20030415Gale Direct.pdf

RECEIVED I!JFILED
1003 APR 15 AM 10: 19
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UTILITIES
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1MI SS/ON
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT POWER COST
ADJUSTMENT RATES FOR ELECTRIC
SERVICE TO CUSTOMERS IN THE STATE
OF IDAHO FOR THE PERIOD MAY 16,
2003 THROUGH MAY 15, 2004.
CASE NO.IPC-E- 03 -
IDAHO POWER COMPANY
DIRECT TESTIMONY
JOHN R. GALE
Please state your name and business address.
My name is John R. Gale and my business
address is 1221 West Idaho Street , Boise, Idaho.
By whom are you employed and in what
capaci ty?
I am employed by Idaho Power Company as Vice
President of Regulatory Affairs.
What is the purpose of your testimony in this
proceeding?
I am describing a special adjustment to the
2003/2004 PCA , which Mr. Said has included in this year
filing.
What is the effect of the adjustment to Idaho
retail customers in the 2003/2004 PCA?
The Idaho retail customers will receive an
addi tional benefit in the amount of $1,363,475.
Have you prepared an exhibi t to support your
testimony?
Yes.I am sponsoring Exhibi t No.6, which is
a three-page exhibit entitled 2003/2004 FERC Settlement PCA
Adj us tmen t .
Why are you proposing an adjustment to the
2003/2004 PCA?
A series of events related to the wind down
of the marketing business at Idaho Power Company s affiliate
GALE, DI
Idaho Power Company
IDACORP Energy LLC (IDACORP Energy or IE) has led Idaho
Power Company (Idaho Power or the Company) to conclude that
certain ancillary services transactions between IE and Idaho
Power should be revalued at this time.These types of
transactions have traditionally been included in the PCA
calculations.
Please describe these events.
Following the western energy crisis of 2000
and 2001 and the Enron collapse in late 2001, the energy
marketing and trading sector underwent significant stress
and turmoil.Many companies decided to exit the electricity
trading sector in 2002.Idaho Power Company s parent
company IDACORP, Inc. also came to this conclusion with
regard to its subsidiary, IDACORP Energy.In the spr ing 0
2002 , the decision was made to exit the electricity
marketing and trading business.Idaho Power Company had
previously entered into an Agreement for Electricity Supply
Management Services (Supply Management Agreement) with IE.
Under this agreement IDACORP Energy managed the system
resources on Idaho Power s behalf under established transfer
pricing mechanisms.After the decision was made to exit
IDACORP Energy s electricity trading business, the
management of the system resources migrated back to Idaho
Power Company.By August 1, 2002, the real-time, day-ahead,
and term transactions had all returned to the utility.
GALE, DI
Idaho Power Company
March 17 , 2003, Idaho Power filed with the FERC for
termination of the Supply Management Agreement.
During the process of exiting the electricity
trading business and ultimately terminating the relationship
and the agreement with IE, Idaho Power discovered some
deficiencies in filings with the Federal Energy Regulatory
Commission (the FERC) .The Company reported these
shortcomings to the FERC in September of 2002 and issued a
Securi ties Exchange Commission Report 8K Financial
Disclosure at the same time.The FERC report s ta ted among
other things that prior approval was not sought for some
ancillary services transactions between IDACORP Energy and
the Company.
Since that time, the FERC, through its Enforcement
Division of the Office of Market Oversight and
Investigations, has proceeded with an investigation of Idaho
Power s failure to file ancillary services agreements with
IE that it is required to file under section 205 of the
Federal Power Act.Al though Idaho Power has not reached a
final settlement with the FERC at the time this testimony
was filed, the Company believes that settlement is imminent
and desires to recognize the anticipated outcome of the
ancillary services issue in this year s PCA.
Please be more specific.
GALE, DI
Idaho Power Company
Contracts between IE and three entities -
Montana Power Company (Montana Power), Tri-State Electric
Cooperative (Tri-State), and Truckee Donner Public Utility
District (Truckee Donner) - are at issue.The Montana Power
transaction was for 30 MW of load following service from
June 1, 2001 through December 31, 2002.The transactions
with Tri-State were ten consecutive monthly agreements
beginning in November 2001 for spinning reserves.Finally,
the transaction wi th Truckee Donner was for 1. 7 MW of
spinning reserves for a 15-day period in August of 2002.
Why is there a PCA impact?
Because Idaho Power failed to file ancillary
services agreements between IE and the Company with the
FERC, the remedy proposed to the FERC by Idaho Power and IE
to resolve this shortcoming is to transfer all of the net
revenues realized by IE on its transactions with these three
parties back to Idaho Power.The Company has recorded these
net revenues in FERC Account No. 447, which is a PCA
account.
Where does the resolution of these ancillary
service agreements stand today?
For Tri-State and Truckee Donner, Idaho Power
will file with the FERC for the requisite approval of
agreements between Idaho Power and IE.Under the
anticipated settlement, all of the net revenues obtained
GALE, DI
Idaho Power Company
IE under its agreements with Tri-State and Truckee Donner
are to be transferred to Idaho Power.For the Montana Power
agreement, the proposed resolution is recision of the prior
assignment of this contract from Idaho Power to IE and an
unwinding of the IE-Idaho Power transaction.
Have you prepared an exhibit that details
these calculations?
Yes, page 1 of the previously mentioned
Exhibit 6 summarizes the PCA impacts , while pages 2 and 3
provide the backup support.
What is the pricing adjustment associated
with the Tri-State transaction?
Idaho Power will realize the full value
received by IE for the reserves sold to Tri-State.The
total valuation of the capacity payments under the
anticipated FERC settlement is $933,165 for the ten-month
period.$316,037 had previously been paid by IE to Idaho
Power, leaving a net settlement adjustment of $617 128.
What is the pricing adjustment associated
wi th the Truckee Donner transaction?
In this particular transaction, Idaho Power
realized the full value received by IE for the reserves.
The total is $5,730 for the 15-day period.This amount has
previously been paid to Idaho Power, leaving no requirement
for an additional adjustment.
GALE, DI
Idaho Power Company
What is the pricing adjustment associated
wi th the Montana Power load following agreement?
The proposed resolution of the Montana Power
load following agreement is the recision of Idaho Power
assignment of the Montana Power agreement to IE and the
unwinding of the IE-Idaho Power transaction.The unwinding
of this load following transaction requires the repricing of
both capacity and energy.The total of the capacity
payments under the anticipated FERC settlement is
$4,702,500.$3,722,100 had previously been paid by IE to
Idaho Power , leaving a net settlement adjustment of
$980,400.The unwinding also results in an additional
amount due Idaho Power as a result of repricing the energy
related to the load following.The energy sold to IE by
Idaho Power had been previously priced according to the
Supply Management Agreement.The calculations leading to
the net energy component are on page 3 of Exhibit No.
The net result of unwinding the energy component is an
addi tional settlement payment of $184,791 from IDACORP
Energy to Idaho Power.
Are there any additional PCA changes related
to the Supply Management Agreement between Idaho Power and
IE?
Yes.The Supply Management Agreement has not
been functional since August 1, 2002.Idaho Power is no
GALE , DI
Idaho Power Company
longer paying IE for supply management services, but instead
has incurred all the expenses necessary to bring the trading
acti vi ty back to the utility.Addi tionally, on March 17
2003 Idaho Power filed with the FERC to terminate the
agreemen t .Accordingly, the ongoing payments from IE to IPC
that are included in the PCA calculation are no longer
applicable or appropriate and should be discontinued after
April 1, 2003.Because the monthly value was recorded for
PCA purposes through March of 2003, there will be no impact
to the 2003/2004 PCA.
How does the PCA adjustment relate to another
Idaho Power Company docket that is presently open before
this commission, Case No. IPC-01-16?
Case No. IPC-01-16 (the -16 Case) concerns
the ongoing review of the relationship between IPC and IE.
Some of the issues in that case have been settled and some
have become moot as a resul t of termination of the
relationship between the two enti ties.This commission in
its Order No. 29102, issued on August 28, 2002 approved a
partial settlement of this docket related to risk management
and hedging issues and identified the key remaining issues.
In regard to the other issues remaining in
Case No. IPC-01-16, we direct the parties
to identify and attempt to resolve what
addi tional compensation is owed Idaho
GALE, DI
Idaho Power Company
Power s ratepayers for IE's use of the
transmission system and other capital
assets.The Commission is aware that
IDACORP recently announced it was winding
down the speculative electricity acti vi ties
of IE and instead focusing on processing
and transporting natural gas to wholesale
gas customers.We direct the parties to
identify and attempt to resolve any
remaining transfer pricing issues that are
not rendered moot by these changed
circumstances. "(Order No. 29102, pages 9
and 10).
The ancillary services, described in the FERC
settlement, address parts of the compensation envisioned by
the -16 Case.It is an area of overlap between this
commission s investigation and the FERC' s investigation.
The previously referenced quote from Order No. 29102
indicates that there are other -16 Case issues still to be
addressed, most notably related to transmission.The
Company believes that once the FERC settlement is final , the
remaining issues can be addressed expeditiously through the
16 Case docket.
Please summarize your testimony.
GALE, DI
Idaho Power Company
I am proposing that the anticipated FERC
settlement amount for the ancillary services (including the
energy repricing associated with the Montana Power
agreemen t ) be inc 1 uded in the 2 003 /2004 PCA.The total
compensation due to Idaho Power from IDACORP Energy related
to these three ancillary service agreements is $5,826,186.
Of this amount, $4, 043,866 had been previously paid to Idaho
Power and tracked through the PCA.The remaining $1,782,320
was booked to Account 447 in March of 2003, based upon my
recommendation at the time of this filing.The net
addi tional value accruing to the Idaho retail customers as a
result of the anticipated FERC settlement is $1,363,475.
Also, the ongoing credit of $166,667 per month to
retail customers should cease as of April 1, 2003 in
recognition that the Supply Management Agreement is no
longer in place.
Does that conclude your testimony?
Yes.
GALE, DI
Idaho Power Company