20040511Reply Comment of Simplot Co.pdf

Peter Richardson
Richardson & O'Leary PLLC
99 East State Street, Suite 200
O. Box 1849
Eagle, Idaho 83616
Telephone: [phone]
Fax: [phone]
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Attorneys for J .R. Simplot Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )IDAHO POWER COMPANY FOR
APPROVAL OF AN AGREMENT FOR SALE
AND PURCHASE OF ELECTRIC ENEGTY
BETWEEN IDAHO POWER COMPANY AND)
THE J.R. SIMPLOT COMPANY
CASE NO. IPC-04-
REPLY COMMENTS OF THE J.
SIMPLOT COMPANY
COMES NOW the J. R. Simplot Company, (Simplot), by and through its attorney of
record, Peter J. Richardson, and in response to the Comments of the Commission Staff dated
April 19, 2004, and submits the following Reply:
This matter is very similar to the facts facing the Commission when it approved the 17
MW contract between Idaho Power and Renewable Energy of Idaho. Idaho Power has asked the
Commission to take administrative notice of its Reply Comments on the use of the AURORA
model from that docket. Simplot will address Staff's AURORA model concerns here , but notes
that its comments are similar to the comments filed by Renewable Energy, the developer of a
MW Emmett Project.
Simplot's Reply Comments
While there are similarities between both this case and the Renewable Energy case, there
are also significant differences that provide additional support for the Commission s approval of
the Simplot agreement. The most significant of those differences is that, unlike the developer of
the 17 MW Emmett project, Simp lot has no intention of generating more than 10 MW of power
at Pocatello.
While it is true that the Simplot facility at Pocatello is capable of producing more than ten
megawatts of power, Simplot only plans to operate at a rate of no more than 7 to 8 MW s. In
order to generate more than the 7 to 8 MW it currently plans on generating, Simplot would have
to acquire additional supplies of natural gas - which is prohibitively expensive when it is
available. Simplot simply does not have access to economically available natural gas supplies
that are necessary to generate above ten megawatts. In the improbable event that the facility
does generate more than ten megawatts, the ratepayers will benefit because the price for such
Optional Energy" is the LESSER of the posted avoided cost rate or 85% of Mid-
It would have been imprudent for the parties to simply ignore the fact that the facility has
a nameplate rating greater than ten megawatts. In the unlikely event that, at some time during
the life of this agreement, Simplot does (for whatever reason) generate more than ten megawatts
it is simply prudent to have a vehicle in place for pricing that "Optional Energy.
A second major difference between the Simplot agreement and the Renewable Energy
agreement is that the Simplot agreement is only for a ten-year term. Any ratepayer risk of
improperly set rates is therefore cut in halfby the Simplot agreement.
Although Simplot is not able to split its project into two pieces and then ask for full
avoided cost rates, as Renewable Energy could, the fact remains that it could not do that, even if
Simplot's Reply Comments
it could be done physically because Simplot does not have the fuel source to run more than ten
megawatts.
Simplot understands Staff's concerns relative to Idaho Power s decision not to utilize the
AURORA model in evaluating the reasonableness of the rates it offered Simplot for the output of
its QF project. However, it appears that there is an ambiguity in whether the Settlement
Stipulation referenced in Staff's comments is still applicable. Based on Staff's comments it
appears that Idaho Power Company does not believe the settlement stipulation is still applicable
given the many dramatic changes in both Idaho Power s resource position and the electric
markets in general. For example, in its Order approving the Stipulation that calls for the use of
the AURORA Model this Commission observed:
Significant changes have swept through the electric industry since
we last examined the issue of contract length. The FERC has
mandated open access to the transmission system, thermal
technologies have improved gas prices are low, there is a
considerable surplus of energy available in this region resulting in
very low spot market prices for electricity and, finally, even the
continued existence of PURP A is being called into question.
Order No. 26576 at page 6, emphasis provided.
Significant changes" appear to be more the norm than the exception in the electric
industry. It seems that the electric industry has completely turned around since September 1996
when the Commission issued the above quoted order reducing the mandated contract period from
twenty years to five years. Now the region is in deficit, and Idaho Power in particular is
scrambling to acquire resources, particularly in the Treasure Valley. Idaho Power s apparent
belief that Order No. 26576 is no longer applicable is reasonable in light of the dramatic changes
the market has endured over the past two years. In addition, Idaho Power s belief that the
settlement agreement and Order No. 26576 were unique to the situation at the time (one
Simplot's Reply Comments
megawatt threshold and five year contract term) was justifiable and reasonable. In addition
running the AURORA model based on the amount of power Simplot proposes to generate would
produce meaningless results because the contracted-for amount of energy is based on less than
ten MW of capacity
Order No. 26576 clearly has an inherent ambiguity - that is, whether it is applicable to
the unique circumstances surrounding the creation of that Order or whether it is applicable in
today s radically different electric markets. Unfortunately for Simplot, the disagreement
between Staff and Idaho Power caused by that ambiguity has caused Simplot to be caught in the
cross-fire between the well-intentioned Staff and Idaho Power Company. Simplot and Idaho
Power have been in negotiations over the rates and terms contained in the Agreement before the
Commission for over a year at a cost of many thousands of dollars to Simplot. Many
concessions were made on Simplot's part to expedite the process. In fact, there are provisions in
the agreement that Simplot's counsel objects to, but Simplot choose to live with those provisions
in order to avoid delay caused by seeking Commission guidance on those contract provisions.
The reason for Simplot's acquiescence is that time is critically important. As the Commission
knows, this facility is on line and currently operating. It is being operated under two band aid
letter agreements that Staff objects to. Simplot urges the Commission to approve this agreement
based on the good faith efforts of both Idaho Power and Simplot. If the Commission believes the
AURORA model and process adopted in Order No. 26576 remains applicable, it should declare
it to be applicable for future contracts and not apply it retroactively to Simplot's agreement with
Idaho Power.
The Commission expressed its displeasure with Idaho Power s failure to run and apply
the AURORA model in the Renewable Energy order. This agreement was being negotiated and
Simplot's Reply Comments
executed at the same time as the agreement with Renewable Energy. The Commission approved
the Renewable Energy agreement noting that the Staff had found the rates to be "not necessarily
unreasonable." The staff has reached that same conclusion here. The contract before the
Commission is written such that if the Commission fails to approve it as written it becomes void.
Idaho Power s obligation to purchase is based on PURP A and it has advised Simplot that without
full ratemaking treatment of the costs associated with this agreement, it will not purchase
Simplot's power.
Once again, the Commission is faced with the situation where an innocent developer is
caught in the cross-fire between the Staff and Idaho Power.
CONCLUSION
Simplot appreciates Staff's concerns. Staff has a difficult job to do and must fulfill its
mandate to insure that the utilities operating under the Commission s jurisdiction do so in full
compliance with all of the Commissions rules and regulations. It is Simplot's hope , however
that this Commission look to the spirit and intent of those orders as well. Staff noted in their
comments that
, "
The contract prices developed by Idaho Power are not necessarily
unreasonable.
With all due respect to the Commission s Staff, Simplot urges this Commission to once
again exercise its discretion and approve the Contract before it. Should the Commission
determine that additional clarification of its prior orders is called for, then that process may
proceed - but without putting Simplot in the center of a dispute, not of its making, between Staff
and the Idaho Power Company. The Commission s wise decision in the Renewable Energy case
provides ample guidance for approving the Simplot agreement and then allowing the Company
and Staff to work out their differences relative to the AURORA model.
Simplot's Reply Comments
DATED this day of May, 2004.
Simplot's Reply Comments
Richardson & O'Leary P.
By 19
-Vbs 0-
Peter Richardson
Attorneys for J. R. Simplot
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on May 11 , 2004, I served the foregoing Reply Comments of the
R. Simplot Company as indicated below:
Ms. Jean Jewell
Idaho Public Utilities Commission
472 W. Washington
PO Box 83720
Boise, Idaho 83720-0074
( )U.S. Mail, Postage Prepaid
(x )Hand Delivered
)Overnight Mail
)Facsimile
Scott Woodbury
Idaho Public Utilities Commission
472 W. Washington
PO Box 83720
Boise, Idaho 83720-0074
swoodburv~puc.state.id. us
( ) U.S. Mail, Postage Prepaid
(x) Hand Delived
( )
Overnight Mail
( )
Facsimile
( )
Electronic Mail
Barton L. Kline
Monica Moen
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
bk1ine~idahopower. com
mmoen~idahopower. com
(x ) U.S. Mail, Postage Prepaid
( )
Hand Delivered
) Overnight Mail
) Facsimile
) Electronic Mail
Signed CJ (Y\ C0v\
Nina M. Curtis
Simplot's Reply Comments