjust and unreasonable and impose an excessive burden on ratepayers and if it makes this finding it may modify the load reduction rates to just and reasonable levels;

The ESA and the Letter Agreement are a single special contract that the Commission specifically retained jurisdiction and authority over to insure that it does not harm ratepayers;

The ESA, as amended, is a “special” utility contract and distinguishable from a contract supplying goods and services to Idaho Power;

Modifying the load reduction rates in the Letter Agreement is not an unlawful collateral attack on Order No. 28695;

Astaris is not a PURPA qualifying facility (i.e., QF) under federal law and should not be treated like one;

The Commission’s modification of the load reduction rates of the Letter Agreement would not be an unconstitutional impairment of contract, violate Astaris’ substantive due process rights and/or constitute an unlawful taking of Astaris’ property under the Idaho and United States Constitutions;

Modifying load reduction rates as of January 8, 2002 would not constitute retroactive ratemaking; and

Modifying the load reduction rates would not constitute bad public policy.

The Letter Agreement Load Reduction Rates are Unjust and Unreasonable and Impose an Excessive Burden on Ratepayers.

1. Load Reduction Rates
At the time the Letter Agreement was approved, prices for wholesale energy in the West had been at unprecedented levels since the summer of 2000. Monthly prices for wholesale power were consistently higher than $100 per megawatt hour, with some peaks averaging $300 to $400 a megawatt hour. Hessing, Tr. at p. 53. Idaho Power was forced to increase its purchases of wholesale power at these high prices to serve its customers because the Company was unable to generate enough power as a result of an extremely low water year. Id. In large part, these purchases led to Idaho Power’s revenue request for the 2001-2002 PCA year of $227 million. Id. In Order Nos. 28722 and 28852 the Commission ultimately passed on $217.2 million to Idaho Power ratepayers that significantly increased rates for all customer classes.
After the Commission approved the Letter Agreement and its associated load reduction rates, actual market prices during April and May 2001 continued in the $200-$300 range per MWh. Hessing, Tr. at pp. 55-56. However, in June 2001, the wholesale market price for power in the West plunged dramatically to under $50 per MWh and to this day remains close to historical levels of $20 to $30 MWh. Id. at p. 56.
Under the approved terms of the ESA and Letter Agreement Idaho Power pays Astaris for a 50 MW load reduction based on monthly forward market prices established in Schedule A to Staff Exhibit 111 at p. 8. Alan Seder of Astaris testified that “[w]e agreed to the forward-market numbers that Idaho Power had given us as representative of the market,” and that “[the Company] did an independent analysis of those prices through a company that basically verified that they were in that range.” Seder, Tr. at pp. 269-70. The total costs related to Idaho Power’s purchase of a 50 MW load reduction until March 2003 will be approximately $139.4 million. Hessing, Tr. at p. 61. From April 2001 until December 31, 2001, Idaho Power paid Astaris $80.4 million. Id. Staff has not contested this amount. From January 1, 2002 until March 31, 2002, Idaho Power is scheduled to pay Astaris approximately $17 million. Id. at p. 57. From April 1, 2002 until March 31, 2003, Idaho Power is scheduled to pay Astaris approximately $42 million. Hessing, Tr. at p. 57; Staff Exh. 101.
In its evaluation of whether the load reduction rates are now unjust and unreasonable, Staff employed the same method that Idaho Power and Astaris used to establish the load reduction rates in the Letter Agreement Amendment. Hessing, Tr. at p. 58. Staff witness Hessing testified that on December 17, 2001 he obtained forward monthly flat market prices from Idaho Power for the remaining term of the ESA and Letter Agreement. Id. Hessing stated that these forward market prices were developed in the same manner as those used to establish the prices in the Letter Agreement Amendment. Hessing, Tr. at pp. 178, 482. Mr. Hessing stated that he had received these prices from a qualified Idaho Power energy trader who he knew was involved in this type of business on a daily basis. Id. at p. 177. Furthermore, Hessing testified that he has been to Idaho Power offices and watched their trading operation. Id. Based on this personal knowledge, Mr. Hessing insisted that the energy trader who provided the forward market prices he obtained from Idaho Power on December 17, 2001 is qualified to determine market prices in the Mid-Columbia trading area. Id. Finally, Mr. Hessing noted that the monthly forward prices he obtained in December are consistent with the prices from December 17 until the hearing. Tr. at pp. 61, 482.
Hessing also stated that he obtained similar forward market prices from Avista Corporation on December 20, 2001 that were consistent and in fact lower than the prices provided to him by Idaho Power. Hessing, Tr. at p. 58; Staff Exh. 106.
Astaris has not provided any evidence that contradicts the accuracy of the market prices Mr. Hessing obtained in December of 2001 or that the methodology used to establish them is improper. Rather, by its admission that it accepted the previous forward market prices as accurate Astaris should not be able to claim that the more recent prices are somehow inaccurate. Furthermore, Mr. Seder stated that Astaris had not independently determined whether these more recent prices or the methodology used to develop them were unreasonable. Hessing, Tr. at p. 270. Finally, Astaris did not object to the admission of this evidence.
Mr. Hessing calculated the reasonable prices of the load reductions starting from January 8, 2002 using the December 2001 forward market prices he obtained from Idaho Power. Hessing, Tr. at p. 59, 175-77. Staff did not discount the forward prices used as an adjustment. Staff has determined that the approved Letter Agreement load reduction rates for the remaining 15 months (January 8, 2002 to March 1, 2003) of the amended ESA, are 200% to 700% higher than the current forward market prices obtained by Mr. Hessing. Hessing, Tr. at p. 58; Staff Exh. 102 and 104. These unreasonable prices will impact Idaho Power ratepayers by increasing rates and impose an excessive burden on them. Accordingly, for the remainder of the Letter Agreement and ESA, Idaho Power and eventually all ratepayers will pay approximately $45 million more for 50 MW of load reductions than current forward market rates proposed by Staff. Hessing, Tr. at p. 61. Thus, Staff asserts that the remaining rates contained in the Letter Agreement are unjust and unreasonable, and if adjusted to reasonable levels would 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. Hessing, Tr. at pp. 61-63.
Through the PCA mechanism, 10% of the total cost of the Letter Agreement Amendment will be absorbed by Idaho Power shareholders; and 15% will be allocated to other jurisdictions. Hessing, Tr. at p. 56. After these adjustments, approximately $106.6 million in direct costs would be deferred and recovered from ratepayers in the 2002/2003 and 2003/2004 PCA years. Id. at pp. 56-57. During the life of the Letter Agreement Amendment and ESA the load reduction costs are deferred on a monthly basis. Although interest accumulates on deferred PCA balances, Staff has not included interest savings. Id at p. 57.
If the Staff’s rate adjustment were accepted, the PCA surcharge would recover approximately $71.9 million spread over two 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. Id. at pp. 61, 63. Staff’s adjustment would save Idaho Power ratepayers more than $34 million through the PCA mechanism over two PCA years. This is significant in light of the increases in customer rates due to the PCA.
The Table below shows the total contract savings and savings that ratepayers will receive through the PCA if the Letter Agreement rates are modified:

TABLE 1
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).
For the 2002/2003 PCA rates, customers would save the following amounts if the load reduction rates were modified 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. Id. at pp. 63-64; Staff Exh. 105.
2. Alleged effects and costs incurred by Astaris
The Staff’s evaluation of whether the Load Reduction rates are unjust and unreasonable also included the costs that Astaris alleges that it has incurred in reliance on the Letter Agreement Amendment.
Although the Company had intended to change its manufacturing process for years, Astaris alleges it incurred substantial and irreversible expenses in reliance on the Letter Agreement Amendment. However, Staff witness Terri Carlock testified that claimed costs were not all associated with the Letter Agreement Amendment. Carlock, Tr. at p. 508. Rather than incurring costs of $90 million (including the take-or-pay discussed later) and producing a loss to Astaris of $22 million, Carlock testified that the total costs associated with the Letter Agreement Amendment were $23.7 million with a benefit (not a loss) to Astaris from the Letter Agreement Amendment of $56.7 million. Carlock, Tr. at p. 509. These expenses were “irreversible” in the relative short term as testified to by Astaris, Seder, Tr. at p. 258, and Staff. Astaris continued to have operational options but it chose not to conduct studies for many of those options such as operating additional furnaces at Pocatello with power from the Second Block of Energy under the Electric Service Agreement. Seder, Tr. at p. 276. Furthermore, Carlock testified that all of these costs were incurred in 2001 and Staff is not requesting that the Commission change the load reduction rates for 2001. Carlock, Tr. at p. 508. Carlock also stated that not all of these costs are ongoing for 2002 and 2003. Id. Astaris witness McCarvill testified that the Company has also only accounted for these costs for 2001 and that many of them are one time non-recurring costs. McCarvill, Tr. at p. 371. Astaris alleges that it has some continuing costs but has not provided evidence supporting this allegation. To summarize,
1) Astaris past and ongoing plans included moving from phosphorus (P4) production to the production and use of lower cost purified phosphoric acid (PPA),

The Letter Agreement Amendment allowed Astaris to accelerate those plans with an additional revenue source to cover many of the accelerated costs,

Since the Letter Agreement Amendment allowed earlier movement to PPA, options to produce P4 by running Pocatello furnaces with Block II power when market electricity rates returned to lower prices were not considered, instead by June 2001 Astaris began evaluating closing down the Pocatello plant entirely, therefore

The earlier movement to PPA with new supply sources and production facilities developed by Astaris, allowed the higher cost Pocatello facility to be closed.

Staff witness Carlock has reviewed the Pocatello plant closure documents provided at and following the hearing. Although these summary documents relate to the Pocatello plant closure analysis, they are not the documents that include the detailed correspondence supporting the decision or the cost data to implement closure of the Pocatello plant. After reviewing the documents provided, she concludes that these documents do not change her testimony as presented at the hearing. In fact, Ms. Carlock believes these documents along with the other confidential documents only reinforces her position that many of the costs identified by Ms. McCarvill are in fact more appropriately linked to: 1) scaling back two of the furnaces operated with Second Block power at Pocatello due to market electricity prices in 2000 and early 2001; or 2) the ultimate closure of the Pocatello plant. If the plant were to continue operation after March 2003 as Astaris originally claimed and planned, many of the costs would not have been incurred and definitely are not associated directly with the Letter Agreement Amendment. Astaris witness Seder clearly makes both of the above distinctions “At the time of the Letter Agreement, there was no plan to close the facility. Our plan was to go from a two-furnace operation to a one-furnace operation…” Seder, Tr. at p. 361. For the above reasons Staff concludes that these alleged costs and irreversible changes do not change the fact that the load reduction rates are unjust and unreasonable going forward from January 8, 2002.
3. Take-or-Pay Costs
As discussed previously Idaho Power provides 120 MW of First Block power under the ESA on a take-or-pay basis. Hessing, Tr. at p. 49. Therefore, Astaris is obligated to pay for the power whether it uses it or not. Id.
Astaris argues that the amount it pays under the take-or-pay provisions of the ESA for 50 MW of power under the First Block should be offset against any payment it receives as a result of the Letter Agreement Amendment load reduction provisions. McCarvill, Tr. at pp. 369, 379; Binz, Tr. at pp. 406, 417-19. According to Staff witness Hessing based on a calculation he was asked to perform by Astaris the Company will pay $17 million to Idaho Power for the 2002 year for 50 MW of power under the take-or-pay provisions of the ESA. Id. at p. 172. This amount assumes that $7.5 million of this total would be incurred as a result of PCA increases.
Staff contends that this is not an appropriate offset for several reasons. First, the take-or-pay provisions are part of the ESA and are not “costs” associated with the Letter Agreement. Id. at pp. 172-73, Carlock, Tr. at p. 510. Second, Mr. Hessing explained that Astaris secured a lower-unit cost in terms of rates as a result of the take-or-pay provisions of the ESA because he take-or-pay provision is tied to Astaris being a hundred percent load factor customer in the cost-of-service study. Id. at p. 219. Third, Hessing insisted that the take-or-pay provisions in the ESA address the fact that Idaho Power Company has made substantial investments in facilities to serve Astaris that were expected to be recovered in rates charged to them. Hessing, Tr. at pp. 474-75; Carlock, Tr. at p. 510. The Commission in its order approving the ESA observed that the take-or-pay meets Astaris’ cost of service. Staff Exh 110 at p. 12. Moreover, under the take-or-pay, Astaris does not take possession or title to the energy. Fourth, Idaho Power pays Astaris for a load reduction or to not consume energy. Seder, Tr. at pp. 299-300. The Commission found in the ESA Order No. 27463 that “FMC does not directly purchase or sell power” under the ESA. Staff Exh. 110 at pp. 13-14. Astaris also would have incurred the take-or-pay costs with or without the Letter Agreement. Carlock, Tr. at 510. Finally, Astaris, as an Idaho Power customer, is now substantially gone, but the costs associated with Idaho Power’s investments continue. Id. With closure of the plant and its return to FMC, Idaho Power infrastructure capital investments necessary to serve Astaris will not be fully recovered. The take-or-pay payments contribute to real on-going costs that Idaho Power has incurred. Offsetting the take-or-pay payment against the payments Astaris receives is entirely inappropriate. Hessing, Tr. at p. 475.
For the above reasons offsetting the take-or-pay payments made by Astaris to Idaho Power against the amount it receives for its load reduction is not appropriate.
4. Conclusion
Based on the testimony and exhibits in the record Staff alleges that the Letter Agreement rates Idaho Power will pay Astaris for the 50 MW load reduction for the remaining term of the contract are unjust and unreasonable. Staff also contends that the load reduction rates will also impose an excessive burden on the general body of ratepayers through the 2002/2003 and 2003/2004 PCA years as demonstrated in the Tables above, Staff Exhibit 105, and Testimony of Keith Hessing. Staff contends that if the Letter Agreement rates are not modified, customers will experience a substantial rate increase in future PCA adjustments as a direct result. Specifically, ratepayers will pay an additional $11.2 million in the upcoming 2001/2002 PCA year and $23.6 million in the 2002/2003 PCA year. See Table on previous page.
Based on the foregoing, Staff requests that the Commission modify the load reduction rate pursuant to its retained jurisdiction over the ESA and its authority under the Idaho Public Utilities Act. After modifying this rate Staff requests that the Commission set new just and reasonable rates for the remainder of the Letter Agreement for the 50 MW load reduction as proposed by the Staff in its testimony and exhibits.

Comparison of Astaris Load Reduction Program to other Programs and Benchmarks

At the evidentiary hearing Astaris attempted to demonstrate that the load reduction rates were not unjust and unreasonable by comparing the costs to other Programs or resources. The specific comparisons and why they are inappropriate are discussed below.
1. Irrigation Load Reduction Program
Astaris on cross examination of Staff witness Keith Hessing established that Idaho Power paid irrigators $150 per MWh during the 2001 irrigation season. Hessing admitted that this price was higher than the $108 per megawatt hour that the Astaris load reduction price averages from January 2002 through March of 2003. Hessing, Tr. at p. 118. However, the load reduction prices paid to Astaris during the 2001 Irrigation (April-September) season were between $197.19 per MWh in May and $328.70 per MWh in August. Staff Exh 101. Hessing also stated that Idaho Power paid irrigators $150 per MWh for load reductions after the wholesale market price for power had fallen below $50 per MWh in August and September of 2001. At that time Staff did not advocate modifying the irrigation load reduction rate because there were concerns that the drop in price would not last as it could come back up in the fall and winter months. Hessing, Tr. at pp. 119-22, 214-15. During this same time Astaris load reduction rates was above $260 per MWh. Staff Exh. 101. Hessing, Tr. at pp. 119-22.
It is important to note that the Irrigation Load Reduction Program was modified so that the rate for liquidated damages was eliminated. Hessing, Tr. at p. 122. By waiving the liquidated damages provision program costs would be reduced and benefit both the Company and ratepayers.  Specifically, if participants choose to use energy sold to the Company under the load reduction 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.  See Order No. 28844.
These two Programs have significant differences that make any comparison between them inappropriate. First, the term of the Irrigation Load Reduction Program was from March 1, 2001 until November 30, 2001. Hessing, Tr. at p. 213. See also Order No. 28699. Accordingly, the Program no longer exists unlike the Astaris Load Reduction Program that continues until March of 2003. Id. at p. 213. The total costs passed on to ratepayers from the Astaris Load Reduction Program because of its duration will be much greater than that of the Irrigation Load Reduction Program. Id. at pp. 214, 216. In fact one reason Staff investigated the Astaris Letter Agreement Amendment was because the costs associated with it were by far the greatest of any single contract. Id at p. 195. Second, during 2001 neither Staff nor the Commission advocated changing or altering the load reduction rates in the Astaris Program based on valid concerns that the prices in the wholesale market could go up again. This is consistent with its actions in regard to the Irrigation Load Reduction Program. During the 2001 irrigation season Idaho Power was paying irrigators $150 per MWh for their load reductions. During a similar time period for the Letter Agreement Load Reduction (April – December 2001) Astaris was receiving an average price of $243.6 per megawatt hour. Staff Exh. 101 and 111. As a result, Astaris has received about $80.4 million dollars from Idaho Power that is not at issue in this proceeding. Only after Staff was certain that prices in the wholesale market had stabilize did Staff undertake this matter. Thus, Staff has requested that the Commission modify the rate going forward from January 8, 2002. Accordingly, Astaris comparison to a Program that only existed in 2001 is inappropriate. Furthermore, the comparison is inappropriate because Astaris was given the same treatment that the Irrigation Load Reduction Program was given during the year 2001.
2. Qualifying Cogeneration and Small Power Production Facilities
Astaris attempts to compare the costs of the Astaris Load Reduction Program to Idaho Power contracts with qualifying cogeneration and small power production facilities (“QFs”). These contracts are distinguishable and a comparison is unreasonable.
In 1978, Congress enacted the Public Utility Regulatory Policies Act (“PURPA”). Specifically, 16 U.S.C. § 824a-3 and related regulations require utilities to purchase power from qualifying cogeneration and small power production facilities at the utility’s “avoided cost rates.” 16 U.S.C. § 796(17) and (18); 18 C.F.R. §§ 292.205 and 292.303. Staff witness Hessing testified in this regard:
The Federal Public Utilities Regulatory Policies Act of 1978 (PURPA) requires that electric utilities purchase power from cogenerators and small power producers (“QFs”) at avoided cost rates established by state regulatory commissions. PURPA rates and essential terms are commonly set by contract. Because Idaho approves the rates and terms, the Commission retains jurisdiction over the contracts to provide assurance that the rates remain in the public interest. However, it should be noted that QFs are not to be subject to utility-type regulation and its it presumed that the approved avoided cost rates will remain unchanged during the term of the contract absent the reserve power to change the rate if required by the public interest.

Hessing, Tr. at p. 471 (emphasis added). Avoided cost rates are not equivalent to market rates. In addition, there are 67 “QF” contracts with a variety of different rate structures while there is but one Astaris load reduction amendment.
Astaris did not present any evidence at the hearing that demonstrates that it meets the requirements to receive QF status, nor has the Company sought this status. Indeed, Astaris does not generate power for sale to regulated utilities as contemplated by PURPA. Seder, Tr. at p. 279. Rather, Astaris is being paid to reduce load on the demand-side, not to add supply to the system. Id. at pp. 279-80. Thus, Astaris clearly does not receive payment for its load reduction at Idaho Power’s avoided cost rates. Furthermore, the Commission in the ESA Order No. 27463 specifically found that FMC, now Astaris, does not sell or buy power like a marketer. Staff Exh. 110 at pp. 13-14. Accordingly, a comparison between QF contracts and the Astaris Load Reduction Program is completely inappropriate.
3. Comparison to FERC Account 555 Purchased Power Costs
Finally, Astaris attempts to compare Idaho Power’s average cost for its purchased power for the year 2000 to the Astaris Load Reduction Program. On cross examination, Astaris asked Staff witness Hessing whether he knew what dollars-per-megawatt hour rate represented the average purchase power cost for Idaho Power in year 2000 taken from its 2000 FERC Form One. Hessing, Tr. at pp. 198-99; Astaris Exh. 213. Although not established at the hearing, Staff believes that Astaris may contend that the average price for this resource mix is similar to that of the Astaris load reduction Program and Staff has not declared that this cost constitutes an excessive burden on ratepayers.
Staff’s proposal would modify the load reduction rates from January 8, 2002 until March 2003. Comparing the costs of this Agreement going forward against year 2000 purchased power costs is inappropriate. The year 2000 costs are no longer representative of the current time period therefore it would be an inaccurate comparison at best. Furthermore, the average costs for 2000 were and are significantly higher that those that exist currently. Finally, the total resource portfolio mix is made up of a mix of purchases, firm and non-firm, heavyload hour and light load hour, etc. Clearly a mix of such a diverse mixture of purchases is not comparable to the Astaris Load Reduction Purchases. Idaho Power raised similar concerns regarding this comparison. Tr. at p. 199.
CONCLUSION
Based on the foregoing, Staff respectfully requests that the Commission find that the load reduction rates of the Letter Agreement Amendment to the ESA going forward from January 8, 2002 are unjust, unreasonable, impose an excessive burden on ratepayers and are no longer in the public interest. Should the Commission make this finding, Staff requests that the Commission modify these rates as of January 8, 2002 to just and reasonable levels in the manner proposed by Staff at the evidentiary hearing.
Respectfully submitted this 8th day of March 2002.

John Hammond
Deputy Attorney General

CERTIFICATE OF SERVICE

I HEREBY CERTIFY THAT I HAVE THIS 8th DAY OF MARCH 2002, SERVED THE FOREGOING POST HEARING BRIEF, IN CASE NO.  IPC-E-01-43, BY ELECTRONICALLY FILING A COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:

LARRY D. RIPLEY
IDAHO POWER COMPANY
PO BOX 70
BOISE, ID 83707-0070
e-mail: [e-mail]
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
e-mail: [e-mail]
ROBERT M POMEROY JR
THORVALD A NELSON
HOLLAND & HART LLP
8390 E CRESCENT PKWY, STE 400
GREENWOOD VILLAGE CO 80111
e-mail: [e-mail]
MIQUEL F UGARTE
ASTARIS LLC
622 EMERSON RD
PO BOX 411160
ST LOUIS MO 63141
e-mail: [e-mail]
RICHARD PASQUIER
FMC CORPORATION
1735 MARKET ST
PHILADELPIA PA 19103
e-mail: [e-mail]
RANDALL C. BUDGE
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO, ID 83204-1391
e-mail: [e-mail]
PETER J. RICHARDSON
RICHARDSON & O’LEARY
PO BOX 1849
EAGLE ID 83616
e-mail: [e-mail]
ANTHONY YANKEL
29814 LAKE RD.
BAY VILLAGE, OH 44140
e-mail: [e-mail]

SECRETARY

For purposes of this case Astaris LLC, Astaris of Idaho LLC and FMC Corporation shall be referred to collectively as “Astaris” unless it is necessary to refer to the companies individually.
Furnace Nos. 1 and 4 have an attributable demand of 60,000 kW each. Staff Exh. 109, ESA at p. 8, § 4.5.

Idaho Code § 61-502 states in pertain part:

Whenever the commission, after a hearing had upon its own motion or upon complaint, shall find that the rates, fares, tolls, rentals, charges or classifications, or any of them, demanded, observed, charged or collected by any public utility for any service or product or commodity, or in connection therewith, . . . or that the rules, regulations, practices, or contracts or any of them, affecting such rates, fares, tolls, rentals, charges or classifications, or any of them, are unjust, unreasonable, discriminatory or preferential, or in any wise in violation of any provision of law, or that such rates, fares, tolls, rentals, charges or classifications are insufficient, the commission shall determine the just, reasonable or sufficient rates, fares, tolls, rentals, charges, classifications, rules, regulations, practices or contracts to be thereafter observed and in force and shall fix the same by order as hereinafter provided. . . .
When cross-examined regarding the accuracy of forward market prices, Hessing responded that the prices established in the Letter Agreement Amendment and the later prices he obtained were accurate because purchases of power could have been made at those prices at those times. Id. at pp. 175, 177. Hessing further testified that Idaho Power’s forward market prices were consistent with his knowledge of what actual market prices were. Id. at p. 175.

Using a discount would increase the savings.
Under Staff’s proposal, 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. Hessing, Tr. at p. 61. 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. See Staff Exh. 103; Hessing, Tr. at p. 61. Adding this to the $80.4 million that Astaris has already received results in a total payment of $93.9 million over the term of the ESA. Id. at p. 61.

Including interest savings would of course increase savings to ratepayers.

Moreover, if calculating the set offs to the Letter Agreement then the elimination of the demand charges for the second block of power for the entire term of the Letter Agreement Amendment should be taken into consideration.

POST HEARING BRIEF 20

CERTIFICATE OF SERVICE